Commissioner Of Income Tax vs H.S. Chauhan High Court Of Delhi
1991 Latest Caselaw 312 Del

JUDGMENT

M.C. Jain, C.J.

1. The Income-tax Appellate Tribunal, Delhi Bench A has referred the following questions of law for the opinion of this Court which arose out of the order of the Tribunal in respect of asst. yr. 1948-49 :

"1. Whether the Tribunal was legally correct in taking into consideration only the escaped income of Rs. 42,000 for the asst. yr. 1948-49 and in ignoring the escaped income for other years, thereby ignoring the provisions of cl. 2 of proviso to s. 34(1) of proviso to s. 34(1) of the Indian IT Act, 1922 ?

2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law for holding that the ITO had no jurisdiction to initiate action under s. 147(a) of 1961 Act for the asst. yr. 1948-49 ?"

2. After the assessment of the assessed for the year 1948-49, reassessment proceedings were opened under s. 147(a) on the basis of proposals made by the ITO on 11th February, 1964. The Tribunal held that the reopening of the assessment for the year 1948-49 was invalid and the ground given by the Tribunal is that the income escaped assessment is only Rs. 42,000 and so there was no material with the ITO to reopen assessment under s. 34(1) second proviso of the Indian IT Act, 1922. The Tribunal proceeded to consider the matter in the manner that whether the ITO had material to form the belief that the income that had escaped assessment for two years is Rs. one lac or more. According to the Tribunal the assessment orders for the yrs. 1947-48 and 1948-49 became vulnerable. We need not consider the question regarding assessment for the yr. 1947-48.

So far as the assessment for the yr. 1948-49 is concerned, the Tribunal expressed that only an amount of Rs. 62,000 relates to the yr. 1948-49 and on further examination a sum of Rs. 22,000 is found to be related to the asst. yr. 1946-47. Therefore the income which had escaped assessment for the year 1948-49 is only a sum of Rs. 42,000 and as such the assessed's assessment could not be reopened under s. 34(1) proviso second. Whether this view of the Tribunal is correct having regard to the provisions contained in second proviso to sub-s. (1) of s. 34 of the IT Act 1922. The relevant provisions of s. 34 reads as under :

"34. Income escaping assessment. - (1) If -

(a) the ITO has reason to believe that by reason of the omission or failure on the part of an assessed to make a return of his income under s. 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessed, the ITO has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,

he may in cases failing under cl. (a) at any time and in cases falling under cl. (b) at any time within four year of the end of that year, serve on the assessed, or, if the assessed is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :

Provided that the ITO shall not issue a notice under cl. (a) of sub-s. (1) -

xxx xxx xxx xxx xxx

(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under - assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March 1941;"

3. A bare reading of the second proviso would reveal that the ITO has jurisdiction to reopen assessment when he has material to believe that the income chargeable to Income-tax which has escaped assessment amounts to or likely to amount to one lac of rupees or more in the aggregate either for that year or for that year and any other year or years after which or after each of which eight years have elapsed. When the income chargeable to income-tax which has escaped assessment even when it is likely to amount to one lac of rupees or more in the aggregate, the ITO has jurisdiction to initiate proceedings under s. 34 of the IT Act, 1922.

4. To us it appears that the Tribunal did not take into consideration the aforesaid underlined words or expression occurring in the second proviso to sub-s. (1) of s. 34. It may be stated that after initiation of proceedings under s. 34, the final outcome of the proceedings may be nil. It may be found that no income had escaped assessment. That does not mean that the ITO had no jurisdiction to initiate proceedings when he has material to form a belief that the income that has escaped assessment is likely to amount to rupees one lac or more in the aggregate.

5. We are supported in this view of the matter by the decision of the Calcutta High Court in Manak Chand Nahata vs. ITO . The learned Judge of the Calcutta High Court considered the matter as under :

"In my view, the contention of Mr. Sen is without any merit. The expression "likely to amount to", in my view, means that the ITO must form kind of belief or even a suspicion before the notice under s. 34 is issued that the amount of escaped income for the year or any other year may amount to rupees one lakh or more in the aggregate. The satisfaction or belief or suspicion must necessarily be tentative because after the final adjudication it may be found that no income had escaped assessment at all. This is the context and background in which the expression "likely to amount" is to be considered. Mr. Sen did not contest the position that unless the factual basis, viz., that the amount of actual income was likely to exceed rupees one lakh, could be established, the Revenue could not possibly get out of the mischief of the decision of the decision of the Supreme Court which I have mentioned above."

This was a matter under s. 34 of the IT Act, 1922. A similar view has been taken by Punjab & Haryana High Court in respect of the provisions contained in s. 149 of the IT Act, 1961. The decision is reported in Fateh Chand Jairam Dass vs. CIT (1973) 88 ITR 226 (P&H). It was held in this case that the language of sub-cl. (2) of s. 149 of the IT Act 1961 is very clear that where the ITO has reasonable ground to believe that the income likely to have escaped assessment would be more than rupees fifty thousand he may issue a notice under s. 149. The reassessment proceedings would be valid even if ultimately the assessed income is less than rupees fifty thousand. Reliance has been placed in this decision on the Calcutta decision (supra).

6. Our answer to the question No. 1 is, therefore, in the negative, in favor of the Revenue and against the assessed.

7. So far as question No. 2 is concerned, answer to question No. 2 is dependent on answer to question No. 1. When once it is found that the ITO had jurisdiction in initiate proceedings under second proviso to s. 34(1), then the ITO shall have jurisdiction to initiate action under s. 147(a) of the 1961 Act for the asst. yr. 1948-49.

8. Our answer to question No. 2 is, therefore, also in the negative, i.e., in favor of the Revenue and against the assessed.