9911796707
TMI Blog1980 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 chittacks of adjacent land for Rs. 10,225. Although the land was first purchased in July, 1958, as, the negotiations for the purchase were completed by May, 1958, the purchase of materials for construction as well as the work of construction of cold storage on the said land was started from May, 1958, and such construction was fully completed by December, 1963, and minor repairs were made thereafter from time to time. The cost of construction was met mostly from borrowings. The first accounts of the firm was closed on 31st December, 1959, and the income-tax return for the assessment year 1960-61 disclosing a loss of Rs. 65,714 was filed. At the hearing of the said assessment, Jayantilal Umedlal Doshi, the authorised representative and accountant of the firm, produced before the assessing ITO full particulars and other evidence as to purchase of the land, expenses and cost of construction, who considered the same and after ascertaining the actual cost of the said cold storage building assessed the loss at Rs. 15,043 after allowing depreciation on the said building on the basis of its actual cost and in proportion to the use thereof in accordance with the then I.T. Rules. Similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said construction escaped assessment for the assessment year 1960-61, and the petitioners were asked to explain why the said sum should not be assessed to tax and why proceedings under s. 147(a) of the I.T. Act, 1961, should not be taken and in default of written reply within 7 days, it would be presumed that the petitioners have no explanation to offer and the case should be reopened under s. 147(a). By a letter dated the 17th January, 1977, the petitioners gave a reply to the said letter. Under cover of a letter dated the 21st March, 1977, respondent No. 1 sent several notices under s. 148 of the I.T. Act, 1961, all dated March 21/22, 1977, for reopening the assessment of the firm for the assessment year 1960-61, Several notices under s. 148 of the Act, all dated the 2nd March, 1978, were also served on the petitioners for reopening the assessment of the firm for the assessment year 1961-62 on similar grounds. The petitioners have made this writ petition under art. 226 of the Constitution, inter alia, challenging the said notices. No affidavit-in-opposition has been filed on behalf of the respondents. By consent of parties, the petition of the respondents, for vacating o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be made the basis for the formation of the belief for reopening an assessment as valuation may differ from person to person. The cost of acquisition of the land by the assessee was proved by the conveyance. The cost of construction of the building was proved by the receipts, vouchers and other documents. These were the positive and primary evidence which were placed by the assessee before the assessing ITO at the time of the said assessments which could not be brushed aside by respondent No. 1 on the basis of opinions or inferences of valuers. Even if the valuations made by the valuers were correct, the assessee might have so arranged his affairs that the cost of construction was much less than what would have been incurred generally by others. A higher valuation made by the valuer could not necessarily lead to the inference that there was some income of the building and for setting up of the cold storage. The basis of the calculations made by respondent No. 1 as disclosed in the recorded reasons was back calculation on the basis of hypothetical rates of increase in the cost of construction and in the value of the land informally given by the departmental valuer. The assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant years were not satisfied as the said assertions made by the assessee were not denied by the assessing ITO. The assessee in its original assessments duly disclosed the primary fact of construction of the cold storage and it was for the assessing-ITO to find out the cost of construction thereof. The assessee disclosed all relevant documents and papers before the assessing-ITO and if he was satisfied and did not make any further enquiries, then it could not be said that the assessee had failed to disclose fully and truly all or any material facts. Mr. Bhattacharjee next urged that in the recorded reasons there is no charge against the assessee of omission or failure to disclose fully or truly any material facts necessary for the said assessments. Thus, even if any income had escaped assessment, there could not be any reopening of the completed assessments under s. 147(a) of the Act. Mr. Bhattacharjee contended that respondent No. 1 sought to reopen the assessments on the basis of the valuation made by the assessee's valuer for obtaining a loan fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made in the petition that the assessee had full discussions regarding existence, validity and genuineness of all parties including Atlas Agencies remained uncontradicted. The learned judge observed that it was not certain whether the facts gathered by the ITO on which the assessments were, sought to be reopened could not have been gathered from the materials before