Calling for information u/s 133(6) without prior approval of CIT is curable irregularity

By | November 24, 2016
(Last Updated On: November 24, 2016)

Held

we are of the opinion that calling for information without prior approval of the CIT is a case of curable irregularity and it cannot be termed as nullity. We are of the opinion that no appeal lies against section 133(6) of the Act and this Tribunal cannot adjudicate upon validity of action of the Assessing Officer under section 133(6) of the Income-tax Act. For this proposition, reliance is placed on the ITAT, Bangalore, Special Bench decision in the case ofC. Ramaiah Reddy v. Asstt. CIT [2003] 87 ITD 439 . The case of Smt. Amiya Bala Paul  was on the basis of entirely different facts. In that case, the Assessing Officer had no power to call for information from the Government Valuer. In the case before us, the Assessing Officer was authorized to call for information under section 133(6) of the Income-tax Act. The ld. A/R also relied upon the decision of Hon’ble Calcutta High Court in the case of Grindlays Bank Ltd. . In this case, the Hon’ble Calcutta High Court had quashed the enquiry notice issued under section 133(6) by the Assessing Officer on the basis of writ filed by the assessee. Therefore, it is clear that such an action on the part of the Assessing Officer can be challenged only through writ. The ld. A/R had submitted that the information was not called for with the prior approval of the Commissioner. We are of the opinion that even if the information is called for in contravention of the legal provisions, the material obtained thereby can still be used by the Department against the person concerned in the light of the decision of the Apex Court in the case of Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 and Dr. Pratap Singh v. Director of Enforcement [1985] 155 ITR 166 3. No such plea has been raised before the lower authorities. Therefore, this ground raised for the first time before us by the appellant is hereby dismissed.

IN THE ITAT JAIPUR BENCH

Gyarsi Lal Gupta & Sons

v.

Income-tax Officer, Ward 3(3)

  1. SATISH CHANDRA, JUDICIAL MEMBER AND B.L. KHATRI, ACCOUNTANT MEMBER

IT APPEAL NOS. 272, 277, 354 & 355 (JP) OF 2004 [ASSESSMENT YEARS 1996-97 AND 1997-98]

OCTOBER 21, 2004

S.L. Jain for the Appellant.

Rajeev Varshney for the Respondent.

ORDER

Per B.L. Khatri, A.M. – These are the cross appeals filed by the assessee as well as by the Revenue against the consolidated order of the ld. CIT(A)-I, Jaipur, dated 12-3-2004 for the assessment years 1996-97 and 1997-98. All these appeals pertain to the same assessee and involve common Grounds of Appeal, therefore, all these appeals are being decided through a consolidated order for the sake of convenience.

ITA Nos. 277 & 272/JP/2004 (Assessee’s appeals):

  1. Ground Nos. 1A & 1C, common in both the appeals filed by the assessee, are regarding initiation of the proceedings under section 147, read with section 148 as bad in law and not supplying the reasons recorded by the Assessing Officer under section 148, which form the very basis of the reopening.
  2. We heard the rival submissions and also perused the record.
  3. The brief facts of the case are that the original returns were processed under section 143(1)(a), and thereafter notices under section 148 were issued for assessment year 1996-97 on 22-5-2001 and for assessment year 1997-98 on 14-5-2001. The reasons have been recorded for reopening, which have been discussed in Para-3.2 at Page 5 of the order of the ld. CIT(A). The appellant had filed returns under section 148 withdrawing the excess claim of interest paid to Rajasthan Financial Corporation (RFC). The reasons recorded were disclosed to the appellantvide Assessing Officer’s Office Letter No. 1591 dated 10-2-2003 (Refer Assessing Officer Page-3 for assessment years 1996-97 and 1997-98). The ld. CIT(A) had given the finding at Page-6 Para 3.3 of his order. The point regarding furnishing of the reasons was discussed with the ld. A/R by the ld. CIT(A) with reference to the reasons recorded by the Assessing Officer and it was observed by the ld. CIT(A) that whatever reasons have been recorded, the escaped income in respect of those reasons have already been disclosed by the appellant. Therefore, having regard to the facts of the case, we are of the opinion that the reasons have properly been recorded and copies of reasons recorded had also been supplied to the assessee. Thus, we find that the order of the ld. CIT(A) is not laconic in any manner. The order of the CIT(A) is sustained for the reasons given therein.
  4. Ground No. 1B, common in both the appeals, is regarding not quashing the reference made by the Assessing Officer under section 133(6) for calling for information.
  5. According to section 133(6), the prescribed authority can call for any information from any person for the purpose of any enquiry under the 1961 Act even in cases where no proceeding is pending. However, it was provided in the second proviso to section 133(6) that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Director or Commissioner without the prior approval of the Director or, as the case may be, the Commissioner.
  6. The ld. A/R submitted that at the time of issuance of notice to RFC for calling the information, no such proceeding were pending before the Assessing Officer and the Assessing Officer was not authorized by the CIT to call for such information. The ld. A/R relied on the following cases:

(aSmt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 1 (SC)

(bGrindlays Bank Ltd. v. ITO [1998] 231 ITR 612 1 (Cal.)

  1. The ld. D/R (IT) submitted that this was a new plea raised by the ld. A/R, besides according prior approval was an internal matter of the Revenue. Even if the information called for was in contravention of legal provisions, the same may be used against the assessee.
  2. After hearing both the parties, we are of the opinion that calling for information without prior approval of the CIT is a case of curable irregularity and it cannot be termed as nullity. We are of the opinion that no appeal lies against section 133(6) of the Act and this Tribunal cannot adjudicate upon validity of action of the Assessing Officer under section 133(6) of the Income-tax Act. For this proposition, reliance is placed on the ITAT, Bangalore, Special Bench decision in the case ofC. Ramaiah Reddy v. Asstt. CIT [2003] 87 ITD 439 . The case of Smt. Amiya Bala Paul (supra) was on the basis of entirely different facts. In that case, the Assessing Officer had no power to call for information from the Government Valuer. In the case before us, the Assessing Officer was authorized to call for information under section 133(6) of the Income-tax Act. The ld. A/R also relied upon the decision of Hon’ble Calcutta High Court in the case of Grindlays Bank Ltd. (supra). In this case, the Hon’ble Calcutta High Court had quashed the enquiry notice issued under section 133(6) by the Assessing Officer on the basis of writ filed by the assessee. Therefore, it is clear that such an action on the part of the Assessing Officer can be challenged only through writ. The ld. A/R had submitted that the information was not called for with the prior approval of the Commissioner. We are of the opinion that even if the information is called for in contravention of the legal provisions, the material obtained thereby can still be used by the Department against the person concerned in the light of the decision of the Apex Court in the case of Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 and Dr. Pratap Singh v. Director of Enforcement [1985] 155 ITR 166 3. No such plea has been raised before the lower authorities. Therefore, this ground raised for the first time before us by the appellant is hereby dismissed.
  3. The Ground No. 2, common in both the appeals filed by the assessee, is regarding confirmation of disallowance of depreciation claimed through returns filed in response to notices under section 148.
  4. The Assessing Officer had allowed the claim of depreciation at Rs. 9,840 instead of Rs. 1,09,840 for the assessment year 1996-97 and Rs. 14,890 instead of Rs. 7,89,023 for the assessment year 1997-98. In the original returns filed, the appellant had claimed depreciation at Rs. 9,840 for the assessment year 1996-97 and depreciation of Rs. 14,890 for the assessment year 1997-98. However, the assessee appellant had claimed higher depreciation in the returns filed in response to notices under section 148. The Assessing Officer having relied on the judgment of Hon’ble Supreme Court in the case ofCIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 2971 held that higher depreciation cannot be claimed in re-assessment. The ld. CIT(A) had also confirmed the order of the Assessing Officer on this ground. The ld. A/R made the following submissions:

(i)That the claim of depreciation in the original returns was only restricted because the profits available with the assessee were not sufficient enough to cover the higher claim. However, while filing the returns in response to notices under section 148, the depreciation was claimed, which was actually admissible.

