Shirish C. Parikh vs ITO

Ms. Harshadevani, J.—By this petition under Art. 226 of the Constitution of India, the petitioner has challenged the notice dt. 30th March, 2001 issued by the respondent u/s 148 of the IT Act, 1961 (the Act) reopening the petitioners, assessment for the asst. yr. 1991-92.

The petitioner, an individual, filed his return of income for the asst. yr. 1991-92 declaring total income of Rs. 83,400. The case of the petitioner was selected for scrutiny assessment and the assessment came to be framed on 28th Jan., 1994 u/s 143(3) of the Act at a total income of Rs. 1,26,120.

Thereafter, the petitioner received the impugned notice dt. 30th March, 2001 reopening the assessment for the asst. yr. 1991-92. The petitioner requested the respondent to supply the reasons recorded by him for reopening the assessment, pursuant to which a copy of the reasons recorded came to be furnished. Upon perusing the reasons recorded, according to the petitioner the respondent had no jurisdiction to reopen the assessment, he, therefore, filed the present petition challenging the aforesaid notice.

Mr. sectionN. Soparkar, senior advocate, learned counsel for the petitioner submitted that in the present case the impugned notice has been issued on 30th March, 2001 in relation to asst yr. 1991-92 which is clearly beyond a period of four years from the end of the relevant assessment year. It was submitted that an assessment framed u/s 143(3) of the Act can be reopened beyond a period of four years if and only if an income chargeable to tax has escaped assessment by reason of failure on the part of the petitioner: (i) to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148; or (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year. It was submitted that, admittedly, the first situation is not present in this case. It was further submitted that on a perusal of the reasons recorded, it is apparent that there is no allegation to the effect that the petitioner has not disclosed fully and truly all material facts necessary for his assessment, and as such, the second situation is also not satisfied. Hence, the very assumption of jurisdiction by the AO u/s 147 of the Act is invalid.

Referring to the reasons recorded, it was submitted that according to the respondent the receipts filed by the petitioner showing deposit of amounts with two parties could not prove the investment made in the purchase of flat and that evidence like purchase deed etc. was not obtainable on record. Inviting attention to the statement of income submitted by the petitioner at the time of the original assessment, Mr. Soparkar pointed out that it was clearly stated therein that the petitioner had purchased a flat at Shreeji Apartment, Near Law Garden, Ahmedabad. It was submitted that before an assessment is framed there are two stages when documents or other material are to be submitted by the assessee. At the first stage while filing the return of income, when the assessee is required to furnish all the information and documents as required under the Act and the rules framed thereunder. At the second stage, if the AO during the course of assessment proceedings calls for any further information or production of documents the assessee is required to furnish the same. It was submitted that the test of full and true-disclosure has to be considered in the light of the relevant statutory provisions. It was submitted under the IT Act or the rules framed thereunder there is no obligation cast on the petitioner to submit purchase deed while claiming exemption u/s 54 of the Act. The calculation of capital gains by the petitioner in the statement of income submitted by him clearly shows purchase of property for Rs. 4,15,000 in respect of which exemption had been claimed u/s 54 of the Act. It was submitted that during the course of original assessment proceedings the petitioner had produced proof to the satisfaction of the then AO who had accordingly allowed the exemption u/s 54 of the Act. According to the learned counsel to sustain an allegation of failure there has to be an obligation cast on the petitioner to submit purchase deed while filing return or during the course of assessment proceedings. There being no such obligation, it cannot be said that there was any omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment.

Opposing the petition Mr. M.R. Bhatt, senior advocate, learned counsel for the respondent invited attention to the reasons recorded, to submit that the petitioner had merely submitted two receipts showing that he had deposited an amount of Rs. 4,15,000 with two different parties, which were not sufficient to prove the investment made for purchase of flats. It was submitted that by not producing supporting evidence like purchase deed, etc., evidencing proof of purchase of the fiat in support of his claim for exemption of the said amount u/s 54 of the Act, the petitioner had failed to disclose fully and truly all material facts necessary for his assessment and as such, the AO is justified in invoking the provisions of section 147 of the Act, even beyond the period of four years from the end of the relevant assessment year.

In the present case, the original assessment came to be framed u/s 143(3) of the Act and admittedly the assessment is sought to be reopened after the expiry of a period of four years from the end of relevant assessment year, hence, the proviso to section 147 of the Act would clearly be attracted. In the circumstances for the AO to assume valid jurisdiction u/s 147 of the Act, two conditions precedent are required to be satisfied. Firstly, that income chargeable to tax has escaped assessment; and secondly, that such escapement is by reason of failure on the part of the petitioner to (i) make a return u/s 139 or in response to notice issued under sub-section (1) of section 142 or section 148; or (ii) disclose fully and truly all material facts necessary for his assessment for that assessment year. In the present case, admittedly the first situation does not exist. In the circumstances, for the purpose of assumption of valid jurisdiction on the part of the AO, he should have reason to believe that income chargeable to tax has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment.