him in the original assessments and held that the revenue had not discharged the onus which lay on it to establish its case that the facts came to his knowledge subsequent to the original assessments from which it could be said that there was omission or failure on the part of the assessee to disclose fully and truly material facts necessary for the assessments, on account whereof the income chargeable to tax escaped assessment. Jeewanlal(1929) Ltd. v. ITO [1978], 115 ITR 465 (Cal). Here, before the completion of the original assessment, the assessee is said to have informed the ITO that it had filed a suit against the tenant of Sarat Bose Road property and did not accept rent from him. Reopening of the assessment was sought to be made on the ground that as the tenant deposited rents with the Rent Controller, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopened by the ITO under s. 147(a) of the I.T. Act, 1961, on the ground that the transactions or loans represented by certain hundis were bogus and no interest was paid by the assessee to any of the alleged hundi creditors deduction whereof was wrongly allowed in the original assessment and thus the income of the assessee escaped assessment by reason of its failure to disclose fully and truly all material facts necessary for the assessment. The Supreme Court, held that the assessee produced all hundis on which it had obtained loans from the creditors as also entries in the books of account showing payments of interest. It was for the ITO to investigate and determine whether those documents were genuine or not. It could not, therefore, be said that the assessee failed to make a full and true disclosure of the material facts by not admitting before the ITO that the hundis and the entries in the books of account were bogus. Thus, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and the conditions precedent for the applicability of s. 147(a) were not satisfied. The statement of the ITO that he discovered that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were served with the notices escaped assessment but alleged escapement, if any, was that of the firm which was a distinct entity and unit of taxation under the I.T. Act. Under s. 148 of the Act, a notice was required to be served on the assessee which was the firm in this case. Thus, there was no service of the notice on the assessee. From the above facts, it was clear that the impugned notices were issued by respondent No. 1 without the application of mind. In support of his contention, Mr. Bhattacharjee relied on the following decisions: Sewlal Daga v. CIT [1965] 55 ITR 406 (Cal). Here the original assessment was of one Chandrabhan Johurmull in the status of an individual who died in May, 1949. Thereafter, a notice under s. 34 of the Indian I.T. Act, 1922, was issued to assessee's son, Sewlal Daga, describing the assessee as " Messrs. Chandrabhan Johurmull, karta, Sewlal Daga ". It was contended on behalf of Sewlal Daga that the notice was not served on him as the legal representative of the deceased and was, therefore, illegal. A Division Bench of this court held that the service of a notice on the assessee was a condition precedent to the assumption of jurisdiction by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal assessments was not correct. The assessee's own valuer valued the cold storage on the 21st February, 1968, at Rs. 23,27,428 which in ten years' time from 1958 to 1968 could not appreciate to the extent as revealed by the said valuation. Mr. Pal relied on the very same passage cited by Mr. Bhattacharjee at p. 852 of Kanga's book and submitted that in the present case the presumption in favour of good faith or non-concealment of income was displaced by circumstantial evidence. If the requirements of s. 147 were fulfilled then the proceedings initiated thereunder would be valid. Mr. Pal referred to the recorded reasons and submitted that according to the assessee the total cost incurred by it for construction of the cold storage including the land, building, plant and machinery and racks, etc., was Rs. 8,61,262 and he referred to the break-up for each year between 1958 to 1965 given by respondent No. 1 in annex. " A " to the recorded reasons. From the report of the assessee's valuer, as noted in the recorded reasons, the admitted position, was that the cold storage went into operation in 1959. Respondent No. did not accept the view of the revenue audit. He was not even aware o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments which are relevant. Even if it be assume that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment." I Mr. Pal urged that merely because the assessee disclosed in the original assessments that it has constructed the cold storage and purchased land or produced some documents as evidence thereof, the assessee could not be said to have made a full and true disclosure of all material facts necessary for the said assessments if it suppressed the actual cost incurred for construction of the cold storage. Mr. Pal next contended that at the time of the original assessments the assessee did not file any valuation report on the constructions made. Subsequent valuation by the valuer in February, 1968, showed that the value of the cold storage