AMBAJI TRADERS PRIVATE LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE petitioner in this petition is challenging a notice issued under S. 148 of the IT Act, 1961 (hereinafter referred to as the Act), on 10th Jan., 1967, by the ITO Central Circle (iii), Nagpur, for reopening the assessment for the asst. year 1959 60. The petitioner is a partnership firm which commenced its business in April, 1957, and its first year of account ended on June 3, 1957, and the corresponding assessment year was 1958 59. The second accounting year was from 1st July, 1957, to June 30, 1958, and the corresponding assessment year was 1959 60. The reference hereafter is to the assessment year. In respect of the previous year relevant to the asst. year 1959 60 the accounts of the petitioner firm disclosed cash credits aggregating to Rs. 3,36,000. This amount came to be added as cash credits to the income of the assessee in the asst. year 1959 60. However, on appeal, the AAC found that cash credits amounting is Rs.25,000 fell within the financial year relevant to the asst. year 1958 59 and the amount of Rs. 2,50,000 came to be deleted from the income of the assessee for the asst. year 1959 60. On his finding of the AAC the ITO issued a notice under S. 147(a) of the Act for the asst. year 1958 59, and as a result of reassessment an amount of Rs. 2,25,000 for which there was no satisfactory explanation with regard to the source according to the ITO, came to be included in the income of the assessee for the asst. year 1958 59. An appeal was field against this assessment order by the petitioner. This Appeal No. 27 SPI B/1965 66 came to be decided on August, 22, 1966, by the AAC. The AAC took the view that since s. 68 of the Act provided that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the ITO satisfactory, the sum so credied may be charged to income tax as the income of the assessee for that previous year, and as the said amount was credited in the books of the assessee during the previous year ending June 30, 1958, for which regular books of account were maintained by the assessee and the corresponding year for that accounting year was 1959 60, the ITO had erred in assessing the amount of Rs. 2,25,000 in the asst. year 1958 59. He, therefore, deleted the amount of Rs.

(2.) ,25,000 as income from undisclosed sources for the year 1958 59. After this decision the ITO issued the impugned notice under S. 147 of the Act to the assessee stating that he had reason to believe that his income chargeable to tax for the asst. year 1959 60 had escaped assessment and the petitioner was called upon to deliver to the ITO a return for the asst. year 1959 60. In the meantime, the order of the AAC deleting the amount of Rs. 2,25,000 was appealed against by the ITO and the Tribunal, by its order dated March 23,1967, confirmed the decision of the AAC. The Department asked for a reference to be made to he High Court and a reference is now pending with regard to the applicability of S. 68 of the Act to the proceedings. As a result of the notice issued in respect of the asst. year 1959 60 the petitioner came to be reassessed and the ITO on further inquiry included a sum of Rs. 2,86,000 as unproved loans as income from other sources. A notice as to why action should not be taken for concealment of income was also directed to be issued. The present petition was filed after the ITO passed his order of assessment. In the meantime, the petitioner also filed an appeal against the order of assessment which, however, case to be rejected. It then filed an appeal before the Tribunal which came to be decided on June 21, 1974. The Tribunal did not go into the question about the validity of the notice but set aside the orders of the ITO and the AAC on the ground that the petitioner was not given adequate opportunity to represent his case to rebut the proposal of the ITO to make an addition as income from undisclosed sources referable to hundi loans. The position as it stands today, therefore, is that the assessment order against the petitioner has been set aside and the ITO has been directed to make a fresh assessment after giving the assessee a specific opportunity to rebut the case which was sought to be made out against it. Since the Tribunal did not go into the validity of the notice and it is not now possible for the ITO to go into that question in view of the terms of the remand order, we have heard the learned counsel for the petitioner in this petition. After the assessment order was passed by the ITO, he took steps under S. 226(3) of the Act to recover an amount of Rs. 1,76,000 due from the Hindustan Steel Ltd. to the petitioner. The petitioner in this petition has also prayed that the said recovery is illegal and it was entitled to the refund of that amount. 2. The main argument advanced for the petitioner is that the notice issued by the ITO under S. 147 of the Act is beyond the period prescribed under S. 149 and, therefore, according to the learned counsel, the notice was liable to be quashed. There was some dispute as to the nature of the jurisdiction that was being exercised by the ITO while issuing the notice. It appears that originally the stand taken by the Department appeared to be that the notice was under S. 147(a), but it is not now seriously disputed before us that the notice was under S. 147(b) of the Act. We asked the learned counsel for the Department for the reasons which weighed with the ITO when he decided to issue the impugned notice and it is clear from the report made to the CIT when permission was sought for the issue of the notice that the notice resulted from the observation made by the AAC in his order while disposing of the appeal in respect of the asst. year 1958 59 that the alleged income from undisclosed sources was liable to be included in the