Rajan P. Shah and Nilavati P. Shah vs Income Tax Officer

M.B. Shah, J.—In these petitions, the notice dated August 11, 1981, issued by the Income Tax Officer, Circle IIB (Spl.), Surat, u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), is challenged on the ground that the said notice is illegal and without jurisdiction as the petitioners in both the petitions have disclosed the true facts at the time of completion of assessment proceedings for the year 1973-74.

These two petitions are heard together because they are based on the same facts. The petitioner (Shri Rajan P. Shah) in Special Civil Application No. 4057 of 1981, is the son of the petitioner (Smt. Nilavati P. Shah) in Special Civil Application No. 4058 of 1981. These petitions pertain to the assessment year 1973-74.

The petitioners submitted their return u/s 139 of the Act along with the statement of total income (annexure-A) and copies of accounts in the firm of M/s. V. Raj and Co., with a footnote that for construction of the building at Nargole, the amount stated therein was withdrawn. The Income Tax Officer, Central Circle-II, Ahmedabad, passed an order dated March 5, 1976, u/s 143(3) of the Act. That order Specifically states that the assessee had property income, share income from firms and interest income. Property income (S. O.) is shown as Rs. 100. In the return submitted by Smt. Nilavati P. Shah, it is specifically mentioned that the assessee had withdrawn Rs. 18,855 from her account with M/s. V. Raj and Co., for construction of a building at Nargole towards her one-half share of the cost with her son, Rajan. Similarly, in the return submitted by Shri Rajan P. Shah, it is mentioned that he had withdraw Rs. 18,855 from his account with M/s. V. Raj and Co., for construction of the house at Nargole.

At this stage, it should be mentioned that for the assessment year 1972-73, the Income Tax Officer, Circle II, Surat, has issued a notice u/s 148 of the Act upon the assessee on January 18, 1977. After hearing the assessee, the Income Income Tax Officer accepted the report of the Valuation Officer dated May 12, 1976, that the cost of construction of the house at Nargole worked out scientifically at Rs. 42,000 for the assessee''s share exclusive of the investment of Rs. 4,800 for purchase of the land. On that basis, revised assessment order was issued by the Income Tax Officer on January 9, 1978. That order was set aside by the Appellate Assistant Commissioner of Income Tax, Surat Range, Surat, by an order dated October 10, 1980, mainly on the ground that the construction of the building in question was not completed during the assessment year 1972-73 and that the assessee had mentioned in the return for the assessment year 1972-73 that a sum of Rs. 3,351 was spent on purchase of cement and iron bars, etc., towards joint property to be constructed by the assessee along with her son and as such proceedings u/s 147 of the Act were not legal and the Income Tax Officer was not justified in treating the sum of Rs. 19,211 as the Assessee''s income from undisclosed sources. Subsequently, for the assessment year 1973-74, the impugned notice dated August 11, 1981, u/s 148 of the Act was issued on the ground that income chargeable to tax for the assessment year 1973-74 has escaped assessment within the meaning of section 147 of the Act.

As stated above, the aforesaid notices are challenged in these petitions. At this time of admission, this court has granted interim relief to maintain status quo.

The learned advocate for the petitioner vehemently submitted that the notice issued by the respondent is on the face of it illegal and without jurisdiction because, in the notice, the respondent has merely stated that he has reason to believe that income chargeable to tax for the assessment year 1973-74 has escaped assessment and, therefore, he proposed to reassessee the same without arriving at the conclusion that the petitioners have failed to disclose fully and truly all material facts necessary for the assessment for that year.

It is an admitted fact on record that, while submitting the return for the assessment year 1973-74, the petitioners have specifically mentioned that the (S. O.) property income at Nargole was Rs. 120 or Rs. 100 and that it was constructed by withdrawing some amounts from a firm, and the assessment order was passed u/s 143(3) of the Act. That means it was passed after hearing the assessee and considering such other evidence as the Income Tax Officer may require on specific points and after taking into account all the relevant materials which he had gathered. The assessee had disclosed the place where the building was constructed and had also stated the amount spend on it. The Income Tax Officer has accepted the said return submitted by the assessee. Under these circumstances, it cannot be said that the assessee had omitted or failed to disclose fully and truly all material facts necessary for the assessment for that year. At the relevant time, the Income Tax Officer ought to have varified whether the statement submitted by the assessee was correct or not.

With regard to exercise of jurisdiction by the Income Tax Officer u/s 148 of the Act, the law is well settled. Still, however, it is appropriate to reproduce certain observations by the Supreme Court in the case of Parashuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle I, Ward A, Rajkot, as under :

"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchanger and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issued should not be reactivated beyond a particular stage and that lapse of time must induce response in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the Income Tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment u/s 147 of the Act of 1961, after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment."

Further, in the case of Indian Oil Corporation Vs. Income Tax Officer, Calcutta and Others, , after considering all the relevant judgments, the court has held as under (at page 970 of 159 ITR) :

"As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was ''omission or failure to disclose fully and truly all material facts necessary for the assessment of the year''. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, an obligation is to disclose facts; secondly, those which are material; thirdly, the disclosure must be full and, fourthly, true. What facts are materials and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority has to draw inferences as to certain other facts. But, on the primary facts, it is for the taxing authority to draw the inferences. It is not necessary for the assessee to draw inferences for him. See in this connection, the observations in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, ."

In view of the aforesaid settled law, in our view, it cannot be said that the petitioners in both the petitions have not disclosed the primary facts fully and truly for the assessment year 1973-74 so as to give jurisdiction to the Income Tax Officer to issue a notice u/s 148 of the Act. The petitioners had disclosed the primary facts that they have constructed jointly a house at Nargole after withdrawing certain amounts from the firm named V. Raj and Company. At the time of assessment u/s 143 of the Act, the Income Tax Officer ought to have verified whether the statement made in the returns for the cost of construction of the house at Nargole was understatement or not. It he had any doubt, he has to call for a valuation report at that time.

In the result, these petitions are allowed. The Notice issued on each petitioner on August 11, 1981, u/s 148 of the Act is quashed and set aside. The respondent is restrained from taking any further action in pursuance of the said notice. Rule is made absolute in each petition accordingly with no order as to costs.