In the light of the aforesaid legal position, what is required to be examined is as to whether there was any failure on the part of the petitioner to disclose full and true material facts which has resulted into escapement of income. In this regard, a perusal of the reasons recorded indicates that the sole ground on which assessment is sought to be reopened is that the petitioner had been allowed exemption of Rs. 4,15,000 for the purchase of a residential house while computing his income, and that, in support of such purchase the petitioner had produced receipts showing deposit of the said amount with two different parties, viz., M/s Gopinath Corporation and M/s Shreehari Association. According to the respondent, since the receipts filed could not prove the investment made for purchase of flat, and also no evidence like purchase deed, etc., was obtainable on record, the same amounts to failure on the part of the petitioner to disclose fully and truly all material facts.

The question that, therefore, arises for consideration is as to whether not furnishing the purchase deed, etc., at the time of the original assessment amounts to omission or failure to disclose full and true material facts as contemplated under the proviso to section 147 of the Act. The material on record indicates that the petitioner had, in his return of income, claimed exemption u/s 54 of the Act on the ground that he has purchased a flat at Shreeji Apartment, near Law Garden, Ahmedabad. In the statement of income filed along with the return, the petitioner had stated the description of the property as well as the purchase price. u/s 54 of the Act, if in the case of an assessee the capital gain arises from transfer of a long-term capital gain (sic--asset) as envisaged under the said provision and the assessee within a period of one year before or two years after the date on which the transfer took place, inter alia has purchased a residential house, then to that extent the capital gain shall not be charged u/s 45 of the Act. A perusal of the prescribed return form as existing at the relevant time and the notes thereto indicates that there was no requirement of producing any document like purchase deed etc. at the time of assessment proceedings in support of a claim for exemption u/s 54 of the Act. In respect of his claim for exemption u/s 54 of the Act the petitioner in the statement of income had stated the material facts, namely, that the petitioner had purchased flat at Shreeji Apartment, Near Law Garden, Ahmedabad for Rs. 4,15,000. It appears that at the time of original assessment, the petitioner has produced proof of payment by submitting receipts of two parties, (1) M/s Gopinath Corporation and; (2) Shreehari Association. The AO, at the relevant time, on the basis of the material produced by the petitioner, has accepted the claim for exemption u/s 54 of the Act.

From the language employed in section 147 of the Act, it is evident that what is required to be submitted is material facts. In the present case, as noted hereinabove, the material facts, namely, purchase of flat for Rs. 4,15,000 along with other details like location and description of the flat have been stated in the statement of income submitted along with the return. Proof of payment of the aforesaid sum had been produced by way of two receipts issued by M/s Gopinath Corporation and Shreehari Association. According to the respondent the petitioner had not produced material facts by way of proof of investment and purchase deed etc. As noted hereinabove, the section requires furnishing of material facts and not submission of proof thereof. In fact wherever proof of a transaction or a claim is required to be furnished, the Act and the Rules impose an obligation on the assessee to produce the same. In respect of a claim u/s 54 there is no such requirement. It appears that the respondent has mixed up the requirement of submitting material facts with submission of proof. In the opinion of this Court, submission of proof cannot be equated with furnishing of material facts and as such, the contention raised on behalf of the Revenue that the assessee has failed to disclose fully and truly all material facts necessary for- assessment as he had not submitted the proof of investment made for the purchase of flat as well as purchase deed, does not merit acceptance.

Moreover, in the entire reasons recorded, except for stating that the receipts filed could not prove investment of purchase of flat and that no evidence like purchase deed etc. was obtainable on records, there is not even a whisper to the effect that there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for that assessment year. The reasons recorded do not speak of any obligation on the petitioner to produce such documents or that by not producing the same the petitioner had failed to disclose full and true material facts. All that is stated that in absence of the said documents exemption granted u/s 54 of the Act was inadmissible. In the affidavit-in-reply it has been averred that the petitioner had not disclosed fully and truly all material facts in support of his claim for claiming exemption u/s 54 of the Act. However, no foundation is laid in respect of the said averment in the reasons recorded. Moreover, as noted hereinabove, the petitioner was required to state material facts in respect of the claim for exemption u/s 54 of the Act which he had duly stated, hence, merely because the AO who has sought to reopen the assessment finds the proof submitted by the petitioner at the time of assessment proceedings to be not sufficient for the purpose of admitting the claim, it cannot be said that there was any failure on the part of the petitioner so as to invoke the provisions of section 147 of the Act. The impugned notice u/s 148 of the Act, therefore, cannot be sustained.

For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dt. 30th March, 2001 issued u/s 148 of the Act for the asst. yr. 1991-92 (Annexure A to the petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.