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TMI Blog1997 (6) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of notice. 2.1 The brief facts in these cases are that the returns for asst. yrs. 1987-88 and 1988-89 were filed on13th July, 1987, and7th June, 1988, and the assessments were completed under s. 143(1) at declared income of Rs. 65,026 and Rs. 45,580 respectively. Thereafter a search under s. 132(1) took place on6th March, 1989, and some papers and documents relating to the assessment years under consideration were seized. With a view to make necessary verification, the assessee was asked to produce relevant books of account. The AO observed that the assessee did not produce the said books. He, therefore, held that there was reason to believe that taxable income for assessment years under consideration had escaped assessment. He, therefore, issued notice under s. 148 in relation to both the assessment years. 2.2 On first appeal the learned counsel for the assessee Shri M. Vaidhyanathan challenged the validity of the notices issued under s. 148. He submitted that the AO had issued notice under s. 148 without recording the reasons for issue of said notices. He pointed out that the notices were issued on27th March, 1992, while reasons were recorded on31st March, 1992. He, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment proceedings had been invited by the AO only with a view to make necessary verification from relevant books of accounts and other documents. He submitted that these reasons were insufficient for initiating reassessment proceedings. He further, referred to the provisions of s. 147 as they existed before the amendments made w.e.f.1st April, 1989, and submitted that the AO was duty- bond to record the reasons for initiating reassessment proceedings before issue of notice under s. 148. However, in the present case the notice bears the date27th March, 1992, whereas the reasons were recorded by the AO on31st March, 1992. He, therefore, urged that the provisions of s. 147 have not been complied with. He further submitted that the amendments made in s. 147 w.e.f.1st April, 1989, could not be applied in the case of the assessee in relation to assessment years under consideration as such amendments could not be construed as having retrospective effect when the legislature has itself indicated that the amendments will take effect on and from1st April, 1989. He further referred to para 28 of the statement of facts filed before the learned CIT(A), wherein it is mentioned that the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to paras 20 and 21 of the said order wherein the submissions made by the learned counsel to the effect that jurisdictional changes made in s. 147 apply only for asst. yr. 1989-90 onwards and the amended s. 147 does not apply to reopen the assessment for asst. yrs. 1987-88 and 1988-89 since the reassessment was enough in the domain of procedural proceedings were noted. The Tribunal also noted the contention that a vested right was robbed by means of reassessment and, therefore, it was always the law that reassessments are governed by the law which applies to the assessment year in question. The Tribunal has also noted the reliance of the assessee on the decision in the case of CED vs. M.A. Merchant (1989) 77 CTR (SC) 177 : (1989) 177 ITR 490 (SC). The learned counsel further invited our attention to the written submissions dt.8th June, 1994, filed before the CIT(A), wherein the detailed submissions have been made with reference to assumption of jurisdiction by the AO under s. 147 and the nature of amendments made therein w.e.f.1st April, 1989. He further referred to the paper-book wherein the Tribunal has noted the submissions of the learned counsel pointing out the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought about by the Direct Tax Laws (Amendment) Act, 1987, in various provisions of the IT Act are part of an integrated scheme of amendments. The learned counsel referred in this behalf to the provisions of ss. 143(5), 153(2), proviso, 154(1)(b), s. 220(2), 2nd proviso, s. 244A(5) and s. 147, Expln. (2) and pointed out that the legislature has clearly mentioned in s. 143(5) that the provisions as they stood immediately before their amendments by the Direct Tax Laws (Amendment) Act, 1987, shall apply to and in relation to any assessment for the assessment years commencing on 1st April, 1988, or any earlier assessment years and reference in the said sections to the other provisions of the Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. He, therefore, contended that when the assessment is regulated by the provisions as they existed before1st April, 1989, it will be irrational to conclude that for the purposes of reassessment the provisions of s. 147 as amended w.e.f.1st April, 1989, will apply. He further, pointed out that the provisions of s. 153(2), proviso, have been given a separate treatment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 292B to hold that the wrong date mentioned in the notice is immaterial and that the defect is covered by the provisions of s. 292B. He submitted that where the rights of the assessee are affected the provisions of s. 292B cannot be invoked. He further submitted that the learned CIT(A) has observed that notice was posted after recording of reasons and that this was clearly an after-thought by the CIT(A) and he has come to such conclusion without affording any opportunity to the assessee. He further submitted that the first notice in this case was issued on18th March, 1994, fixing the date for23rd March, 1994. The reply was filed by the assessee on23rd March, 1994. A further questionnaire was issued on24th March, 1994, and a reply was filed on30th March, 1994. He further submitted that the assessment was made on30th March, 1994. In view of these facts the learned counsel submitted that it will be a travesty of justice if the plea of the AO that no details were filed is accepted. He further submitted that the learned CIT(A) has not said a single word on this issue of filing of details. 