Itr/2/1995 Of Uni Tex Products Ltd v. Commissioner Of Income Tax, Bombay City Iv, Bombay

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.2 OF 1995 M/s.Unitex Products Limited,(Formerly Sapt Textile Products (India Ltd.),Sapt Building, J.N. Heredia Marg,Ballard Estate, Mumbai – 400 038 ....Applicant .Versus. The Commissioner of Income-tax,Bombay City -IV, Mumbai.....Respondent Mr.Percy Pardiwalla, Senior Counsel with Mr.Nishant Thakkar and Mr.Rajesh Poojary i/b M/s.Mulla & Mulla & C. B. &Co. for the Applicant. Mr.Suresh Kumar for the Respondent. CORAM : S.J. VAZIFDAR AND M.S. SANKLECHA, JJ.DATE : 30TH JULY, 2012. -ORAL JUDGMENT (S.J. VAZIFDAR, J.) : 1.This is a reference under section 256(1) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) has referred the following question for the opinion of this Court. “Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that ITO's action of reopening the assessment under section 147(b) was valid and within jurisdiction ?” FACTS : 2.The applicant was the owner of a building at Mumbai, a portion whereof was requisitioned for occupation by the Director General of Supplies and Disposals, Government of India under the Defence of India Act and the Rules made thereunder. The compensation was fixed at Rs.3618.21 per month. The same was offered for tax as income from the house property every year. 3.In the year 1952, the Parliament passed the Requisition and the Acquisition of the Immovable Property Act, 1952 (hereinafter referred to as “The Requisition Act”), sections 25 and 26 whereof provide that any immovable property requisitioned under the Defence of India Act and Rules made thereunder which had not been released from the requisition, would be deemed to have been requisitioned by the competent authority under the provisions of the Requisition Act. 4.By a letter dated 22.3.1983, the Estate Manager of the Government of India informed the applicant that the compensation in respect of the premises had been revised from Rs.3618.21 to Rs.19,259.29 with effect from 7.3.1975. The applicant was informed that the difference in compensation for the period 7.3.1975 to 31.12.1982 aggregated to Rs.14,68,172.28 and stated that the same would be paid to the applicant by 31.3.1983. itr2-95 Accordingly on 31.3.1983, the applicant received the arrears of rent for the period 7.3.1975 to 31.12.1982. 5.On 29.7.1983, the applicant filed its return of income for the A.Y. 1983-1984. Mr. Pardiwalla, the learned senior counsel appearing on behalf of the applicant placed considerable reliance upon Note 16 to its Accounts, which reads as under :- “16.In March, 1983 the Government of India decided in their discretion to increase on an ad-hoc basis the compensation paid by them in respect of the portion of the company's building occupied by them, such increase being affective from 7[th] March, 1975. Accordingly, an amount of Rs.14,68,172 representing the additional compensation as above upto 31[st ]December, 1982 was received in March, 1983 from the Estate Manager, Government of India, which amount will be accounted for in the Company's accounts for the year ending 31[st] December, 1983”. 6.The assessment orders under section 143(3) were made for the A.Ys. 1981-1982, 1982-1983 and 1983-1984 on 20.7.1984, 30.6.1984 and 24.7.1984 respectively. The present reference is in respect of these three assessment years. The assessments were completed considering the rented income from the said property to be the original compensation of Rs.3618/- per month and not the revised compensation of Rs.19,269/- per month. 7.It appears that the Assessing Officer by a letter dated 3/13 itr2-95 6.The assessment orders under section 143(3) were made for the A.Ys. 1981-1982, 1982-1983 and 1983-1984 on 20.7.1984, 30.6.1984 and 24.7.1984 respectively. The present reference is in respect of these three assessment years. The assessments were completed considering the rented income from the said property to be the original compensation of Rs.3618/- per month and not the revised compensation of Rs.19,269/- per month. 7.It appears that the Assessing Officer by a letter dated 3/13 itr2-95 30.5.1988 made enquiries with the Government of India in regard to the enhanced compensation being paid. The letter is not on record. There is however, a reference to it in a letter dated 19.1.1989 in reply to it from the Estate Manager to the Income Tax Officer. The letter dated 19.1.1989 reads as under :- “I am to refer to your letter No. Com. Cir.IV(3)/88-89 dated 30[th] May, 1988 on the above subject and to state the matter was referred to Directorate of Estates, Nirman Bhavan, New Delhi and Directorate of Estates has now intimated as follows :-dated 30[th] May, 1988 on the above subject and to state the matter was referred to Directorate of Estates, Nirman Bhavan, New Delhi and Directorate of Estates has now intimated as follows :- “Sanction for revision of compensation with effect from 7.3.1975 accorded vide Directorate of Estates letter No.40/24/79-Region del.III dated 21.9.82 was suo motoin accordance with the provision of requisition and Acquisition of Immoveable Property Act of 1952 in so far as the above building is concerned.”effect from 7.3.1975 accorded vide Directorate of Estates letter No.40/24/79-Region del.III dated 21.9.82 was suo motoin accordance with the provision of requisition and Acquisition of Immoveable Property Act of 1952 in so far as the above building is concerned.” 