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TMI Blog2005 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... n connected to be heard together and decided by a common judgment. For convenience, we refer to the facts of the leading case, viz., Writ Petition No. 1046 of 2005-Mithlesh Kumar Tripati v. CIT. Mithlesh Kumar Tripathi and Smt. Seema Tripathi, the two petitioners in the above six writ petitions three each happen to be husband and wife who have been filing their "returns" with Income-tax Permanent Account Nos. ABUTP3610Q and ACEPT6474H. As envisaged under section 132(1), the Income-tax Act, 1961 (called "the Act"), a search was carried out at the office premises of the petitioners at 3B, Sagar Apartments, Tilak Road, New Delhi, on October 10, 2002. Separate cases for the three assessment years, viz., 1998-99, 1999-2000 and 2000-2001, were registered for each of the two petitioners. The Income-tax Commissioner, Delhi-VII, New Delhi, later vide order dated May 6, 2004, in exercise of powers conferred under section 127 of the Act transferred all six cases of the two petitioners to the Assistant Commissioner, Income-tax, Central Circle, Agra/respondent No. 3. Block assessment proceedings for the period April 1, 1996, to December 10, 2002 (assessment years 1997-98 to 2003-2004), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case." The relevant pleadings on behalf of the petitioner are in paras. 14 to 17 of the writ petition which are reproduced: "14. That the petitioner states and submits that there has been no change in circumstances since the passing of the block assessment order on December 31, 2004, which necessitated the issuance of the notice under section 148 of the Act. The petitioner, however, in compliance of the aforesaid notice dated March 31, 2005, issued under section 148 of the Act filed his return for the assessment year 2000-2001 on April 27, 2005. Copy of the said return filed by the petitioner for the assessment year 1998-99 is annexed hereto and marked as annexure 5. 15. That after filing the return in compliance of the notice under section 148 of the Act, the petitioner vide letter dated May 13, 2005, called upon respondent No. 3 to supply the reasons for reopening the assessment under section 148 of the Act but no reasons have been supplied to the petitioner till date. Copy of the letter dated May 13, 2005, sent by the petitioner to respondent No. 3 requiring him to furnish the reasons are annexed hereto and marked as annexure 6. 16. That a perusal of the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material found during the course of search/requisition whereas the regular assessment is made on the basis of facts and information, etc. The notice under section 148 of the Act was issued after obtaining approval from respondent No. 2 as provided under the provisions of law. 17. That in reply to the contents of paragraph No. 14 of the writ petition the reply given to paragraph No. 13 of the writ petition are hereby repeated and reiterated. Further it is submitted that the proceedings of block assessment do not restrict the proceedings initiated under section 148 of the Act. The objection of the petitioner is irrelevant. The petitioner has filed his return in compliance of the notice issued to it on April 27, 2005, thereafter no notice under section 143(2) have been issued to the petitioner. It is very surprising as to why the petitioner has approached this hon'ble court where there were no proceedings initiated against him and when he had complied with the notice under section 148 of the Act. So far as the supply of reasons are concerned; as stated above, since the petitioner has not approached the Assessing Officer and has merely filed an application before the dark table and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gutkha. As per the returns of income filed by him he had also shown the jewellery business under the name of Surya Ornaments during the year under consideration but the record relating to this concern was not found during the search of his premises. In order to verify the sales of jewellery shown by the assessee and other assessees of the group, he was summoned under section 131 of the Income-tax Act, 1961, but he did not appear on the ground that he was suffering from some serious brain ailment. No books of account and vouchers pertaining to his proprietary concern, Surya/Traders, were produced either by his counsel. Hence, the genuineness of the sale transaction of jewellery has remained unproved. As regards the other purchaser of jewellery, i.e., M/s. Shree Ji Jewellers, it was informed by the assessee's counsel that this concern belonged to Shri Subhas Chandra Mittal who had shifted to Mathura. He informed that Shri Mittal was residing at Mayatila, Halan Ganj, Mathura. The ITI deputed to make the enquiries succeeded in tracing out his residence and also served a summons under section 131 of the Income-tax Act, 1961, requiring him to produce the record of his business but he fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as on a perusal of the record of the case one finds that the developments culminating in "reasons" for issuing notice under section 148(2) of the Act, are definitely indicative of significant change in the circumstances on record to be reckoned with. The third contention of learned counsel for the petitioner is that "reasons", are not germane to of material or the facts of the case before the concerned authority and the impugned "notice" under section 148(2) of the Act has been issued in a mechanical manner without application of mind. This argument is also not sustainable. A perusal of the reasons (quoted above) show that, if not both, the second reason out of the two reasons pertaining to M/s. Shree Ji Jewellers emerges from cogent material constituting the basis for notice under section 148(2) of the Act. The most crucial argument, though the fourth and the last, made on behalf of the petitioner is that when section 148(2) of the Act, contemplates that the assessing authority has to record reasons, the natural inference is that it must be with certain object which the Legislature intended to achieve. According to the petitioner "reasons" must be indicated/disclosed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronouncements" that the apex court and other High Courts, including our High Court in the case of K.M. Bansal v. CIT [1992] 195 ITR 247, while interpreting the provision laid down that "reasons" ought to be communicated to avoid "arbitrary" action or to avoid "abuse" of the power/office by the tax authorities with an object to save the "assessee" from harassment. It is through the judicial pronouncement only particularly K.M. Bansal's case [1992] 195 ITR 247 (All) that the "reasons" are required to be communicated only after filing of the "revised return". We shall deal with the above decision later. So far as section 148(2) of the Act is concerned, it is silent regarding "communication of reasons" and as to whether the same are to be communicated before or after filing of the revised return. This gives rise to an occasion wherein courts are required to fill in the gap and make the provision "meaningful" and "purposive" without doing violence with the "pith and substance" of the provision and object/intent of the Legislature. The settled principles of "statutory interpretation" require that a "provision" in a legislative enactment is to interpret it in a manner which confor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the basis/foundation of the notice) as well as to take care, while filing the fresh return, to disclose/explain any other income, if any, which may have otherwise escaped assessment. It is well settled that section 148(2) is to be read in a manner which serves the legislative intent/object in inserting section 148(2) in the Act and makes the provision "meaningful" and "purposive". Viewing from that point of view, we find that section 148(2) of the Act expressly requires "recording of reasons", which has a definite purpose (and not a mere formality on paper), i.e., to avoid arbitrariness or biased or mala fide action by the taxing authorities. Keeping the above object of the Legislature in mind, the courts, including the apex court, interpreted the said section by laying down that reasons have to be communicated, as otherwise the same will remain a mere formality with no ultimate purpose or object to be served. Reference is made to the following decisions to appreciate the above premise. Bharat Singh v. Management of New Delhi Tuberculosis Centre [1986] 69 FJR 129, 133; [1986] 2 SCC 614, 619: "In interpretation of statutes, courts have steered clear of the rigid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words. But, if the words are ambiguous, uncertain or any doubt arises as to the terms employed, we deem it as our paramount duty to put upon the language of the Legislature rational meaning. We then examine every word, every section and every provision. We examine the Act as a whole. We examine the necessity which gave rise to the Act. We look at the mischiefs which the Legislature intended to redress. We look at the whole situation and not just one to one relation. We will not consider any provisions out of the frame work of the statute. We will not view the provision as abstract principles separated from the motive force behind. We will consider the provisions in the circumstances to which they owe their origin. We will consider the provisions to ensure coherence and consistency within the law as whole and to avoid undesirable consequences." State of Karnataka v. Appa Balu Ingale [1995] Suppl. 4 SCC 469: "34 .... Judge must be a jurist endowed with the legislator's wisdom, historian's search for truth, prophet's vision, capacity to respond to the needs of the present, resilience to cope with the demands of the future and to decide objectively disengaging himself/herself from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Hand, it was said that the task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. We must not adopt a strictly literal interpretation of section 52(2) but construe its language having regard to the object and the purpose which the Legislature had in view in enacting the provision and in the context of the setting in which it occurs .... It is said that it is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some violence' to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. In such a case the court may read into the statutory provision a condition which though not expressed, is implicit in constituting the basic assumption underlying the statutory provision....." D. Saibaba v. Bar Council of India [2003] 6 SCC 186: "18. Reading word for word and assigning a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only after filing of the "revised return". As noted earlier, "reasons" are not only to be recorded but also to be communicated as held by the courts while interpreting section 148(2) of the Act, even though there are no express words to that effect in the said section. There is also nothing in section 148(2) of the Act indicating expressly or otherwise, that an assessee can ask for reasons to be communicated only after he has filed the "revised return" in response to the notice under that section. In the above context, the court is required to interpret section 148(2), in a manner which makes the provision not only "meaningful" and "purposive" but also not opposed to "fairness" / "fairplay" and "good conscience" the core ingredients of rules of natural justice. The court has time and again held that if two interpretations are possible of a statutory provision except in the case of express statutory exclusion, the one which satisfies "rules of natural justice", is to be preferred. Swadeshi Cotton Mills Co. Ltd. v. Union of India [1981] 51 Comp Cas 210, 227; [1981] 1 SCC 664: "The rules of natural justice can operate only in areas not covered by any law validly made. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'natural justice' and 'legal justice' do not present a watertight classification. It is the substance of justice which is to be secured by both, and whenever legal justice fails to achieve this solemn purpose, natural justice is called in aid of legal justice. Natural justice relieves legal justice from unnecessary technicality, grammatical pedantry or logical prevarication. It supplies the omissions of a formulated law. As Lord Buckmaster said, no form or procedure should ever be permitted to exclude the presentation of a litigant's defence. 15. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled. The first and foremost principle is what is commonly known as audi alteram partem rule. It says that no one should be condemned unheard. Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively of the case he has to meet. Time given for the purpose should be adequate so as to enab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples of natural justice must be read into unoccupied interstices of the statute, unless there is a clear mandate to the contrary. No form or procedure should ever be permitted to exclude the presentation of a litigant's defence or stand. Even in the absence of a provision in procedural laws, power inheres in every Tribunal/courts of a judicial or quasi-judicial character, to adopt modalities necessary to achieve requirements of natural justice and fair play to ensure better and proper discharge of their duties. Procedure is mainly grounded on the principles of natural justice irrespective of the extent of its application by express provision in that regard in a given situation. It has always been a cherished principle. Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice where substantial rights of the parties are considerably affected. The application of natural justice becomes presumptive, unless found excluded by express words of statute or necessary intendment. (see Swadeshi Cotton Mills Co. Ltd. v. Union of India [1981] 1 SCC 664 ; AIR 1981 SC 818; [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring on behalf of the Department admits that even after the "revised return" is filed in pursuance of the notice under section 148(2) of the Act, one can still amend/revise the said revised return. From the above it is clear, that apparently there is no "object" or "purpose" in sight which seems to be achieved and also there seems to be no logic or valid ground for not disclosing the reasons before filing of the "revised return". An assessee is unnecessarily harassed if reasons are not communicated along with or in the notice. Reasons as argued by learned counsel for the petitioner, (i) are generally not supplied promptly even when asked for and that too for no reason or rhyme; (ii) in a large number of cases the assessee has no option but to rush to the High Court which unnecessarily burdens already overloaded dockets of the courts; (iii) loss of time, energy and inconvenience caused to the assessee; and (iv) unnecessary (which is otherwise avoidable) burden upon public exchequer since the Revenue Department spent millions and millions all over the country) in contesting avoidable litigation besides reckless waste of valuable hours of working of "Revenue officials". The presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, and earlier thereto, they are administrative in character. Since the requirement of recording reasons is a stage anterior to issuance of notice, it was held that there was no obligation on the part of the Income-tax Officer to communicate the same. It was also observed that recording of reasons is required by law as a condition for initiation of proceedings and also for obtaining sanction of the Commissioner who must be satisfied that the action proposed was warranted." Dealing with the various decisions, this court in the case of K.M. Bansal [1992] 195 ITR 247 concluded: "Applying the above principles to the case in hand, it must be held that, in cases where the assessees have filed their returns or revised returns, as the case may be, in response to the notice under section 148(1) and have also raised a contention that the very initiation of the reassessment proceedings is not in accordance with law, the Assessing Officer shall communicate the reasons recorded by him under section 148(2) to the assessee, subject, of course, to the necessity of protecting his sources/informants if he thinks such protection is necessary in any given case. Suffice it to say that he shall pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the authority under section 148 and, therefore, 'acquiesced off the grievance'. We are afraid that the High Court was in error on both counts. It is trite law that when an assessee challenges a notice to reopen under section 147 on the ground that no reasons under section 148 had been recorded or disclosed, the court must call for and examine the reasons, and, in fact, ordinarily, the reasons are set out by the respondents to the writ petition in their counter. The High Court also did not appreciate that if the appellant had already been served with a notice under section 148 and had complied therewith by filing a return, it was entitled to contend that no second notice lay and also to submit that, in any event, the second notice was barred by time. It is, therefore, necessary to set aside the order of summary dismissal of the writ petition and to restore the writ petition (Writ Petition No. 356 of 1991) to the file of the High Court to be heard and disposed of on the merits. Our observations are confined to the order of summary dismissal that is impugned and should not in any way influence the decision of the court on the merits. Both the parties shall be entitled to take al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in that case did not precisely address the issues before the court. Reference may be made to the case reported in Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court [1990] 77 FJR 17; [1990] 3 SCC 682, 707 wherein the Supreme Court observed: "46. To consider the ratio decidendi of a case we have, therefore, to ascertain the principle on which the case was decided. Sir George Jessel in Osborne v. Rowlett [1880] 13 Ch D 774, remarked that at page 785, 'the only thing in a judge's decision binding as an authority upon a subsequent judge is the principle upon which the case was decided'. 47. The ratio decidendi of a decision may be narrowed or widened by the judges before whom it is cited as a precedent. In the process the ratio decidendi which the judges who decided the case would themselves have chosen may be even different from the one which has been approved by the subsequent judges. This is because judges, while deciding a case will give their own reasons but may not distinguish their remarks in a rigid way between what they thought to be the ratio decidendi and what were their obiter dicta, that is, things said in passing having no b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment for appropriate amendment in section 148(2) of the Act to that effect. The above argument is misplaced. It is for the Legislature to intervene if, in its wisdom, there is ambiguity in some statutory provision which is being misused or not applied in its true spirit. The court's duty is to iron out the creases, clear out the surroundings or foggy areas, fill in the gap and make the statutory provision, as it exists, meaningful which subserve the end of justice. Section 148(2), Income-tax Act, itself requires reasons to be recorded to check arbitrary action and also to give a chance to the assessee to disclose "escaped income" whether detected by the "Revenue" or not. To the extent of recording reasons and "obtaining approval" to give notice it may be "administrative action" but the very act of giving notice backed by good and valid reasons in our considered opinion on the interpretation of section 148(2) of the Act is a quasi-judicial function-which itself is conferred by the statute. The distinction between administrative and quasi-judicial/judicial function is thin and barely real when such action concerns the rights of other persons. The authority to give notice flows ..... X X X X Extracts X X X X X X X X Extracts X X X X
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