Smt. Raj Rani Gulati vs Union of India (UOI) and Another

Rajes Kumar, J.—Heard Sri S.D. Singh, learned Counsel for the Petitioner and Sri R.K. Upadhyaya, learned standing counsel appearing on behalf of Respondent No. 2.

By means of the present writ petition, the Petitioner is challenging the 2 validity of notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") and initiation of the proceeding under Sections 147 of the Act for the assessment year 2001-02. The notice u/s 148 of the Act is dated 11-3-2006, admittedly issued beyond the period of four years. The period of four years expired on 31-3-2006.

The Petitioner was regularly filing returns in the status of individual. For the assessment year 2001-02, the Petitioner has filed the return on 31-3-2001, disclosing the total income of Rs. 13,30,910. Out of the total income disclosed, the Petitioner has disclosed a sum of Rs. 12,37,859 towards capital gain arising from the sale of 16,000 equity shares of M/s. Viraj Credit Capital Limited through M/s. J.R.D. Stock Brokers (P) Limited, Dariyaganj, New Delhi. During the course of assessment proceedings, a notice was issued by the assessing authority u/s 143(2)/142(1) of the Act asking the Petitioner to furnish the details relating to the bank account, purchase and sale of shares and certificate from the stock brokers. The same were produced by the Petitioner. On submission of those documents, the assessing authority has issued a letter dated 11-3-2004 to M/s. J.R.D. Stock Brokers Private Limited, Dariyaganj, New Delhi and after getting the said transactions verified, the claim of the Petitioner has been accepted, vide order dated 25-3-2004, which reads as follows:

Return on total Income of Rs. 13,30,910 was filed on 31-10-2001. The same is processed u/s 143(1) on the returned income on 16-1-2003.

In response to notice u/s 143(2)/142(1) Shri Kanchan Khanna CA, attended from time to time and submitted required details. The case was discussed with him. Details of bank accounts, evidence regarding purchase and sale of shares and certificates from stock broker were produced before me by the Assessee. During the year under consideration the Assessee has sold 16,000 of equity shares of M/s. Viraj Credit Capital Ltd. and has shown the capital gains of Rs. 12,34,006. Necessary evidence regarding this transaction was produced and was verified by me.

Vide my letter dated March 11, 2004 to M/s. JRD Stock Brokers Pvt. Ltd., Darya Ganj, New Delhi. It was required from them to confirm the sale of shares of M/s. Viraj Credit Capital Ltd. M/s. JRD Stock Brokers Pvt. Ltd. vide their letter dated March 16, 2004, had confirmed that they have sold the 16,000 shares of M/s. Viraj Credit Capital Ltd. belonging to Smt. Raj Rani Gulati, Saresh Bagh, Kanpur and had made the payment through banking mode and in confirmation of this sale of shares and payment the broker has also enclosed a statement of accounts, which is open to verification.

In the light of the above discussion the assessment is completed on the returned income at Rs. 13,30,910. Issue ND.

It appears that a search and seizure operation took place at the premises of M/s. JRD Stock Brokers Pvt. Ltd., Darya Ganj, New Delhi on 24-11-2002, and statement of Sri Ashok Gupta, director of the company was recorded. In pursuance of the search, assessment u/s 158BC of the Act was also made in the case of M/s. JRD Stock Brokers Pvt. Ltd. On the basis of the statement of Sri Ashok Gupta, director of M/s. JRD Stock Brokers Pvt. Ltd., Darya Ganj, New Delhi, the assessing authority recorded reasons and issued notice u/s 148 of the Act, which reads as follows:

The return of income for the assessment year 2001-02 was filed on 31-10-2001, declaring total income of Rs. 13,30,910 and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 on total income of Rs. 13,30,910 on 25-3-2004.

After completion of the said assessment, a copy of block assessment order passed by ACLT, CC-19, New Delhi u/s 158BC of the Income Tax Act, 1961 in the case of M/s. JRD Stock Brokers (P) Ltd., New Delhi, through whom the Assessee had shown to have purchased the shares of M/s. Viraj Credit Capital Ltd., Lucknow, was received in this office, vide his letter F. No. ACIT/CC-19/05-06/177 dated 30-8-2005. A perusal of the said block assessment order revealed that the claim of the Assessee regarding long-term capital gains on sale of shares of M/s. Viraj Credit Capital Ltd., is fictitious.

The Assistant Commissioner of income tax, Central Circle-19, New Delhi while passing the aforesaid block assessment order in the case of M/s. JRD Stock Brokers (P) Ltd., New Delhi, has, inter alia, held in para 3 as under:

Shri Ashok Gupta, director of M/s. JRD Stock Brokers (P) Ltd., admitted in his sworn statement u/s 132(4) that as a matter of fact, there was no actual purchase or sale of shares as reflected in such type of contract notes, which were just prepared to provide the accommodating entries. The amount of desired profit as mentioned in the contract note formed the basis of issuing the cheque of the said amount so as to give the colour of actual gain in shares to the interested party.