8.It is in these circumstances that the ITO issued a notice under section 148 of the said Act, for reopening the assessment for the said A.Ys. 1981-1982, 1982-1983 and 1983-1984 under section 147(b) of the said Act. Both the parties are unable to trace the notice. Section 147 of the said Act, as it stood at the relevant time, read as under :- “147. Income escaping assessment. - If - (a)the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer 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 clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 sections 148 to 153 referred to as the relevant assessment year).” 9.The applicant challenged the reopening unsuccessfully right upto the ITAT. 10.The said Note 16 to the Accounts included in the return for A.Y. 1983-1984 stated that the arrears would be accounted for in the applicant's account for the year ending 31.12.1983 i.e. for A.Y.1984-1985. The same was admittedly not done. In other words, the applicant has not paid the tax on the said sum at all. Separate fresh reassessment orders were passed for the said three assessment itr2-95 years. The income from the house property was reassessed at Rs.2,31,231/- per annum calculated at the enhanced rate of Rs.19,269.29 per month. This however, was done only for the said three assessment years. In other words, the entire arrears were not even brought to tax. 9.The applicant challenged the reopening unsuccessfully right upto the ITAT. 10.The said Note 16 to the Accounts included in the return for A.Y. 1983-1984 stated that the arrears would be accounted for in the applicant's account for the year ending 31.12.1983 i.e. for A.Y.1984-1985. The same was admittedly not done. In other words, the applicant has not paid the tax on the said sum at all. Separate fresh reassessment orders were passed for the said three assessment itr2-95 years. The income from the house property was reassessed at Rs.2,31,231/- per annum calculated at the enhanced rate of Rs.19,269.29 per month. This however, was done only for the said three assessment years. In other words, the entire arrears were not even brought to tax. 11.Two contentions were raised before us. The first pertains to the question framed by the Tribunal in the reference which we have set out earlier. Mr.Pardiwalla also sought to challenge the order on the ground that the attempt to tax the assessee for the arrears during the said assessment years was contrary to law inter-alia on the ground that the arrears had not accrued in favour of the applicant during the said years for the reason that the Government of India had only on 22.3.1983 agreed to pay the enhanced compensation. 12.It is, therefore, necessary first to consider whether it is permissible for the applicant to urge the second contention in this reference, although a question to this effect has not been framed in the reference. 13.Mr.Pardiwalla relied upon paragraph 10 of the reference to contend that the reference would entitle him to raise the second issue as well. 14.A reading of paragraph 10 by itself may well support the submission. The error in the submission however, arises on account of reading paragraph 10 in isolation. The Statement of Case, read as a whole, makes it clear that it pertains only to the question framed by the Tribunal. 15(A).It must be noted that Mr.Pardiwalla's second contention has not even been referred to in the entire reference. The Tribunal merely set out eighteen questions sought to be raised by the applicant. This was followed by the Tribunal stating some of the above facts. (B)After setting out the facts in paragraphs 2 and 3, the Tribunal referred to the proceedings under section 147(b). (C)Paragraphs 7 and 8 of the reference refer to the applicant's contention regarding the validity thereof. It refers to the applicant's contention that the AO had all the relevant information in his possession relating to the additional compensation when he made the original assessment orders. There is no mention about Mr.Pardiwalla's second contention, which relates to the merits of the matter viz. the legality of bringing to tax the arrears in the said three assessment years. (D).Paragraph 9 of the Statement of Case reads as under :-“9.On the basis of