Supreme Court of India
NIRANJAN & CO. P. LTD.versusCOMMISSIONER OF INCOME TAX, WEST BENGAL-I & OTHERS
- Citation
- 1986 INSC 49
- Decided
- 19 March 1986
- Disposal
- Dismissed
- Bench
- R S PATHAK
Holding
The Income‑Tax Officer had jurisdiction to issue a notice under s.147(b) because the post‑assessment revised return supplied information that could lead a reasonable person to believe income had escaped assessment.
Summary
Niranjan & Co. Ltd. filed its 1962 return showing a profit of Rs 2,092 but later discovered that profit from construction work of Rs 10,718.46 had been omitted. The Income‑Tax Officer (ITO) assessed the year‑end tax on 27 Nov 1963, having taken the construction profit into account from the balance‑sheet filed with the original return. On 3 Dec 1963 the assessee voluntarily filed a revised return showing a total profit of Rs 12,797.65, without attaching the balance‑sheet. The ITO issued a notice under s.147 of the Income‑Tax Act, 1961, on the ground that the revised return came to his possession after the assessment. The assessee challenged the ITO’s jurisdiction; the High Court dismissed the challenge and the Division Bench upheld the notice. The Supreme Court held that the ITO was entitled to reopen the assessment under s.147(b) because the revised return, received after the assessment, provided information from which a reasonable person could believe income had escaped assessment, even though the same information was available earlier. Consequently, the appeal was dismissed with costs.
Issues considered
- Whether the Income‑Tax Officer can issue a notice under s.147 of the Income‑Tax Act, 1961 to reopen a completed assessment when a voluntary revised return is filed after the assessment.
- Whether the existence of the same information in the original return precludes the ITO’s jurisdiction to reopen the assessment.
Legislation cited
- Income Tax Act, 1961s. 147
Subjects
Income TaxSection 147Reopening assessmentRevised returnVoluntary returnEscapement of incomeJurisdictionTax assessment
Judgment
916
A
NIRANJAN & CO, P. LTD.
v.
COltllSSIONER OF INCOME TAX,
WEST BENGAL-I & OTHERS
!IARCH 19, J986.
B
[R. S. PATHAK AND SABYASACHI MUKHARJI, JJ,]
Income tax Act, 1961, s. 147 - Assessment - Reopening of
- When permissible.
c Assessee - Filing revised return voluntarily after
making of first assessment - Income Tax Officer ·- Whether can
reopen assessment.
The appellant-assessee filed its return along with a
D
copy of the Balance-Sheet and profit and loss account in
November, 1962 showing an income of Rs.2,092 ea its profit.
According to the appellant , a Ill.stake had occurred in the
preparation of the return, inaamich aa the profit of Rs.
10,718,46 arising from construction works had been left out
from the return. However, in the Profit & Loss Account, the
E
profit from construction work was indicated. The Income--tax-
Officer made an aaaesament on 27th November, 1963 after taking
into account ~he profit from the construction work also. On
3rd December', 1963 the appellant-assessee again filed a
revised return showing a general profit of Rs, 2.092 ea also
profit fr0a the construction work aggregating Rs.12, 797.65.
But; no copy of Balance-Sheet or Profit & t.oss Account was
F
annexed with the revised return. The Income-tax Officer issued
a notice to the appellant under section 147 of the Inc011e-Tax I
Act, 1961 on the ground that the revised return was not before
the Income-T"" Officer when the assessment Order waa
originally made but cue to her possession later on. The
G
appellant challenged before the High Court the jurisdiction of
the Income-tax-Officer to i11ue the notice. The Single Judge
dislllissed the application and the Division Bench confirmed the
~rder of the Single Judge in appeal pref erred by the
appellant.
In appeal to the Supreme Court, it was contended on
H
behalf of the appellant-asaessee that there waa no question of
NIRANJAN v. C.I.T. 917
any escapement of income or under-assessment of income, A
because the profit from construction work which was the item ·
alleged to have been left out from the first return and
included in the revised return was already taken into
consideration by the Income Tax Officer in making the first
assessment order.
