Bombay H.C : Where an ITO assessees the income under s. 34(1)(a) and the Tribunal, on appeal, comes to the conclusion that it should have been assessed under s. 34(1)(b), has the Tribunal jurisdiction to convert or alter the assessment made by the ITO under s. 34(1)(a) to an assessment under s. 34 (1)(b) and maintain it as such ?

Counsel Appeared

S. Rahimtoola of R.D. Sethna & Co., for the Petitioner : G.S. Jetly & Mrs. Manjula Singh, for the Respondents

BHARUCHA, J.:

The appellant was assessed to income-tax for the asst. yr. 1971- 72 by an assessment order dated March 27, 1974, On September 30, 1974, the appellant was given notice under s. 148 of the IT Act, 1961, of the proposed reopening of his assessment for the said assessment year. On November 29, 1975, the appellant wrote to his ITO protesting against the proposed reopening. He asked the ITO to furnish him with the grounds for the same. On that day, he also filed a return as required by the notice under s. 148, but under protest.

2. Nothing transpired until January 17, 1980, when the ITO wrote to the appellant on the subject of the reopening of his assessment under s. 147(a) of the IT Act, 1961, for the said assessment year. He stated that after the assessment for that year had been made, the IT Department came to know that loans shown by the appellant were not genuine; that one J. K. Thakkar had merely lent his name to show that a loan had been received from him, though he had not given it. The Department had, therefore, reason to believe that the amount of the loans represented the appellant’s own unexplained money and that his income had escaped assessment because he had failed to furnish full, true and correct particulars of his income at the time of the original assessment. Accordingly, the assessment had been reopened under s. 147(a) by issue of a notice under s. 148 of the IT Act, 1961. Along with the letter, the ITO had enclosed notices under ss. 143 (2) and 142(1) of the said Act and a summons for personal attendance under s. 131. On February 15, 1980, the appellant wrote to the ITO a long letter in which he again asked to be furnished with the grounds recorded by the ITO before the notice under s. 148 was issued. On February 23, 1980, the ITO informed the appellant of the grounds. They were recorded thus: “The assessee had for this year shown a loan of Rs. 50,000 taken from one Jethalal K. Thakkar which has been accepted in the original assessment made. As per intimation letter dt. 20-4-1974 on record from the 2nd ITO, BSD (West), this person has given havalas. There is also an intimation from the 3rd ITO, X-Ward, Bombay, that one J. K. Nathwani had arranged bogus havala loans in the name of Jethalal Karsondas & Mohanlal & Sons during the years 1971 and

1972 for the assessee.

3. I have, therefore, reason to believe that on account of the assessee’s omission to disclose fully and truly all the material facts necessary for assessment for this year, income chargeable to tax of Rs. 50,000 has escaped assessment. Issue notice u/s. 148. (Sd.) ……………… ITO.”

4. Along with the letter dated February 23, 1980, the ITO enclosed copies of letters dated February 7, 1975, and April 20, 1974, which were referred in the grounds. On March 4, 1980, the appellant filed a writ petition impugning the notice under s. 148 of the IT Act, 1961, the notices under ss. 143(2) and 142(1) of the said Act and the summons under s. 131. The writ petition was heard and disposed of by the learned single Judge on December 22, 1983. The learned Judge dismissed the writ petition in so far as it concerned the notice under s. 148 on the ground of delay. He quashed the notices under ss. 143(2) and 142(1) and the summons under s. 131. This appeal filed by the original petitioner assails the judgment and order of the learned Judge in so far as they rejected his contentions in regard to the notice under s. 148.

The notice under s. 148 of the IT Act, 1961, was issued on September 30, 1975. Soon thereafter, on November 29, 1975, the appellant wrote to the ITO calling for the grounds for the proposed reopening. There was no reply to this communication. Nothing was heard of the proposed reopening till the ITO wrote to the appellant on January 17, 1980, and even then he did not set out the grounds which he had recorded before he issued the notice under s. 148. It was, however, for the first time that the ITO then stated that the reopening was proposed under s. 147(a). It was only when, once again, the assessee required the ITO to furnish him with the grounds that they were given to him on February 23, 1980. The writ petition was thereafter filed on March 4, 1980. In these circumstances, it does not appear to us equitable that the appellant’s writ petition should be dismissed in regard to the notice under s. 148 only upon the ground of delay.

5. To appreciate what follows, cls. (a) and (b) of s. 147 of the IT Act, 1961, must be set out: “147. If— (a) the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he subject to the provisions of ss. 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in ss. 148 to 153 referred to as the relevant assessment year). “

6. It is apparent from the grounds which are quoted above that the reopening could not have been under cl. (a) of s. 147 of the IT Act, 1961, and this is not seriously disputed. It is equally apparent from the grounds that the reopening was proposed because of the information received by the ITO by the letters dated February 7, 1975, and April 20, 1974, from fellow ITOs. The first of the letters was written by the ITO to the aforementioned J. K. Thakkar (also called J. K. Nathwani). The letter stated that J. K. Thakkar had filed an affidavit in which he had listed the names of the parties for whom he had arranged ” havalas ” on commission basis. The appellant was shown in the list as having received in the asst. yr. 1971-72 a ” havala of Rs. 50,000 “. The second letter was also from the ITO of J. K. Thakkar. It referred to an entry in the account of J. K. Thakkar maintained in the appellant’s books which showed that the former had advanced Rs. 50,000 in cash to the latter on March 31, 1971. Information gathered, the letter said, showed that J. K. Thakkar acted only as name-lender passing bogus havalas for the alleged loans.