The aforesaid finding of the assessing officer clearly shows that the transaction of the so-called sale of shares of M/s. Viraj Credit Capital Ltd., Lucknow was fictitious. The said block assessment order passed in the case of M/s. JRD Stock Brokers (P) Ltd., New Delhi was not available while completing the assessment u/s 143(3) of the Income Tax Act, 1961, in the case of the Assessee.

In view of the above, it is apparent that the claim of the Assessee regarding long-term capital gains on sale of shares of M/s. Viraj Credit Capital Ltd. is fictitious and it was the Assessees own unexplained money which was routed through the broker by showing the alleged bogus sale of shares. The Assessee had failed to disclose fully and truly all material facts necessary for his assessment in respect of the aforesaid claim of long-term capital gains, which has been found to be bogus as a result of enquiries made in the case of the stock broker M/s. JRD Stock Brokers, New Delhi. The sale consideration shown by the Assessee on the aforesaid bogus sale of shares is Rs. 14,91,320 which is clearly the Assessees own unaccounted money routed through the broker by showing the aforesaid bogus sale of shares.

In view of the above, I have reason to believe that income chargeable to tax amounting to Rs. 14,91,320 has escaped assessment for the assessment year 2001-02 within the meaning of the provisions of Section 147 of the Income Tax Act, 1961, by reason of the failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment for the aforesaid assessment year.

Learned Counsel for the Petitioner mainly submitted that, admittedly, the notice was issued beyond the period of four years. He submitted that in view of the proviso to Section 147 of the Act notice u/s 148 of the Act can be issued beyond the period of four years in a situation where there is failure on the part of the Assessee 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 to disclose fully and truly all material facts necessary for his assessment, for that assessment year. He submitted that none of the aforesaid situation is available in the present case. In the present case, the Assessee had filed return and had disclosed fully and truly all material facts necessary for his assessment, particularly in respect of the sale of 16,000 equity shares and the inquiry in respect thereof has been made in detail by the assessing authority. The present case is not a case of non-disclosure of fully and truly material facts on the part of the Assessee and, therefore, limitation available to initiate the proceeding u/s 148 of the Act was only four years and not beyond the period of four years. Learned Counsel for the Petitioner further argues that the statement of Sri Ashok Gupta, which has been relied upon by the assessing authority to initiate the proceeding is of general nature. There is nothing in the statement to show that such statement was relating to the Petitioners transactions and such statement does not constitute the material to form the belief to initiate the proceeding.

Sri R.K. Upadhyaya, learned standing counsel submitted that the notice u/s 148 of the Act has been issued on the basis of the statement given by Sri Ashok Gupta, in which he has stated that there was no actual purchase and sale of shares as reflected in such type of contract notes, which were just prepared to provide the accommodating entries. On the basis of such statement, the assessing authority has inferred that the transaction was fictitious and, therefore, there was a material to form a belief that there was escaped assessment. On the query being made as to what material fact was not disclosed by the Assessee, which was necessary for the assessment, he was not able to tell any such material.

We have heard learned Counsel for the parties and have considered the rival submissions.

Section 147 of the Act reads as follows:

If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment years):

Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the Assessee 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 to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that the assessing officer may assess or reassess such income, other than the income involving matters which are the subject-matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1.--Production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.--For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:

(a) where no return of income has been furnished by the Assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax ;

(b) where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the assessing officer that the Assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but--

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Explanation 3.--For the purpose of assessment or reassessment under this section, the assessing officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under Sub-section (2) of Section 148.

We are of the view that the proceeding is patently barred by limitation. Under the proviso to Section 147 of the Act notice u/s 148 of the Act can be issued beyond the period of four years only in a situation where there is failure on the part of the Assessee to disclose all material facts necessary for the assessment. Unless such case is made out, no notice beyond the period of four years can be issued. We have gone through the findings recorded by the assessing authority in the assessment order. The findings recorded by the assessing authority in the assessment order reveal that the Assessee has furnished complete details relating to the sale of 16,000 equity shares of M/s. Viraj Credit Capital Limited through M/s. J.R.D. Stock Brokers (P) Limited, Dariyaganj, New Delhi and on the basis of the material furnished, the assessing authority has also made necessary enquiry and, therefore, we are of the view that there was no failure on the part of the Assessee to disclose fully and truly the material in respect of 16000 equity shares of M/s. Viraj Credit Capital Limited through M/s. J.R.D. Stock Brokers (P) Limited, Dariyaganj, New Delhi and, therefore, the limitation available for initiation of proceeding was only four years. In the present case, the notice issued on 11-5-2006 u/s 148 of the Act, was beyond four years and, thus barred by limitation.

In the result, the writ petition is allowed. The notice dated 11-5-2006 u/s 148 of the Act and the consequential proceedings are hereby quashed.