B
Dismissing the appeal,
Jll!U) : l(i) Under s. 147(a) of the Act, a completed
asseasment can only be reopened either if there was omission
or failure on the part of the assessee to make a return or to
disclose fully and truly all material and relevant facts and
the Income-tax Officer 1111st have in his posseasion before he c
issues notice s0111e material from which he can reasonsbly form
a belief that there has been some eacapement of income due to
SOiie failure or omission on the part of the asseasee to dis-
close fully all relevant or material facts. The second right
under clause(b) of section 147 of the Act, under which the
Income-tax Officer has to reopen a completed assessment is D
that notwithstanding that there was no omission or failure on
the part of the assessee either to make a return or to dis-
close fully and truly all material facts, the Income-tax
Officer in consequence of information in his posseasion subse-
quent to the first assessment has reason to believe that
income chargeable to tax' has escaped asseasment. [923 A-<:] E
1. 2 It is true that even after the expiry of the time
to make return, if an assessee files a return before the
assessment is made, then the Inc0111e-tax Officer is bound to
take cognizance of that return and cannot ignore that return.
If a second return is there to the notice of the Incomo-tax F
Officer then it cannot be said that there was an eai:apement of
income due to omission or failure of the asseasee to disclose
fully and truly all material and relevant 'facts based on the
facts mentioned in the second return. But after the completion
of an assessment, the assessee is not entitled to take benefit
of another return filed by him, nor is Income-tax Officer G
obliged or entitled to take that return into consideration
except by the process of re-opening the assessment. [923 I>-F]
, /..
ec-tsaiooer of ~Tu, Bombay City II v.
lanchhoc!des KaraondAul, 36 I.T.R. 569, r.c-lssioner of
In• ta, lladra v. S. llawh C...ttiar, 55 I.T,R. 630 and H
918 SUPREME COURT REPORTS [1986] l S,C.R.
A
• Balcban4 V• 1--Ta Officer, Sagar, 72 I,T,R. 197 referred
to.
ro-tuioaer of 1--Tax, Gujarat v. A. 1lwn & eo ••
67 I.T.R. 11, Co-!Hioner of~. ~ v. !lessen,
Kahaliraa lla;jidu, 8 I,T.R. 442 relied upon.
B
In the instant case, there was information in the form
of a revised return and since informations mentioned before
came to the knowledge of the Income Tax Officer subsequent to
the making of the first assessment and information being such
from which a reasonable person could have formed the belief
c that there was escapement of illCOlll! or under assessment of
income, it cannot be said that there was no jurisdiction of
the 1nC090 Tax Officer to reopen the assessment. Whether in
the reassessment to be made pursuant to the notice issued, the
income assessed would be more by Re. l or less than the inCOlle
already assessed is not material or relevant for the question
D of jurisdiction to issue the notice under s. 147 of the Act,
(925 l>-F]
(2) Filing of voluntary return which came to the
knowledge and possession of the Income-tax Officer will not be
any bar for the lncolle-tax Officer to issue notice for
E reopening of the assessment, if the other conditions are
fulfilled. (923 G-11]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 967 of
1972.
F From the Judgment and Order dated 21st May, 1971 of the
Calcutta High Court in Civil Appeal No, 201 of 1970.
V,S, Desai, Ma. Arona Jain and Ashok Mathur for the
Appellant.
G C.M. Lodha and Ms. A. Subhashini for the Respondents.
The Judgment of the Court was delivered by
SABYASACllI MDKllAllJI, J. This appeal by special leave is
directed against the judgment and order 21st May, 1971 of the
H division bench of the Calcutta High Court.
NIRANJAN v. C.I.T. [SABYASACHI MUKHARJI, J,] 919
A
This appeal raises the familiar problem whether there are
grounds for reopening a completed assessment but that question
arises under rather peculiar circumstances. The assessment
year concerned is 1962-63. The asses see/appellant had filed
its return in November, 1962 showing an income of Rs.2,092 B
as its profit. According to the assessee/appellant, a mistake
had occurred in the preparation of the return, inas111Uch as the
profit of Rs. 10,718.46 arising from construction works had
been left out from the return. But it appears that along with
the original return, a copy of the Balance-sheet and ?rofit
and Loss Account was filed by the appellant. In the Profit and
Loss Account, the profit from construction work was indi- c
cated. The Income-tax Officer made an assessment on 27th
November, 1963 and it appears from the assessment order that
-
,, the profit from the construction work was taken into account
in making the assessment. The assessee/appellant, however,
filed a revised return showing a general profit of Rs.2,092
as also profit from the construction work aggregating
Rs.12, 797.