7. The question now is whether, in these circumstances, we should strike down the notice under s. 148 of the IT Act, 1961, because s. 147(a) of the said Act, which the ITO invoked, is not applicable. There is, in our mind, no doubt that the letters dated February 7, 1975, and April 20, 1974, furnished definite information to the ITO. This was not a case of ” wholly vague, indefinite, far-fetched and remote ” information. The information could not but have led to the reasonable belief that income chargeable to tax in the appellant’s hands had escaped assessment.

8. Our attention was drawn by Mr. Rahimtoola, learned counsel for the appellant, to the judgment of the Allahabad High Court in Raghubar Dayal Ram Kishan vs. CIT (1967) 63 ITR 572 (All). The judgment was delivered on a reference. The question that was answered read thus :

“Where an ITO assessees the income under s. 34(1)(a) and the Tribunal, on appeal, comes to the conclusion that it should have been assessed under s. 34(1)(b), has the Tribunal jurisdiction to convert or alter the assessment made by the ITO under s. 34(1)(a) to an assessment under s. 34 (1)(b) and maintain it as such ?”

9. Desai, C.J. and Manchanda, J. having differed, the question was referred to Pathak, J. Pathak, J., agreed with Desai, C.J. in answering the question in the negative. He referred to the powers conferred upon the Tribunal and held that the Tribunal did not have the jurisdiction to convert an assessment made under one clause of s. 147 of the IT Act, 1961, to an assessment under the other clauses. The Allahabad case, as we have noticed, was concerned with the powers of the Tribunal and was delivered on a reference. The matter before us is an appeal filed from a judgment and order on a writ petition under Art. 226 of the Constitution. If a Court exercising power under Art. 226 is of the view that the interests of justice will be defeated if some order or notice is quashed for technical reasons, it may decline to issue to necessary writ. It is our view that the information conveyed as aforesaid to the ITO assessing the appellant required a reopening of the appellant’s assessment and further inquiry. The interests of justice will not be served if such inquiry does not take place by reason of the striking down of the notice under s. 148 of the IT Act, 1961. We, therefore, decline to issue that writ.

Mr. Jetly, learned counsel for the Revenue, now draws our attention to the judgement of a Division Bench of the Delhi High Court in Ganga Suran and Sons (HUF) vs. ITO (1981) 130 ITR 212. A notice under s. 148 of the IT Act, 1961, was issued to an assessee after his assessment was sought to be reopened by invoking the provisions of cl. (a) of s. 147 of the said Act. The assessee challenged the notice by filing a writ petition. The Court came to the conclusion that the provisions of cl. (a) of s. 147 were not attracted. It then considered the question as to whether a notice issued under cl. (a) of s. 147 could be validated by reference to cl. (b) thereof. The facts before the Court were such that the provisions of cl. (b) of s. 147 were applicable. The principal objection raised by the assessee was, however, that the ITO had initiated the action not under cl. (b) but under cl. (a) of s. 147 and that, therefore, the Revenue could not be permitted to seek the aid of cl. (b) of the s. 147 for sustaining proceedings initiated under cl. (a) thereof. The Court held that if was open to the Revenue to do so notwithstanding the fact that cl. (b) of s. 147 had not been specifically pleaded and had for the first time been referred to in the course of arguments. The Court referred to its own earlier judgment in Avtar Singh Sandhu vs. WTO (1981) 129 ITR 531 (Del) and to the judgments of the Calcutta High Court [the latest in Smt. Nirmala Birla vs. WTO (1976) 105 ITR 483 (Cal)(FB)] and concurred with the view therein expressed that it was possible for the ITO to entertain on the same set of facts alternate beliefs under cl. (a) or cl. (b) of s. 147 and there was nothing to prevent the ITO from seeking to support the validity of a notice by reference to the appropriate provision in the statute. The Court said that the Revenue had, no doubt, purported to reopen the assessment under cl. (a) of s. 147, but, if the fact could sustain the reopening of the assessment under cl. (b) thereof, it did not see why the validity of the notice under s. 148 of the IT Act, 1961, could not be supported.

We are in respectful agreement with the views taken by the Delhi High Court in the context of the writ petition to strike down notices issued under s. 148 of the IT Act, 1961, in exercise of powers under cl. (a) of s. 147 of the said Act. Where the facts may sustain the proposed reopening under cl. (b) of s. 147 of the said Act but not under cl. (a) thereof, the Court may not strike down the notice under s. 148 of the said Act.

In the result, we dismiss the appeal, but with no order as to costs.

[Citation : 170 ITR 614]