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TMI Blog1990 (9) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... Gamadia Road, Bombay-26, admeasuring about sq.ft. of area. With this end in view, she sold her self-occupied flat No. 181 in the building called " Sky Scraper " to Master Anurag Kamal Bhatia and Priti Kamal Bhatia for Rs. 4,50,000 some time on 10-5-1982. Since she had invested an amount of Rs. 1,13,100 in Sky Scraper flat in 1970 when she purchased it, she earned capital gains of Rs. 3,36,900 which she claimed, were exempt because the entire sale proceeds of this flat, namely, Rs. 4,50,000, were re-invested by her for purchase of a flat in a building called " Sneha Sadan " situated at 10 Nowrojee Gamadia Road, Bombay-26. These facts were stated by the assessee in her letter dated 27-6-1983 under which she filed her return of income for the assessment year 1983-84. This return was accepted by the ITO, BRC, on 30-8-1983. The flat in Sneha Sadan was purchased by the assessee from one M.T. Samant who in an affidavit filed with the 3rd ITO, BSD(W), Bombay, on 26-12-1985, stated that he had received on the sale of this flat jointly with another person a sum of Rs. 9,20,000 in addition to the declared price of Rs. 4,50,000 from the assessee. The ITO, therefore, came to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s. 148 was bad in law because it was addressed to a dead person. Secondly, it was in any case bad because there was no escapement of income on account of failure on the part of the assessee to disclose all material facts. Thirdly, according to Shri Dastur, the assessment on merits was totally not sustainable. 3.1 Elaborating these arguments particularly with reference to the validity of proceedings, Shri Dastur argued that the proceedings u/s. 148 were totally illegal and void in law and the assessment was liable to be quashed on this ground alone. He relied on a decision of the Madhya Pradesh High Court in Shaikh Abdul Kadar v. ITO [1958] 34 ITR 451. The Court in this case held that a notice which is issued in the name of a person who is known to be dead, is purposeless and defective, and the taxing authority cannot make any living person into whose hands the notice goes liable and attribute notice to him. No valid assessment can be made under section 34 (of Indian Income-Tax Act, 1922) on the strength of such a notice. In this connection, Shri Dastur referred to section 159 of the IT Act which provides for assessment of legal representatives in the event of death of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax had escaped assessment. Shri Dastur then pointed out that Samant's affidavit was filed on 26-12-1985 and this affidavit was the only basis of re-opening the assessment. Still, copy of the affidavit was not furnished to the assessee. The assessee, according to Shri Dastur, had made a full and true disclosure of primary facts. The department had not pointed out a single primary fact which had not been disclosed by the assessee. The basis of assessment was not discussed and, therefore, the assessment deserved to be quashed on this ground alone. In this connection, he relied on a decision of the Supreme Court in the case of CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 and a decision of the Calcutta High Court in the case of Calcutta Credit Corpn. Ltd v. ITO [1971] 79 ITR 483.The Supreme Court in Burlop Dealers Ltd.'s case observed that where on the evidence and materials produced during the original assessment proceedings the ITO could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) of the IT Act 1922 will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous. Shri Dastur reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain or long-term capital gain. He admitted that the amount received by him was concealed income and was declared by him at a later stage voluntarily. He also admitted that he had purchased a flat in Sneha Sadan along with Kamal Bhatia. Shri Dastur argued that there was a business rivalry and dispute between Samant and Kamal Bhatia and the assessee who was an old lady - 76 years old in 1982 - was made a scapegoat and there was no material whatsoever to hold that she had earned so much money as to be able to pay Samant by way of on-money on purchasing a flat from him. Alternatively and without prejudice, Shri Dastur argued that assuming that the lady got Rs. 9,20,000 on selling her original flat, the amount should be treated to have been reinvested and she would then be entitled to adjustment u/s. 54. Shri Dastur then referred to a decision of the Bombay High Court in the case of S.P. Divekar and A.P. Divekar v. CIT [1986] 157 ITR 629, where the Bombay High Court held that where there is nowhere in the record of the ITO indicating the reasons for and the materials upon which the ITO had formed a belief that the assessee's income had escaped assessment when he issued notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal record which was accepted under section 143(1). He also relied on a decision of the Supreme Court in the case of Indo-Aden Sall Mfg. Trading Co. (P.) Ltd. The affidavit filed by Samant in 1985 gave enough reason to believe that on-money had been paid by the assessee in the transaction of purchase of flat. Shri Mansukhani then argued that the fact that the notice was defective was not fatal to the assessment proceedings and relied on a decision