the aforesaid facts, we clearly are of the view that a reference is called for. We do not agree with the submissions made by the learned senior Departmental Representative that the itr2-95 finding of the Tribunal that the information given by the assessee was not definite one, did not involve any question of law. It, in the facts and circumstances of the case, does give rise to a question of law.” The first sentence of paragraph 9 itself makes it clear that the Tribunal held that the reference was called for only on the question of the validity of the proceedings under section 147(b) of the said Act. Everything that preceded paragraph 9 related only to the same and not to the second contention. The doubt if any, is set at rest by the second statement in paragraph 9 which also refers only to the proceedings under section 147(b) of the said Act. 16.It is in this context that paragraph 10, relied upon by Mr. Pardiwalla must be read. Paragraph 10 reads as under :- itr2-95 finding of the Tribunal that the information given by the assessee was not definite one, did not involve any question of law. It, in the facts and circumstances of the case, does give rise to a question of law.” The first sentence of paragraph 9 itself makes it clear that the Tribunal held that the reference was called for only on the question of the validity of the proceedings under section 147(b) of the said Act. Everything that preceded paragraph 9 related only to the same and not to the second contention. The doubt if any, is set at rest by the second statement in paragraph 9 which also refers only to the proceedings under section 147(b) of the said Act. 16.It is in this context that paragraph 10, relied upon by Mr. Pardiwalla must be read. Paragraph 10 reads as under :- “10.However, as the learned counsel for the assessee has also conceded that question No.(i) itself will cover the controversy. We too agree that this question alone need to be referred which comprehensively sets out the grievance of the assessee qua the present reference.” The contents of paragraphs 1 to 8, the absence of reference to the second contention in the statement of case and a conjoint reading of paragraphs 9 and 10 of the reference establishes that the scope of the reference must be restricted only to the question framed. 17.Thus although we heard Mr.Pardiwalla on the second question as well, we are afraid, it is not permissible to consider the same in this reference. 18.This brings us to the question referred by the Tribunal to this Court. Mr.Pardiwalla's main contention was based on the said Note 16 to the Accounts included in the return for A.Y. 1983-1984 on 29.7.1983. He submitted that all the facts were therefore, before the AO when he made the original assessment order under section 143(3) for A.Ys. 1981-1982, 1982-1983 and 1983-1984 on 20.7.1984, 30.6.1984 and 24.7.1984 respectively. He submitted that there is no question therefore, of the AO having reason to believe that the income chargeable to tax had escaped assessment “as a consequence of the information in his possession”. 19.Firstly, this contention cannot be applied to the A.Ys. 1981-1982 and 1982-1983. At the highest, it would be relevant only in respect of the A.Y. 1983-1984. This is for the reason that Note 16 to the Accounts was included only in the return for the A.Y. 1983-1984. 20.To this, Mr.Pardiwalla stated that judicial notice ought to be taken of the fact that normally the assessment proceedings are considered by the same Assessing Officer and that in the present case, the assessment orders for the three years were made almost contemporaneously namely on 20.7.1983, 30.6.1984 and 24.7.1984 respectively. He submitted therefore, that the Court must presume that the AO had notice of all that is stated in Note 16 to the Accounts even in respect of the assessments for the A.Ys. 1981-1982 and 1982-1983. We are unable to agree. 20.To this, Mr.Pardiwalla stated that judicial notice ought to be taken of the fact that normally the assessment proceedings are considered by the same Assessing Officer and that in the present case, the assessment orders for the three years were made almost contemporaneously namely on 20.7.1983, 30.6.1984 and 24.7.1984 respectively. He submitted therefore, that the Court must presume that the AO had notice of all that is stated in Note 16 to the Accounts even in respect of the assessments for the A.Ys. 1981-1982 and 1982-1983. We are unable to agree. 