9. Even if the amended law has to be applied, the reasons for reopening of the assessment have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) 220 : (1976) 103 ITR 437 (SC); 3. ITO & Ors. vs. Chiranji Lal Ramji Das 1976 CTR (Del) 233 : (1978) 111 ITR 138 (Del) 4. Calcutta Discount Co. vs. ITO (1961) 41 ITR 191 (SC); 5. P.V. Doshi vs. CIT 1977 CTR (Guj) 683 : (1978) 113 ITR 22 (Guj); 6. Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC); 7. CIT vs. T.P. Asrani (1979) 11 CTR (Bom) 298 : (1980) 122 ITR 735 (Bom); 8. CED vs. M.A. Merchant; 9.KrishnaChandra Dutta (Cookme) (P) Ltd. vs. CIT (1994) 117 CTR (Cal) 88 : (1993) 204 ITR 23 (Cal) 10. CIT vs. Bhagat & Co. (1990) 86 CTR (Del) 198 : (1990) 182 ITR 212 (Del) 11. CIT vs. Patel Bros. & Co. Ltd. & Ors. (1995) 126 CTR (SC) 132 : (1995) 215 ITR 165 (SC) 12. Peria Karamalai Tea & Produce Co. Ltd. vs. CIT (1980) 14 CTR (Ker) 418 : (1980) 124 ITR 899 (Ker); 13. AIR 1927 Privy Council; 14. (1976) 3 SCR 44; 15. Lohia Machines Ltd. & Anr. vs.Unionof India & Ors. (1985) 45 CTR (SC) 328 : (1985) 152 ITR 308 (SC); 16. (1968) 3 SCR 623; 17. CIT vs. Reliance International Corpn. (P) Ltd. (1994) 120 CTR (Del) 225 : (1995) 211 ITR 666 (Del); 18. S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC); 19. CIT vs. Raman Industries (1980) 14 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the amendments made in the procedural sections would have retrospective effect in the sense that they would apply to cases which are still pending and are within the period of limitation. In this connection the learned Departmental Representative invited our attention to p. 3456 of Vol. 3 of Chaturvedi & Pithisaria, where nature/scope of procedural law has been discussed. The learned Departmental Representative further submitted that s. 143(3) was procedural in nature and that similar interpretation will apply to the provisions of s. 147 which relate to reopening of assessment. In this connection he relied on the decision of the Hon'ble J&K High Court in Rattan Lal Tiku vs. CIT (1974) 97 ITR 553 (J&K) at p. 556. He also relied on the decision reported in 1976 CTR (SC) 220 : (1976) 103 ITR 437. He further submitted that the answer to the proposition urged by the learned counsel lies in the Hon'ble Supreme Court in the case of CED vs. M.A. Merchant which related to introduction of a new s. 59 which came into force on1st July, 1960. In the said case the estate duty assessment had already been completed on the accountable persons on26th Feb., 1960, and it was held that reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case law relied upon by the learned counsel. He submitted that the Hon'ble Supreme Court while interpreting the provisions of Expln. 2 to s. 37(2A) had approved the decision of the Hon'ble Delhi High Court in the case of CIT vs. Rajasthan Mercantile Co. Ltd. (1994) 122 CTR (Del) 56 : (1995) 211 ITR 400 (Del) in the decision (1995) 126 CTR (SC) 132 : (1995) 215 ITR 165 (SC) that if the provisions were clarificatory in nature they would apply to earlier years. He further referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Hico Products (P) Ltd. (1991) 91 CTR (Bom) 61 : (1991) 187 ITR 517 (Bom) as relied upon by the learned counsel and submitted that the said case covered amendment in s. 35 whereby the assessees were deprived of depreciation on cost of capital goods and the Court had held that the amendment with retrospective effect contravened the provisions of Arts. 14 and 19(1)(g) and that the amendment was not valid in so far as it was retrospective. On a query from the Bench the learned Departmental Representative was fair enough to mention that in case the vested rights of the assessee are affected, then the provisions cannot be construed to have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was search in the case of the assessee and that the documents were returned to the assessee in view of the orders of the High Court for releasing of the documents. With reference to the objection of lack of opportunity and violation of principles of natural justice as raised by the learned counsel, the learned Departmental Representative submitted that hearing took place on two or three occasions and that the assessee did not utilise the opportunity and was only trying to raise legal objections. 