D
It is important in this connection to bear in mind that
the return was filed by the assessee/appellant on 29th
November, 1962. This was received in the receiving section of
the Department and a stamp had been duly put thereon in token E
of the receipt. It further appears that a revised return dated
2nd August, 1963 was received, as shown in the endorsement,
on 3rd December, 1963. The original assessment was made on
27th November, 1963.
In the revised return, the assessee/appellant had shown a F
general profit of Rs. 2, 092 as also the prof! t from the
construction work aggregating to Rs.12, 797. 65. After having
made the assessment order on the basis of the first return,
the Income-tax Officer issued a notice to the assessee under
section 147 of the Income-tax Act, 1961 (hereinsfter called
the 'Act'). It is stated that the ground for issue of this G
notice was that the revised return was not before the
Income-tax Officer when the assessment order was originally
made but came to her possession later on when it was forwarded
to her on 3rd December, 1963. On receipt of the notice, the
assessee wrote challenging the Income-tax Officer's
jurisdiction and thereafter not being satisfied moved an H
application under article 226 of the Constitution and obtained
920 SUPREME COURT REPORTS [1986] t s.c.R.
A
a rule nisi which was ultimately discharged by order dated
30th April, 1970,
The appellant/assessee preferred an appeal before the
division bench of the said High Court.
B The division bench discussed several contentions urged
before it. It appears from the affidavit of the Income-tax
Officer who made the assessment, Mrs. Mahajan, that the return
was filed on 29th November, 1962. The return showed a business
loss of Rs. 4,422 and dividend income of Rs. 6,519. The
total income shown was Rs.2,095.26. The said Income-tax
c Officer stated that the file was transferred to her on 9th
October, 1963 and the file number and other particulars were
duly intimated to the assessee. It was further stated by the
said Income-tax Officer that on 3rd December, 1963, she had
received from the Income-tax Officer, 'E' Ward a return filed
before that officer by the assessee showing an income of Rs,
D 12,797.65 against Rs. 2,096.26 shown as income in the original
return.
The said Income-tax Officer has further stated that the
assessment for the year 1962-63 was completed on 30th
November, 1963, At the time of making the assessment, she had
E before her only the return dated 29th November, 1962 showing
an income of Rs, 2, 096. 26. On 3rd December, 1963 i.e. to say
after completing the assessment she had received from the
Income-tax Officer, 'E' Ward a return. showing an income of
Rs.12,797.65. The second or the revised return, however, was
not accompanied by the Prof it and Loss Account and the
F Balance-sheet.
After discussing the relevant provisions of law and other
submissions urged on behalf of the assessee/ appellant the
division bench dismissed the appeal and upheld the notice.
G Being aggrieved, the asses see/ appellant has come up in
appeal before this Court by special leave ..
Before the position in law is discussed, it is necessary
to bear in mind the factual position emerging from the
documents.
H
NIRANJAN v. C.I.T. [SABYASACHI MUKHARJI, J,] 921
A
On behalf of the assessee/appellant, it was urged before
us as it was urged before the division bench of the High Court
that there was in this case no question of any escapement of
income or under-assessment of income because the profit from
construction work which was the item alleged to have been left B
out from the first return and included in the revised return
was in fact taken into consideration by the Income-tax Officer
in making the first assessment order. It was argued that this
item of profit was not only before the Income-tax Officer as
it was included in the Profit and Loss Account but in fact it
was taken into consideration by the said Income-tax Officer in
making the order. The specific amount which provided the c
ground for the issue of the notice under section 147 having
been taken into consideration by the Income-tax Officer while
making the assessment, it was urged that it could not be said
that there was any escapement of income, or under assessment
of Income.