21.Once the absence of the relevant material before the AO is established, the burden is on the assessee to establish that the AO in some manner and for some reason had knowledge of such material and considered it while making the assessment orders. There may well be circumstances which would lead to such an inference. That, however, would depend on the facts of each case. In the facts of this case, we are not inclined to speculate in the respondent's favour.22.An AO is not concerned with only one assessee or three assessment orders. If judicial notice may be taken it must be of the fact that an AO has considerable other work including the assessment proceedings of several assessees. We see no reason to presume that the AO would remember all the material and all the facts in respect of the assessment proceedings for a particular year while dealing with the assessment proceedings of another year even in respect of the same assessee. There is nothing to suggest that the AO while making the assessment orders in each of the said years, in fact, considered the material available in respect of the other years. itr2-95 That the assessment orders were made at different dates albeit within a gap of only few days indicate the contrary. The exigencies and the burden of the work may well result in his inability to correlate the material between various assessment proceedings even though made only within a few days of each other. The burden would rest heavily upon the assessee to establish otherwise. There is nothing on record that persuades us to come to a conclusion that the AO while making the assessment orders for the A.Ys. 1981-1982 and 1982-1983 recollected Note 16 to its Accounts for year ending 31.12.1982 included in the return of income for the A.Y. 1983-1984. 23.Thus, as far as the reassessment proceedings for the A.Ys. 1981-1982 and 1982-1983 are concerned, the reference must be answered against the applicant / assessee. 24.This leaves for consideration the validity of the reassessment proceedings in respect of A.Y. 1983-1984. We will presume that the AO had noticed and considered the said Note 16 to the Accounts included in the applicant's return of income. That by itself however, would not lead to a conclusion that the requirements of section 147(b) were absent. 25.Firstly, it is important to note that despite the categorical statement in Note 16 to the Accounts that the applicant would account for the said arrears of Rs.14,68,172/- in its accounts for the itr2-95 year ending 31.12.1983, it did not do so. The failure to so account for the amount in the accounts for the year ending 31.12.1983 could only have come to the AO's notice subsequently. Whether or not the applicant was bound under the provisions of the Income Tax Act to account for the same in the subsequent year is another matter altogether. The failure to comply with the assurance to the AO is sufficient to sustain the proceedings under section 147(b). It is relevant information which came to his possession subsequently. 25.Firstly, it is important to note that despite the categorical statement in Note 16 to the Accounts that the applicant would account for the said arrears of Rs.14,68,172/- in its accounts for the itr2-95 year ending 31.12.1983, it did not do so. The failure to so account for the amount in the accounts for the year ending 31.12.1983 could only have come to the AO's notice subsequently. Whether or not the applicant was bound under the provisions of the Income Tax Act to account for the same in the subsequent year is another matter altogether. The failure to comply with the assurance to the AO is sufficient to sustain the proceedings under section 147(b). It is relevant information which came to his possession subsequently. 26.Further the Estate Manager of the Government of India upon enquiry informed the AO that the amount had been paid suo-moto in accordance with the provisions of the Requisition Act, 1952. A statement to this effect was not even been made in Note 16 to the Accounts, which only referred to the payment and not to the fact that the payment was made suo-moto and in accordance with the Requisition Act. The AO was therefore, justified in enquiring about the same. Here again whether or not the stand of the Government of India and the applicant about the circumstances in which the compensation was enhanced is correct or not, is another matter altogether. The possession of such information subsequently justified the AO to have reason to believe that the income chargeable to tax had escaped assessment. It is not even suggested that the AO was aware of the provisions of the Requisition Act, 1952 when he made the original assessment orders. In any event, Note 16 of the Accounts did not state that the payment was made pursuant to the provisions of the Requisition Act, 1952. It merely referred to the fact of the enhancement of compensation. This was therefore, further material which the AO was informed about only subsequently. 27.In the circumstances, the decision of the Tribunal upholding the reassessment proceedings cannot be faulted. 28.The Reference is, therefore, answered in the negative and in favour of the Revenue. (M.S. SANKLECHA, J.) (S.J. VAZIFDAR, J.)