4. The learned counsel in his rejoinder submitted that legal arguments with reference to assumption of jurisdiction by the AO under ss. 147/148 were raised by the assessee at all points of time. He further submitted that the learned CIT(A) had also not provided any opportunity. In this connection he referred to para 3 of the assessment order for asst. yr. 1987-88. He submitted that the Department was in possession of photocopies which were obtained before releasing documents. He further referred to pp. 39-40 of the paper-book where it is mentioned that the assessee had filed balance sheet, P&L a/c, auditor's report and memo of computation of income, etc., and that the AO has st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so cover the stage upto the service of notice. He relied in this connection on the decisions reported in R.K. Upadhyaya vs. Shanabhai Patel (1987) 62 CTR (SC) 17 : (1987) 166 ITR 163 (SC), CIT vs. Sun Engg. Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) and CIT vs. (Late) Begum Noor Banu Alladin (1993) 115 CTR (AP)(FB) 448 : (1993) 204 ITR 166 (AP) (FB). He further submitted that both the old and new provisions of s. 147 require reasons to be recorded and that the said requirement is meant for assumption of jurisdiction by the AO. He further reiterated that reasons should be there when decision is taken for reopening of the assessment. He further emphasised that if reasons are allowed to be recorded till a time of posting of the notice the reasons could be modified, vetted and that the said state of affairs will be contrary to the spirit of the status and safeguards provided therein. He submitted that the plea of the learned Departmental Representative that the notice was drawn on27th March, 1992, in view of the intervening holidays cannot be a reason to perpetuate injustice in the case of the assessee. 5. We have carefully considered the rival submissions and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a closed state of affairs, but if it is a case where the reopening is sought to be in consequence of information in his possession or even otherwise which leads to a reasonable belief that there has been an escapement and if that information is not the product of a change in his mood but is attributable to concrete material noticed by him, then the above principle may not apply. T.S. Santhanam vs. Expenditure Tax Officer (1973) 87 ITR 582 (Mad) affirmed by Hon'ble Madras High Court in (1976) 104 ITR 355 (Mad)(FB). The learned counsel has relied on the decision of the Hon'ble Supreme Court in the case of CED vs. M.A. Merchant. It is observed that in the said case new provisions for reopening of assessments were introduced in the ED Act by s. 59 and that there was no such power available in that Act and the only power available with the authorities was under s. 62 for rectification of mistakes. The Hon'ble Supreme Court had held that there is a well settled principle against interference with vested rights with subsequent legislation unless legislation had been made retrospective expressly or by necessary implication. The facts of the said case are, therefore, distinguishable as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax folder. The said facts have not been controverted by the Department before us. In view of the foregoing the reopening of the assessments on the plea of verification of certain documents is difficult to appreciate. We feel that reassessment proceedings under s. 147 could not have been initiated for the purpose of verification of information available with the authorities and thus the same are not valid in law. This view is supported by the decisions in the case of CST vs. Modi Industries Ltd. (1987) 67 STC 341 (All), General Electric Co. of India vs. STO (1974) 33 STC 108 (All). 6. The learned counsel has taken another plea that in the present case whereas the notice has been issued on 27th March, 1992 (the date of the notice), the reasons for reopening of assessments were recorded on 31st March, 1992, and, therefore, the mandatory provisions of s. 148 have not been complied with. He has also submitted that the provisions of s. 292B cannot be invoked so as to cover the defect in issue of the notice. He has also submitted that the learned CIT(A) has observed that notice was posted after recording of reasons and that this was clearly an afterthought by the learned CIT(A) and he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of jurisdiction on the ITO; it is a condition precedent only to the making of the order of assessment". The plea of the learned counsel in this behalf has no force as the notice has been issued within the limitation period. 6.2 In view of the reasons given in paras 5.2, 6 and 6.1 we hold that the reopening of assessments in the case of the assessee for asst. yrs. 1987-88 and 1988-89 is not in accordance with the provisions of ss. 147 and 148. Accordingly, the orders of the learned CIT(A) are set aside. ITA No. 7412 & 7413/Del/1994: 7. The Department is aggrieved with reference to reduction of addition of Rs. 3 lakhs out of the addition of Rs. 15 lakhs made by the AO in relation to asst. yr. 1987-88 on account of closing stock and details remaining unverified in the absence of non-production of books of accounts and vouchers. Similarly, the Department is aggrieved with reference to reduction of addition of Rs. 2 lakhs out of addition of Rs. 12 lakhs made by the AO in relation to asst. yr. 1988-89 on similar grounds. 7.1 The learned CIT(A) allowed partial relief to the assessee out of the income estimated by the AO by making the following observations, namely: "I have examine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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