Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact : (i) in interfering with the reassessment; (ii) in holding that the proceedings initiated against the assessee under s. 147 are bad in law ?

High Court Of Kerala

CIT vs. Abdul Khader Ahamed

Sections 147, 148, 254(1)

Asst. Year 1998-99

K.S. Radhakrishnan & V. Ramkumar, JJ.

IT Appeal No. 3 of 2006

19th June, 2006

Counsel Appeared

P.K. Raveendranatha Menon & George K. George, for the Appellant : C. Kochunny Nair & Dale P. Kurien, for the Respondent

JUDGMENT

V. Ramkumar, J. :

In this appeal filed under s. 260A of the IT Act, 1961 (hereinafter referred to as “the Act”), the Revenue assails the order dt. 27th July, 2005 of the Tribunal, Cochin Bench in ITA No. 117/Coch/2005.

As per the impugned order, the Tribunal partly allowed respondent/ assessee’s appeal holding that the notice issued by the AO to the assessee under s. 148 of the Act is void ab initio and consequently set aside the reassessment proceedings initiated against the assessee under s. 147 of the Act.

The substantial questions of law formulated in the memorandum of appeal are the following :

“(i) Whether, on the facts and in the circumstances of the case and the satisfaction contemplated under the statute being prior to and for the issue of notice under s. 148 of the IT Act and the same (satisfaction) having been found by the CIT(A) on the perusal of the reasons recorded in the miscellaneous records vide para 4 of the order of CIT(A), the Tribunal is right in law and fact in holding that there is nothing on record to show that the AO had applied his mind and is not the finding perverse and without application of mind to materials on record ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact : (i) in interfering with the reassessment; (ii) in holding that the proceedings initiated against the assessee under s. 147 are bad in law ?

(iii) Whether, on the facts and in the circumstances of the case should not the Tribunal have considered in issue of satisfaction and the validity of initiation of reassessment in the light of the reasons recorded prior to initiation of reassessment and is not the approach to the issue of satisfaction based on remarks in the assessment order against law, logic, perverse and vitiated ?”

4. We heard senior advocate Sri P.K. Raveendranatha Menon, the learned counsel appearing for the Revenue and, advocate Sri Dale P. Kurian, the learned counsel appearing for the assessee. The stand of the assessee

5. With a view to persuade us to confirm the order of the Tribunal, advocate Sri Dale Kurian made the following submissions before me : Assessment in respect of the assessee under s. 143(3) of the Act had initially been completed on the basis of a return filed by him showing his income pursuant to a notice issued under s. 142 of the Act by the Dy. CIT, Inv. Circle-I, Calicut. Reassessment proceedings against the assessee under s. 147 of the Act were initiated by the Jt. CIT, R2, Kozhikode, acting under the directions and instructions of the CIT, Circle-2(1), Calicut, as per Annex. F letter dt. 30th May, 2003. As per the provisions of s. 147 of the Act it is the AO who is invested with the power to invoke the said provision for reassessment and that too after complying with the mandatory requirements which include a notice under s. 147 of the Act. Before issuing such notice, the AO himself has to apply his mind and form an opinion regarding his reasons for initiating proceedings under s. 147. When it is for the AO to form the requisite opinion on being satisfied that about the existence of reasons for his belief that income has escaped assessment, his independent judgment cannot be allowed to be influenced at the instance of his official superior. In other words, in a case, as the present, where the original authority does something acting under the dictation of his superior, his action will be tainted with illegality thereby rendering the proceedings null and void. But for the direction of the CIT in Annex. ‘F’ letter dt. 30th May, 2003, the Dy. CIT would not have issued the notice under s. 148 of the Act. Hence, the consequential action for reassessment of income initiated by the Dy. CIT is vitiated. Reassessment proceedings initiated by the assessing authority without himself forming the requisite belief under s. 147 of the Act, but instead, reopening assessment on the directions of his superior, are liable to be quashed vide Chunnilal Onkarmal (P) Ltd. vs. ITO (1983) 139 ITR 380 (MP) and Sheo Narain Jaiswal vs. ITO (1989) 176 ITR 352 (Pat). The AO had initially completed the assessment on the premise that the assessee was a carrier of 48 gold biscuits in question, the value of which was not treated as the income of the assessee. Going by his statement, the gold biscuits really belonged to one V. Ahammed. When there was no failure on the part of the assessee to disclose any material fact, original assessment cannot be corrected in reassessment proceedings. Vide ITO vs. Nawab Mir Barkat Ali Khan Bahadur 1974 CTR (SC) 273 : (1974) 97 ITR 239 (SC), Lokendra Singh vs. ITO (1981) 128 ITR 450 (MP). It was on the direction of the CIT that the Dy. CIT changed his opinion to hold the view that the sum of Rs. 26,46,000 invested for purchasing the gold biscuits had escaped assessment for the asst. yr. 1998-99. There cannot be any reopening of assessment for the mere reason that the AO had subsequently changed his opinion vide Sita World Travels (India) Ltd. vs. CIT (2005) 193 CTR (Del) 84 : (2004) 140 Taxman 381 (Del). The order of the Tribunal does not call for any interference and may be confirmed. However, the dismissal by the Tribunal of ground Nos. 2, 4 and 5 as not pressed, is not correct since those grounds were also pressed by the assessee. Judicial evaluation