(ii)If the appellant has not claimed any depreciation, he cannot be forced to claim the same. It would not be right to say that if the depreciation is not claimed in the original returns, then it could be claimed subsequently. He relied upon the case of CIT v. Mahendra Mills [2000] 243 ITR 562 (SC).

  1. The ld. D/R (IT) had relied on the decisions of the Apex Court in the case ofSun Engineering Works (P.) Ltd. (supra) and Chettinad Corpn. (P.) Ltd. v. CIT [1993] 200 ITR 320 (SC).
  2. We heard the rival submissions and also perused the relevant case laws. It was held in the case ofSun Engineering Works (P.) Ltd. (supra), that when proceedings under section 147 of the Act are initiated, the proceedings are open only qua items of under assessment. The finality of the assessment proceedings on other issues remains undisturbed. It was held at Page-321 of this judgment:

“A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as “escaped income”.

It was held at page 322 of this judgment as under:

“The Tribunal rightly found that the loss which the assessee wanted to be set off against the “escaped income” could not be allowed to be so set off because in the original assessment proceedings, no “set off” was claimed or permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the Appellate Assistant Commissioner and the assessee took no further steps to agitate the issue.”

  1. We find that the ld. D/R (IT) had rightly placed reliance on the judgment of the Apex Court in the case ofChettinad Corpn. (P.) Ltd. (supra) wherein it was held that reopening an assessment could only be for the benefit of the Revenue and all items of disallowance or relief claimed by the assessee which are not relevant to the items which are the subject-matter of the enquiry during reassessment cannot be considered at the stage of reassessment.
  2. The ld. A/R had placed reliance on the decision in the case ofMahendra Mills (supra). From the perusal of the contention raised by the ld. A/R, it is evident that this judgment of the Apex Court helps the Revenue rather than helping the appellant.
  3. In the case before us, depreciation of Rs. 9,840 for assessment year 1996-97 and Rs. 14,890 for assessment year 1997-98 was claimed in the original returns. However, in the returns filed under section 148 for reassessment of the escaped income, the appellant had claimed higher deduction of depreciation at Rs. 1,09,840 for the assessment year 1996-97 and at Rs. 7,89,023 for the assessment year 1997-98. For the reasons given above, we are of the opinion that the order of the CIT(A) is not laconic in any manner. The order of the CIT(A) is sustained on this ground for the reasons given therein.
  4. The Ground No. 3, common in both the appeals filed by the assessee, is regarding charging of interest under sections 234A and 234B without authority of law.
  5. From the perusal of the order of the Assessing Officer, we find that he has given specific direction for charging of interest under sections 234A, 234B & 234C of the Income-tax Act. The Assessing Officer is directed to allow consequential relief, if any.
  6. The Ground No. 4 in both the appeals filed by the assessee is general ground, which does not require any adjudication by us.

ITA Nos. 354 & 355/JP/2004 (Revenue’s Appeals):

  1. The only ground raised by the Revenue for both the years is regarding deletion of trading addition of Rs. 9,84,500 for the assessment year 1996-97 and deletion of trading addition of Rs. 10,81,760 for the assessment year 1997-98.
  2. The brief facts of the case are that while making reassessment in pursuance of notices issued under section 148 of the Income-tax Act, the Assessing Officer made the trading addition of Rs. 9,84,500 for the assessment year 1996-97 and trading addition of Rs. 10,81,760 for the assessment year 1997-98.
  3. The ld. CIT(A), without going into the merits of the case and after relying on the case ofSun Engineering Works (P.) Ltd. (supra) and also on the case of Vipan Khanna v. CIT [2002] 255 ITR 220 1 (Punj. & Har.), has held that the assessments had been completed under section 143(1)(a) and no notice under section 143(2) was issued within the stipulated time and, therefore, these assessments had become final. The Assessing Officer cannot verify the other issues which had already been settled at the time of making assessment under section 143(1)(a) and, therefore, the trading additions made by the Assessing Officer for both the assessment years were deleted.
  4. The ld. D/R (IT) contended that the entire assessment stood reopened and it was the duty of the Assessing Officer to complete the whole assessmentde novo. For the purpose, he discussed all the decisions for and against the issue whether the whole of the assessment is reopened or not. Ultimately, he relied on the following case laws:

(aITO v. Mewalal Dwarka Prasad [1989] 176 ITR 529 (SC)

(bITO v. K.L. Srihari [2001] 250 ITR 193 2 (SC)

(cCIT v. Indian Rare Earth Ltd. [1990] 181 ITR 22 3 (Bom.)

(dCWT v. Sandeep Jajodia [2004] 268 ITR 494 (Cal.)

(eCWT v. D.R. Vadera [2000] 246 ITR 348 4 (Delhi)

  1. The ld. D/R (IT) also contended that when the returns are processed under section 143(1)(a), it cannot be said that the matter has attained finality. For this purpose, he relied on the decisions in the case ofPradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 5 (All.) and Jorawar Singh Baid v. CIT [1992] 198 ITR 47 (Cal.). Ultimately, he submitted that the Assessing Officer can make even trading addition while making reassessment in pursuance of the notices issued under section 148 of the Income-tax Act. The ld. CIT(A) erred in deleting the additions, thus, made by the Assessing Officer.
  2. The ld. A/R submitted that the declared trading results had been accepted by the Assessing Officer in the original assessment proceedings when the returns were processed in a summary manner under section 143(1)(a) of the Income-tax Act. No defects had been pointed out in the reasons recorded by the Assessing Officer. The reasons recorded were in respect of excess expenditure claimed on account of interest paid to the RFC and no reasons had been recorded under section 148 as to trading results. When the trading results had been accepted in the original assessments, the matter stood concluded. Hence in the light of the decision of the Hon’ble Supreme Court in the case ofSun Engineering Works (P.) Ltd. (supra), it is not open to the Assessing Officer to make additions in relation to a concluded item, unconnected with the escapement of income, for the purpose of the computation of the escaped income. He also relied upon the decision of Hon’ble Punjab & Haryana High Court in the case CIT v. M.P. Iron Traders [2004] 136 Taxman 520 . The ld. A/R also explained that no addition can be made on the basis of comparable case even on merit [this issue was not decided by the ld. CIT(A)].
  3. We heard the rival submissions also perused the relevant case laws.
  4. First of all, we shall decide the issue that the whole of the assessment is to be madede novo or not while making reassessment in pursuance of notices issued under section 148 of the Income-tax Act. This issue has been decided by the Hon’ble Apex Court in the case of Sun Engineering Works (P.) Ltd. (supra). In this decision, it was held by the Hon’ble Apex Court that proceedings under section 147 of the Income-tax Act are initiated, the proceedings are open only qua items of under assessment. The finality of assessment proceedings on other issues remains undisturbed. It was not open to the Assessing Officer to seek a review of concluded items unconnected with the escapement of income for the purpose of computation of the income escaping assessment. In the reassessment proceedings for bringing to tax items which had escaped assessment, it will be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all.
  5. The Hon’ble Apex Court in the case ofSun Engineering Works (P.) Ltd. (supra) at page 319 had held:

“The judgment in V. Jaganmohan Rao’s case [1970] 75 ITR 373 (SC) therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment.”