D
The division bench after analysing the record has come to
the conclusion that the Income-tax Officer while making the
first assessment had before her not only the Balance Sheet and
the Prof it and Loss Account of the assessee in which profit on
construction work was clearly shown but it was evident from
the asessment order itself that this particular item of profit E
or income was taken into consideration in making the first
assessment. Therefore, this by itself could not be any ground
for reopening under section 147 of the Act. It, however,
appeared that in the revised return, the profit or income from
all sources have been stated to be Rs.12,797.65. In the
Balance-sheet which was submitted in the first return, the F
." profit from construction work was shown at Rs.10,718.46 •
According to the assessee, a loss of Rs.18,07 shown in the
balance-sheet had to be deducted from the said amount and if
so deducted, the profit came to Rs.10, 700.39. If the profit
disclosed in the first return of Rs.2,096.26 was added to the
amount of Rs.10,700.39, the total amount came to Rs.12,796.65. G
It is apparent therefore that the total profit and income
calculated on the basis of the first return and the
balance-sheet came to Rs.12, 796.65 and that is less by Re. l
only from the profit and income disclosed in the revised
income which is Rs.12,797.65.
H
922 SUPREME COURT REPORTS [1986] l s.c.R.
A
Apart from this as is apparent from the judgment of the
division bench of the High Court that in the original return,
a loss from business and profession to the extent of
Rs.4422.89 was shown and there was a profit from another
source to the extent of Rs.6,519.15 and therefore there was a
net profit of Rs.2,096,26 which was taxable. But in the
B revised return, the assessee/ appellant had shown profit from
business and profession to the extent of Rs.7,461.42 and also
profits from other sources to the extent of Rs.5,336.23 and
the taxable income was shown at Rs.12, 797 .65. It appears
therefore that the figures disclosed as profit from business
and other sources could not be readily obtained from the
c figures disclosed in the balance sheet and the prof it and loss
account. It appears that the present figures could be obtained
by a process of back calculation with a view to reconcile the
profit or income disclosed in the revised return with those
disclosed in the balance-,,heet. It is clear that the figures
disclosed in the first return of the balance-sheet filed with
D it could not readily be reconciled with the profits disclosed
in the revised return and the later provided grounds for
reasons to believe that income chargeable to tax had escaped
assessment.
This reopening was under section 147 of the Act.
E Reopening under section 147 can only be made after completed
assessment if the Income-tax Officer has reason to believe
under clause (a) that by reason of omission or failure on the
part of the a8sessee to make a return or to disclose fully or
truly all relevant facts, income chargeable to tax has escaped
assessment for that year and under clause (b) notwithstanding,
p that there was no omission or failure on the part of the
assessee if the Income-tax Officer has in consequence. of l -•
information in his possession reason to believe that income
- chargeable to tax has escaped assessment then he is subject to
the provisions of limitations in respect of certain income
which does not apply in the instant case, jurisdktion to
G issue notice.
At this stage, the jurisdiction to issue the notice is
under consideration. We are not concerned in this appeal
whether on a properly made assessment, any higher income would -"'
be taxed or not.
H
NIRANJAN v. C.l.T. (SAJIYASACHI MIJKHARJI, J.] 923
A
The position in law is well""11ettled. A completed
assessment can only be reopened either if there was omission
or failure on the part of the assessee to disclose fully and
truly all material and relevant facts and the Income-tax
Officer lllJSt have in his possession before he issues notice
B
some material from which he can reasonably form a belief that
there has been some escapement of income due to some failure
or omission on the part of the assessee to disclose fully all
relevant or material facts. The second right under clause (b)
of section 147 of the Act, which the Income-tax Officer has to
reopen a coq>leted assessment is that notwithstanding that
there was no omission or failure on the part of the assessee
either to make a return or to disclose fully and truly all
c
material facts, the Income-tax Officer in consequence of
information in his possession subsequent to the first
assessment has reason to believe that income chargeable to tax
has escaped assessment ••
D
In this case the assessee had filed a revised return
voluntarily before apparently he knew that the first
assessment was made. It is true that even after the expiry
of the time to make return, if an assessee files a return
before the assessment is made, then the Income-tax Officer is
bound to take cognizance of that return and cannot ignore that E
return. If a second return is there, to the notice of the
Income-tax Officer then it cannot be said that there was an
escapement of income due to omission or failure of the
assessee to disclose fully and truly all material and relevant
facts based on the facts mentioned in the second return. But
after the completion of an assessment, the assessee is not
F
entitled to take benefit of another return filed by him, nor
is Income-tax Officer obliged or ent.itled to take that return
into consideration except by the process of re-opening the
assessment, See the observations of this Court in r.c-1 ssioner
of lneolle-'tu, Bombay City II v. l11111chln!das Karsondas, 36
I.T.R. 569, ra-tssioner of Ioc:ome-'rax, Madras v. s. llama G
Qiettf.ar, 55 l.T.R. 630 and Balclwld v. Income-Tu Officer,
Scar, 72 I.T.R. 197. Filing of a voluntary return which came
to the knowledge and possession of the Income-tax Officer
after completion of the assessment by the Income-tax Officer
will not be any bar for the Income-tax Officer to issue notice
for reopening" of the assessment, if the other conditions are H
fulfilled.