6. We are afraid that we find ourselves unable to agree with the above submissions. The factual matrix

7. On 26th April, 1997, the Airport Security at the Trivandrum Airport seized 48 gold biscuits weighing 5595 gms. from the assessee. They handed over the assessee along with the seized gold to the Valiyathura police who registered a case as Crime No. 104/97. The assessee was arrested and produced before the J.F.C.M.-I, Thiruvananthapuram, who remanded him to judicial custody. Invoking the provisions of s. 132A of the Act, the IT authorities requisitioned the seized gold from the police authorities. The assessee moved this Court challenging the request made by the IT authorities. This Court set aside the action taken by the IT authorities and ordered return of the gold to the Magistrate’s Court. Thereafter a notice was issued to the assessee on 13th Dec., 1999 under s. 142 of the Act calling upon him to file a return of his income for the asst. yr. 1998-99. In response to the said notice, the assessee filed his return showing “nil” income. The return filed by the assessee was processed and no further action was taken. In the meanwhile, the IT authorities returned the gold to the Magistrate’s Court in obedience to the direction of this Court. Even though the IT Department moved the Magistrate for the custody of the gold biscuits alleging that the same were acquired by the assessee out of undisclosed income, their request was disallowed by the Magistrate. Thereupon the Department moved the Sessions Court, Thiruvananthapuram. The Sessions Court ordered to hand over the gold to the IT Department. In the meantime, noticing that the Sessions Court, Thiruvananthapuram, had ordered return of the gold biscuits seized from the assessee to the IT Department and that thereafter, the Department had taken possession of the same on 7th May, 2003 and had deposited the gold biscuits with the RBI, Thiruvananthapuram, for safe custody, the CIT, Kozhikode as per Annex. ‘F’ letter dt. 30th May, 2003 directed the Dy. CIT, Circle-2(1), Kozhikode, to initiate income-tax proceedings by issuing notice under s. 148 of the Act after recording his reasons for the same. The text of the letter reads as follows : “Copies of the judgment of the Addl. Sessions Judge, Thiruvananthapuram, and other relevant documents are enclosed herewith. As per the judgment referred to above, gold biscuits weighing 5.597 kg. were ordered to be handed over to the IT Department and the same were taken possession of by the ITO (CIB) on 7th May, 2003 and deposited with RBI, Thiruvananthapuram, for safe custody. AO is hereby directed to initiate income-tax proceedings by issue of notice under s. 148 after recording his reason for the same. The gold biscuits were seized by police on 26th April, 1997 from Abdul Khader. So s. 148 proceedings are to be initiated with respect to that date. AO is to comply with all the requirements of law while initiating action. The assessment may be completed as early as possible.” (Emphasis, italicised in print, supplied)

