1986 (12) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Commissioner had jurisdiction to revise the assessment order made under section 147.
2. Whether there were materials to support that two businesses, Pillai Enterprises and Sagar Enterprises, really belonged to the assessee.

Issue 1: Jurisdiction of the Commissioner to Revise Assessment Order under Section 147

The Commissioner issued a notice for revising the assessment under section 263 on 7-10-1985. The provision enabling the Commissioner to revise the assessments were amended by the Taxation Laws (Amendment) Act, 1984, effective from 1-10-1984. Before this amendment, sub-section (2) of section 263 barred the revision of an order of reassessment made under section 147. This bar was removed from 1-10-1984.

The assessee's counsel argued that assessments under section 147 completed before 1-10-1984 were immune from revision under section 263, as the law stood then. He relied on the Bombay High Court's decision in Seimens India Ltd. v. State of Maharashtra [1986] 62 STC 40, which emphasized the distinction between substantive and procedural laws. The Supreme Court's decision in S.C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 reinforced that a vested right accrues to an assessee when the remedy against him is barred by the existing law of limitation, and this right cannot be taken away by a subsequent amendment unless expressly stated.

The department's counsel argued that the amendment was procedural and relied on the Supreme Court's observation in CIT v. National Taj Traders [1980] 121 ITR 535, stating that procedural laws do not confer vested rights. He also cited the Gujarat High Court's decision in CIT v. Ochhavlal Laljibhai Dharia [1980] 125 ITR 301 to support that procedural amendments can apply retrospectively.

The Tribunal concluded that the law on the point was well settled by the Supreme Court's decision in S.C. Prashar's case, which established that a vested right against reopening an assessment cannot be affected by an amendment unless expressly stated. Since the assessments in question were completed before 1-10-1984, the Commissioner did not have jurisdiction to revise them under section 263.

Issue 2: Materials Supporting the Ownership of Businesses by the Assessee

The Commissioner believed that the assessments were erroneous and prejudicial to the interests of revenue because the ITO failed to consider whether Pillai Enterprises and Sagar Enterprises were concerns of the assessee. The Commissioner issued notices to the six partners of the dissolved firm, and after hearing the parties, found prima facie evidence suggesting that the assessee had income from these enterprises.

The Tribunal examined the statements and evidence collected by the department. One partner, Sathaiah, admitted that the firm conducted business under the names Sagar Enterprises and Pillai Enterprises. His son, Ganesh, also mentioned unrecorded profits from the firm. Another partner, Sambaiah, initially denied any business in these names but later admitted to maintaining duplicate books of accounts reflecting real profits.

The Tribunal noted conflicting statements among the partners but found corroborative evidence supporting the department's case. Vaidyanathan, an employee, confirmed that transactions in his name were actually for the firm. The Tribunal also considered the voluntary disclosure schemes by Sathaiah and Ganesh, which mentioned Pillai Enterprises and Sagar Enterprises as part of the assessee's group.

Despite the conflicting statements, the Tribunal found substantial evidence supporting the department's claim that the businesses were benami concerns of the assessee. However, since the Tribunal held that the Commissioner lacked jurisdiction to revise the assessments under section 263, the appeals were allowed.