924 SUPREME COURT REPORTS [1986] 1 S.C.R.
A
These principles are well settled.
In Coamlssioner of ~ax Gtjarat v. A. l!allrm and
Co., 67 I.T.R. 11 dealing with section 147(l)(b) of the Act,
this Court observed that even if the information which was
B obtained could have been gathered by the Income-tax Officer at
the time of the original assessment would not disentitle the
Income-tax Officer to re-open the assessment if he has in
consequence of information in his possession reason to believe
that income chargeable to tax has escaped assessment. That
information rust come to the possession of the Income-tax
c Officer after the previous assessment but if the information
be of such a nature that it could have been obtained durini
the previous assessment or investigation of the materials but
was not obtained, the Income-tax Officer was not precluded
from re-opening, In this case it was contended that profit and
loss account was there at the time of .the original assessment,
D therefore the fresh information now relied upon could have
been gathered. That is not the correct position. The facts
which came to the knowledge of the Income-tax Officer were
undoubtedly such as noted before from which a reasonable
belief could have been formed that there was escapement of
income or under-assessment of income and that belief could be
E formed by the revised return where the figures were different
than the figures of the previous return.
In c.-1.ssioner of Income.Jfax, Bengal v. Messrs llahallraa
llallljiclas, 8 I.T.R. 442 it was held by the Privy Council that
to enable the Income-Tax Officer to initiate proceedings under
F section 34 of the 1922 Act which is in pari materia with
section 147 of the Act, it is enough that the Income-tax
Officer on the information which he had before him and in good
faith reason to believe that prof its had escaped assessment or
had been assessed at too low a rate. It is true, however, that
the information rust be definite and not mere guess. There
G must be causal connection between the information and the
• discovery. See in this connection the observations of this
Court in A.N, Lakshllan Shenoy v. I~ax Officer,
Emalm!am and Anr., 34 I, T.R. 275, In S. llarayanappa and
Others v. Conml.ssiooer of lncmae-tax, Bangalore, 63 I.T.R. 219
the content of 'reason to believe' in section 34 of the 1922
H Act came up for consideration. It was held that such belief
rust be held in good faith and it could not be a mere
NIRANJAN v. C.I.T. [S/>.BYASACHI MUKHARJI,'J.) 925
A
pretence. It was open to the court to exam.lne whether the
reasons for the belief had any rational connection or a
relevant bearing to the formation of the belief and were not
extraneous or irrelevant to the purpose of the section but the
sufficlency of the reasons was not open to the scrutiny by the
court. B
• 1. It was contended on behalf of the assessee/ appellant
relying on the observations of this Court in Commissioner of
Income-True, Gujarat v. A Raman and Co. (supra), that the
Income-tax Officer must have had reason to believe and in
consequence of information he must have that reason to believe
and it was submitted that the information was already there C
and there was no new information from which the Income-tax
Officer could have formed the belief.
Having regard to the facts of this case as discussed
above and the nature of the information indicated before, we
are of the opinion that there was information in the form of a D
revised return and since the informations mentioned before
came to the knowledge of the Income-tax Officer subsequent to
the making of the first assessment and the information being
such from which a reasonable pers9n could have formed the
belief that there was escapement of income or under-assessment
of income, it cannot be said that there was no jurisdiction of E
the Income-tax Officer to reopen the assessment. Whether in
fact the reassessment to be made pursuant to the notice
issued, the income assessed would be IIK>re by Re. 1 or less
than the income already assessed is not material or relevant
for the question of jurisdiction to issue the notice under
section 147 of the Act. F
In our opinion on the materials on record, the division
bench was, therefore, right in a dismissing the appeal of the
assessee/appellant. The appeal accordingly fails and is
dismissed with costs.
G
,,._ M.L.A. Appeal dismissed.
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