On receipt of the Annex. ‘F’ letter, the Dy. CIT after verifying the records recorded the following reasons (Annex. ‘E’) in support of his belief that the income had escaped assessment. “Reasons for the belief that income has escaped assessment : On 26th April, 1997 the Thiruvananthapuram Airport Security seized 48 gold biscuits weighing 5,597 gms. from one Abdul Khader and the seized articles were handed over to the Valiathura police. The gold biscuits were handed over to the IT Department as per the provisions of s. 132A of the IT Act. Later on, these articles were returned to the Court. As per the order in Crl. A. No. 25/00 and Crl. A. No. 358/00 of the Addl. Sessions Judge, Thiruvananthapuram, these gold biscuits were again handed over to the IT Department. The assessee did not disclose the source of income for purchase of gold weighing 5,595 gms., value of which works out to Rs. 26,46,000 in the original return filed on 31st Jan., 2000. Therefore, I have reason to believe that income invested in purchase of gold biscuits has escaped assessment for the asst. yr. 1998-99. The tax effect including interest under ss. 234A and 234B comes to Rs. 20,87,292. The action under s. 148 is therefore, necessary.” As per Annex. A order dt. 23rd Oct., 2003, the Dy. CIT completed the assessment treating the sum of Rs. 26,46,000 as the escaped income which constituted the source for acquiring 48 gold biscuits weighing 5,595 gms. An appeal preferred by the assessee before the CIT(A)-I, Calicut, was unsuccessful as evidenced by Annex. B order dt. 23rd Aug., 2004. Thereupon the assessee filed an appeal as ITA No. 117/Coch/2005 before the Tribunal, Cochin Bench, which as per Annex. ‘C’ order dt. 27th July, 2005 allowed the appeal in part and set aside the reassessment proceedings initiated under s. 147 of the Act, for the reason that the notice under s. 148 of the Act issued by the AO acting under the dictation of his superior and without applying his mind was void ab initio. The legal issues

8. We will first dispose of a contention urged on behalf of the assessee that ground Nos. 2, 4 and 5 raised before the Tribunal were also pressed by the assessee and the statement to the contrary contained in Annex. ‘C’ order of the Tribunal is wrong. The Tribunal has unequivocally observed in para 1 of its order that out of the five grounds raised by the assessee, the counsel appearing for the assessee submitted that he was pressing only ground Nos. 1 and 3. The Tribunal accordingly dismissed as not pressed ground Nos. 2, 4 and 5. It is pertinent to note that it is not the counsel who appeared for the assessee before the Tribunal below who has chosen to dispute the statement in the order. It is a different counsel who has now come out with a denial and that too by means of a verified petition. That is clearly not permissible. Even if a wrong record has been made in the order as to what transpired before the Court or Tribunal the remedy of the aggrieved party is not to dispute the record before a higher forum but to seek a review before the lower forum itself. The Judges’ record is conclusive and neither the lawyer nor the litigant is entitled to contradict it except before the Judge himself and nowhere else. It is not open to the assessee to dispute before us the correctness of the above observation in the order of the Tribunal. The question as to what transpired before a Court or Tribunal, if can be gathered from the proceedings or order of the Tribunal, then no party will ordinarily be permitted to take exception to or contradict the statement to that effect in the order. What has been stated in the order should be taken as the last word on that question. If the parties or their counsel are permitted to indulge in a controverting exercise then there will be no end to it. See State of Maharashtra vs. Ramdas Shrinivas Nayak & Anr. 1983 (1) SCWR 80, Krishna Pillai vs. Bharathi Amma 1957 KLT 732, Sumangali vs. Kochumatha 1959 KLR 1043, Works Manager, B.S.S. Factory vs. C.P. Singh AIR 1973 SC 272, Bank of Bihar vs. Mahabir Lal & Ors. AIR 1964 SC 377, Vamakshi Renuka vs. Bhargavi Meenakshi 1994 (1) KLT 306, State of Maharashtra vs. Ramdas Shrinivas Nayak AIR 1982 SC 1249, Gauri Shanker vs. Hindustan Trust (P) Ltd. (1973) 2 SCC 127, Daman Singh vs. State of Punjab AIR 1985 SC 973, Mohamamed Shafi vs. Mohamamed Haji 1986 KLT (SN) 55, Ramanujamma vs. Nagamma 1968 Andhra Pradesh 223, Velayudhan vs. Joseph 1955 KLT 276, Madhavan Pillai vs. Bhaskaran Pillai 1985 KLT (SN) 47.