assessment for the asst. year 1959 60. Now, what is contended on behalf of the petitioner is that S. 149 of the Act prescribes a limitation of four years for the issue of a notice under cl. (b) of S. 147 from the end of the relevant assessment year. The relevant asst. year 1959 60 ended on March 31, 1960, and therefore according to the learned counsel, the notice dated January 10, 1967, for reopening the assessment proceedings which had terminated on October 31, 1963, was invalid and the proceedings taken by the ITO were entirely without jurisdiction. Now, prima facie, the argument appears to be plausible if one looks merely to the provisions of S. 147(b) of the Act. The contention, however, does not stand close scrutiny when we look to the provisions of ss. 150 and 153 of the act. Sec. 150, of which Sub S. (1) is analogous to the second proviso to Sub S. (3) of S. 34 of the 1922 Act, reads as follows :

(3.) NOW , what was contended by Mr. Ghate on behalf of the petitioner is that even assuming that by virtue of Expln. 2 to S. 153(3) the assessment of the income which was excluded in the asst. yr. 1958 59 and had, therefore, to be included in the asst. year 1959 60 could be fictionally included under S. 150 and was deemed to be an assessment by giving effect to a finding or direction contained in an order, even that could not be done beyond the period of four years in view of the provisions of S. 150(2). The learned counsel for the petitioner does not dispute that the limitation of time referred to in Sub S. (2) o S. 150 for the purposes of the present case would be the one found in cl. (b) of S. 153(2), and according to the learned counsel it is that limitation which will govern the proceedings for assessment, and since the notice was issued beyond four years from the end of the asst. year 1959 60 and the notice was also not issued within the similar period as prescribed by S. 149(1)(b), the notice was liable to be quashed. Now, it is not doubt true that sub s. (2) of S. 153 prescribes the limitation for making an order of assessment, reassessment or recomputation, and where such an order is to be made under cl. (b) of S. 147, it cannot be made after the expiry of four years from the end of the assessment year in which the income was first assessable, which is the asst. year 1959 60 in the instant case. The legislature has, however, made positive provisions excluding certain proceedings from the bar of limitation contained in S. 153(1) and (2). One such provision is contained in cl. (ii) of Sub S. (3) of S. 153, which says that the provisions of sub ss. (1) and (2) shall not apply where the assessment, reassessment or recomputation is made in consequence of or to give effect to any finding or direction contained in an order under S. 250, i.e, in an appeal under S. 254. i.e., in an order of the Tribunal under S. 260, i.e, in a decision of the High Court or Supreme Court on the case stated under S. 262, i.e, in an appeal to the Supreme Court against a decision of the High Court on a reference under S. 256, under S. 263 which deals with the revisional jurisdiction of the CIT in respect of orders prejudicial to revenue, or under S. 264 which deals with the revisional power of the CIT in respect of an order other than an order to which S. 263 applies. A further category of orders consequent upon which an assessment, reassessment or recomputation is to be made without any bar of limitation is referred to in cl. (ii) of Sub S. (3) as an order of any Court in a proceeding otherwise than by way of appeal or reference under the Act. Thus, the substantive provisions of Sub S. (3) of S. 153 have removed the bar of limitation prescribed in Sub S. (2) in the cases contemplated by that section. Now, under Expln. 2 it is provided that where, by an order referred to in cl. (ii) of sub S. (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of S. 150 and S. 153 be deemed to be one made in consequence of or give effect to any finding or direction contained in the said order. This is a new provision and is a departure from the 1922 Act under which, for the purposes of the second proviso to Sub S. (3) of S. 34, the finding to which effect could be given without a bar of limitation had to be in respect of the same assessment year as held by the Supreme Court in ITO vs. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC) and N. KT. Sivalingam Chettiar vs. CIT (1967) 66 ITR 586 (SC). The effect of the second Explanation is that where the income of an assessee has been excluded from one assessment year and it has to be included in another assessment year, this has been fictionally treated for the purposes of S. 150 as a proceeding in consequence of or to give effect to any finding or direction contained in an order. Where such income excluded from one year has to be included in another year and such proceeding is fictionally treated as one under S. 150, then the bar of limitation will not apply in view of the express provisions in S. 153(3). In a case like the instant one the provisions of S. 153(2) will not be attracted. Sub s. (2) no doubt provides that Sub S. (1) of S. 150 shall not apply in a case where the assessment, reassessment or recomputation relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken. Now, if as argued by the learned counsel, the limitation referred to in Sub S. (2) of S. 150 is the one referred to in Sub S. (2) of S. 153, then by the express provisions of Sub S. (3) of S. 153 the bar of limitation has been removed. The provisions of Sub S. (2) of S. 150 cannot, therefore, be availed of by the petitioner. The view which we have taken is supported by a Division Bench decision of the Andhra Pradesh High Court in Abdul Rahman Saheb vs. ITO (1975) 100 ITR 541 (AP). Dealing with S. 153(3), Expln. 2, the Division Bench observed :