of the Bombay High Court in Rajabally Hirji Meghani v. S.N. Sahane [1988] 170 ITR 614 in support of this proposition. Shri Mansukhani also relied on a host of decisions which, according to him, provided authorities to support the case of the department. He particularly relied on a decision of the Privy Council in the case of CIT v. Mahaliram Ramjidas [1940] 8 ITR 442, CIT v. Lakhiram Ramdas [1962] 44 ITR 726 (SC), S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), Gundathur Thimmappa Sons v. CIT [1968] 70 ITR 70 (Mys.), Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and CIT v. T.S.PL.P. Chidambaram Chettiar [1971] 80 ITR 467 (SC). He also relied, apart from the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceased person are valid proceedings or whether they are ab initio void. It is not disputed by the department that notice u/s. 148 dated 14-3-1989 was issued to Smt. Jerbanoo N. Wadia, Sneha Sadan, Nowroji Gamadia Road, Bombay-26, and received on her behalf on 19-3-1988. At this point of time, i.e., on 14-3-1988, the ITO was expected to be aware of the fact that Smt. J.N. Wadia was no more alive. This is clear from the fact that in connection with the rectification proceedings in the assessee's case for the assessment year 1986-87, when the same ITO had issued a notice under section 154/155, the assessee's son in a letter dated 30-10-1987 addressed to the 1st ITO, X-Ward, Aaykar Bhavan, Bombay, had informed the ITO that the assessee, Mrs. J.N. Wadia, had expired on 27-10-1987. The intimation of her death was given to the ITO as early as on 30-10-1987 and the ITO in an order under section 155 (sic) of the Act dated 11-10-1987 (which date perhaps was 10- 11- 1987 since the order was received by the assessee's heir on 16-11-1987) had taken cognizance of the fact that the assessee was dead, as can be seen from the fact, that the ITO had described the assessee as 'Smt. J.N. Wadia (decea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal representatives of the deceased shall for the purposes of this Act be deemed to be the assessee. Thus, the provisions of section 159(2)(b) and section 159(3) enable the taxing authority to proceed against the legal representative by issue of appropriate notice if such authority intends to bring to tax any income of the deceased which has escaped assessment or which has to be subjected to assessment. This section would have no meaning if the tax authorities were to proceed to issue notice on assessees who are deceased and of whose death the taxing authority has had advance and adequate intimation. We are not prepared to accept Shri Mansukhani's argument that section 292B only provides that a return of income or a notice or an assessment shall not be treated as invalid merely by reason of any mistake, defect or omission in the return of income, assessment or notice. This section is intended to cure only procedural errors in the notices or orders of assessment but cannot be relied upon by the revenue to explain away what is obviously a fundamental and grievous error of the type which has been brought to our notice, i.e., the error of issue of notice on a dead person or a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndrakumar Bhadani's case. At page 337, the Court observed as under : ". . . it will be seen that the proceeding under section 34(1)(a) was initiated against Jhari Ram Bhadani who was dead long before the initiation of the proceeding. The proceeding was thus against a dead person. It does not require much argument to appreciate that a proceeding against a dead person is a nullity. It must be deemed to be non est in the eye of law. That is why the Tribunal, in its order at paragraph 15, held that although as a fact, a proceeding under section 34(1)(a) had been initiated against the deceased, Jhari Ram Bhadani, that was no proceeding in the eye of law. I am in complete agreement with the view of the Tribunal. That proceeding must be deemed to be non est. " The above observations support the view taken by us. Further, as held by the Supreme Court in Y. Naranaya Chetty's case, notice prescribed by section 34 of the IT Act, 1922, for the purpose of initiating re-assessment proceedings is not a mere procedural requirement. The service of the prescribed notice on the assessee is a condition precendent to the validity of any re-assessment made under that section. If no notice is issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1979] 118 ITR 1, applied the ratio of the decision in Burlop Dealers Ltd.'s case and observed that it was for the ITO to investigate and determine whether the documents produced at the time of the original assessment were genuine or not and the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. Although the learned Departmental Representative has relied on a catena of decisions, his substantial reliance was on the decision of the Supreme Court in the case of Indo-Aden Salt Mfg. Trading Co. (P.) Ltd. The Supreme Court, no doubt, observed there that the fact that the ITO could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true disclosure of material facts. But, in the same decision, the Supreme Court observed that it is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. This aspect of the Supreme Court's observation was highlighted by the Madhya ..... X X X X Extracts X X X X X X X X Extracts X X X X
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