9. What now survives for consideration is the question as to whether the order of the assessing authority is vitiated for the reason that he was acting under the dictation of his superior. On the merits of the case we are of the view that there is nothing in Annex. ‘F’ letter of the CIT extracted hereinabove so as to conclude that the assessing authority was acting under the dictation of his superior. No doubt, the CIT has directed the assessing authority to initiate income-tax proceedings. But the further direction was to issue notice under s. 148 after recording his reasons for the same. There is still another direction that the AO should comply with all the requirements of law while initiating action. The reassessment proceedings initiated by the Dy. CIT was after applying his mind to all the relevant materials and also after recording the grounds of his belief as already extracted hereinabove. It is not even remotely discernible from Annex. ‘E’ that the Dy. CIT was mechanically obeying the directions of his official superior. There is not even a reference to Annex. ‘F’ letter. Even if there is advertence in the reassessment proceedings to the direction of the superior officer, that by itself will not vitiate the resultant proceedings as long as the AO has independently applied his mind to all the relevant aspects and has arrived at the reasons for his belief. On the facts and circumstances of the case, we have no hesitation to conclude that Annex. ‘F’ letter has only alerted the AO of his statutory obligation in the light of the subsequent turn of events culminating in the gold biscuit seized from the assessee having been entrusted to the IT Department. The pendency of the criminal proceedings and the ultimate order passed by the Sessions Court, etc. were not within the knowledge of the AO. Those supervening events were conveyed to the AO by the CIT at whose level the litigations were conducted. Reminding an officer of his statutory duty and directing him to proceed in accordance to law after arriving at the requisite satisfaction under the statute cannot amount to a dictation to act in a particular way. The officer to whom such a reminder is given also cannot be said to abdicate his function if he proceeds according to law uninfluenced by any direction from his superior. If the direction by the CIT was to reopen the assessment under s. 147 of the Act by bye-passing the statutory formalities, that would have probably amounted to dictating his subordinate to act in a particular way thereby taking away the discretion vested in the subordinate. On the contrary, Annex. ‘F’ letter only asks the Dy. CIT to issue a notice of reassessment under s. 148 of the Act and that too after recording the requisite grounds of belief. The Dy. CIT also proceeded only after satisfying himself that there existed adequate grounds of belief to initiate reassessment proceedings. As rightly observed by the appellate authority in Annex. B order, the assessee has been assessed on the basis of the presumption under s. 132(4A) of the Act to the effect that any valuables, books of account, cash, etc. found on a person during a search shall be deemed to be his own unless proved otherwise with sufficient evidence. The presumption under s. 132(4A) applies equally to action under s. 132A and the appellant who was given sufficient opportunities to rebut the presumption, failed to do so. It is clear from the reasons recorded by the AO that he had prima facie reason to believe that the assessee had omitted to disclose fully and truly all material facts and that as a consequence of such non-disclosure, income had escaped assessment within the meaning of s. 147 of the Act. The facts of (1989) 176 ITR 352 (Pat) (supra) cited by the counsel for the assessee are unique. When under law the requisite belief under s. 147 of the Act must be that of the AO, the ITO in that case, instead of forming his own belief, was merely acting at the behest of his superior authority. In fact, the ITO was holding the view against the taxability of the assessee in that case. Likewise, in (1983) 139 ITR 380 (MP) (supra) cited on behalf of the assessee, it was found that there had been no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Moreover, the CIT had by a letter directed the ITO that “immediate action should be taken under s. 147” thereby leaving no discretion to the AO who without the basis of his own independent satisfaction, was mechanically obeying the directions of his superior. But that is not the factual position in the case on hand.

10. After an anxious consideration of all the aspects of the case, we are of the view that the Tribunal misdirected itself on the matter which came up for its consideration. We answer the questions of law in favour of the Revenue and against the assessee and set aside the impugned order of the Tribunal and restore that of the CIT(A).

In the result, this appeal is allowed as above.

[Citation : 285 ITR 57]

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