was Rs. 23,27,428. The revenue audit noted the difference between the value of the cold storage as disclosed by the assessee in the original assessment and the valuation made by the assessee's valuer which clearly showed that there was escapement of income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was disclosed by the assessee to the assessing-ITO at the time of the original assessment was not correct and something must have been kept back so that there was such an unusual increase in the valuation. Mr. Pal also referred to the assessment order for the assessment year 1960-61 that depreciation was allowed only on usable units and, such units were constructed every month. The depreciation was given on the units used in the year and not on brick, mortar or other construction materials. In support of his contention, Mr. Pal cited the following decisions: CIT v. T. S. PL. P. Chidambaram Chettiar [1971] 80 ITR 467 (SC). Here, a mortgage suit for Rs. 5,50,573 was compromised for Rs. 3,50,500 in full satisfaction of the mortgagee's claim. During the assessment proceeding of the son of the mortgagee who died in the meantime, the assessing ITO received information that during the relevant accounting period the mortgagor had secretly paid certain amount to the mortgagee which was not included in the compromise decree which was, however, denied by the assessee. The ITO completed the assessment pending further investigation in the matter. After further inquiry, the ITO issued a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od whose income was sought to be assessed by the notices-which should be construed reasonably and not strictly. It was also urged by Mr. Pal that if the income of the individual partners was sought to be assessed then a joint notice to all the partners could not be given; they should have been served with separate notices and only because the income of the firm was to be assessed that is why the petitioners were given a joint notice. In my opinion, if the assessing-ITO accepted the accounts and figures given by the assessee with regard to the cost of construction of the building of the cold storage or of the land, plant and machinery and other accessories as disclosed before him by the assessee in the original assessments without making any further investigation in the matter there should, therefore, be no complaint afterwards that the assessee did not file valuation reports in respect thereof in the said assessments. It was open to the assessing-ITO to make further investigation with regard thereto if he was not satisfied with the particulars and data furnished by the assessee. If he did not do so, it could not be said afterwards that there was no true or full disclosure of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the valuation year wise supplied to him by the departmental valuer. The valuation of a particular property or asset is an opinion of a particular valuer who has valued the same. The cold storage was completed in 1963 and the valuation was made 5 years thereafter in 1968. The increase in the valuation could be on (account of) various factors and not merely on the increase in the valuation of the land or on the cost of construction such as construction materials, labour, etc., but on the site, the development thereof in course of years, development, if any, of the area or locality as whole in which the cold storage is situate and such other factors. Thus, the data given to respondent No. 1 by the departmental valuer as to the increase in the cost of construction in various years from 1958 to 1968 that there was 60% increase from 1958 to 1968 or 55% increase from 1959 to 1968 or 50% increase from 1960 to 1968 or 25% increase between 1961 and 1968, could not, even if correct, give the basis for any correct valuation of the cold storage in different years between 1958 and 1968. Respondent No. 1 proceeded on the basis that the valuation made in February, 1968, by the assessee's valuer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke any investigation or try to find out if there was any further additions or extensions after 1965 and up to February, 1968, when the said cold storage was valued by the assessee's valuer. Unlike Kantamani Venkata Narayana's case [1967] 63 ITR 638 (SC), here the categorical statement of the petitioners is that they disclosed before the assessing-ITO full particulars about the purchase of the land, detailed list of expenses and other evidence showing cost of construction of the cold storage which were considered by the assessing-ITO and after ascertaining the actual cost of the building, he not only made the assessments but also allowed the depreciation which could not have been allowed without ascertaining the cost of the building. That depreciation was allowed is evident from the assessment orders and is undisputed. The statement as to disclosure of full details of the costs and expenses and consideration thereof by the assessing-ITO are not controverted by the said ITO. Therefore, as observed by the Supreme Court in Kantamani Venkata Narayana's case [1967] 63 ITR 638 (SC), with regard to the duty of the assessee in assessment proceeding, appears to have been discharged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