  1. It was held in the case ofVipan Khanna (supra) that in view of the amendment made in section 147 of the Act with effect from April 1, 1989, the Assessing Officer could not only assess or reassess the escaped income in respect of which proceedings under section 147 have been initiated but also any other income chargeable to tax which may have escaped assessment and which comes to his knowledge subsequently in the course of such proceedings.
  2. We do not agree with the contention of the ld. D/R that the whole of the assessment can be madede novo. The reassessment can be made only on the items mentioned above in this order. The ld. D/R had relied upon the decision of Hon’ble Apex Court in the case of Mewalal Dwarka Prasad (supra) where it was held that it was not for the High Court to examine the validity of the notice under section 148 in regard to two of the items of cash credits if it came to the conclusion that the notice was valid at least in respect of the remaining items. This does not help the Revenue. We are of the opinion that the ratio of the judgment in the case Sun Engineering Works (P.) Ltd. (supra) would apply. This decision was delivered on September 17, 1992 whereas the decision in the case of Mewalal Dwarka Prasad (supra) was delivered by the Apex Court on February 10, 1989. Even otherwise the decision of later date could prevail while deciding the issue. The ld. D/R also placed reliance on the decision in the case of K.L. Srihari (supra) and submitted that while making a fresh order of assessment of the entire income of the assessee, the earlier assessment order was effaced by the subsequent order. It was held, on the facts, that on reopening of the original assessment order and making a fresh order of assessment of the entire income of the assessee, the earlier assessment order was effaced by the subsequent order. However, we find that the Hon’ble Supreme Court did not consider it necessary to go into the question of difference in views expressed in earlier judgments of the Apex Court, i.e., Mewalal Dwarka Prasad’s case (supra) and Sun Engineering Works (P.) Ltd.’s (supra) and left the matter open. Therefore, this decision of the Apex Court has not laid down any criteria on the subject. The ld. D/R had also relied upon the decisions of various High Courts as already mentioned in this order. However, we are of the opinion that the decision of Hon’ble Apex Court in the case of Sun Engineering Works (P.) Ltd. supra) would be followed and this decision of the Hon’ble Apex Court was also followed in the case of CIT v. Caixa Economica De Goa [1994] 210 ITR 719 and CIT v. N. Krishnan [1998] 233 ITR 646 (Ker.) and in catena of judgments by various High Courts.
  3. After perusal of the order of the ld. CIT(A), we find that the ld. CIT(A) had concluded by following in the case ofVipan Khanna (supra) that the issue regarding trading addition had already been settled at the time of making assessment under section 143(1)(a) of the Income-tax Act and, therefore, the trading additions made by the Assessing Officer in both the years were deleted by him.
  4. The ld. A/R had relied upon the case ofM.P. Iron Traders (supra) wherein the case of the same High Court of Vipan Khanna (supra) was followed. In this case, it was held that the Assessing Officer completed the assessment under section 143(1) without disputing any of those entries and the proceedings under section 147 were initiated only in respect of certain items. The proceedings under section 147 are open only qua items of under assessment or escaped income. The finality of assessment proceedings on other issues remains undisturbed.
  5. The ld. D/R relied upon the cases ofPradeep Kumar Har Saran Lal (supra) and Jorawar Singh Baid’s (supra) and submitted that the scope for initiating reassessment proceedings in an assessment made under section 143(1)(a) is wider than in an assessment under section 143(2), read with section 143(3). The power that can be exercised under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under section 147 if the ingredients of section 147 are satisfied.
  6. We find that the matter regarding trading results had attained finality when the Assessing Officer could not issue notice under section 143(2) for scrutiny of return filed within the stipulated period. When the stipulated period for issue of notice under section 143(2) had already expired, the matter has attained finality as held in the cases ofVipan Khanna (supra) and M.P. Iron Traders ( supra).
  7. After appraisal of the facts of the case, we find that the matter regarding declaration of trading results had attained finality when the period for issue of notices under section 142 had already expired. Therefore, the Assessing Officer was not justified in making trading additions for both the years. Thus, we are of the opinion that the order of the ld. CIT(A) is not laconic in any manner. Therefore, we decline to interfere with his order.
  8. In the result, the appeals filed by the assessee for both the years are dismissed and the appeals filed by the Revenue for both the years are also dismissed.

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