COMMISSIONER OF INCOME TAX Vs. LAXMIDEBI MEHTA

JUDGEMENT

(1.) IN this consolidated reference under S. 256(1) of the IT Act, 1961 for the asst. yr. 1973-74, the following common question of law has been referred to this Court :

(2.) SHORTLY stated the facts are that the original assessment in both the cases were completed under S. 143(3) of the Act on 17th June, 1974. Later the ITO found that the assessees did not give any indication in the original returns of income that some of the shares sold by the assessee in the previous year relevant to the assessment year, were bonus shares for which there was no cost of acquisition and, therefore, correct amount of capital gains escaped assessment. The ITO, therefore, issued notice dt. 7th March, 1976 to both the assessees under S. 148 of the Act. In pursuance thereof the assessees filed returns on 25th Feb., 1977. The ITO thereafter issued notices under s. 143(2) of the Act on 17th March, 1977. The cases were taken up for hearing on that date but the ITO did not pass any order. Thereafter, fresh notices dt. 6th Dec., 1977 were issued under S. 148 r/w S. 147(a) of the Act along with letters to the assessees informing them that the earlier proceeding had been dropped. It may be mentioned that the later notices dt. 6th Dec., 1977 issued under S. 148 of the Act did not specify if the ITO wanted to reopen the assessments under cl. (a) or cl. (b) of S. 147 of the Act but from the circumstances pertaining to this case it appears that the ITO intended to reopen the proceedings under cl. (a) of S. 147. No return pursuant to the second notice under S. 148 dt. 6th Dec., 1977 was filed by any of the assessees. Accordingly, notices under S. 142(1) of the Act were served upon the assessees fixing the date of hearing on 10th March, 1982. The assessees by their written explanations dt. 10th March, 1982 challenged the jurisdiction of the ITO to reinitiate proceedings under S. 147 after the earlier proceedings had been dropped. The ITO completed the assessments under S. 144 and thereby made addition of the capital gains to the income of the assessees. Being aggrieved, the assessee preferred appeals before the CIT(A) and reiterated the same plea taken before the ITO. The CIT(A) did not agree to the contention of the assessees and dismissed the appeals. The assessees went in appeal before the Tribunal against the order of the CIT(A). The Tribunal held that the ITO had no jurisdiction to initiate subsequent proceedings under S. 147 and allowed the assessees' appeals.

(3.) WE have considered the contentions raised on behalf of the Revenue. In the facts and circumstances of the case, we are, however, not inclined to accept this contention. It is necessary to set out a few further facts found by the Tribunal. It appears that in the original assessment made on 17th June, 1974 a sum of Rs. 1,07,400 was added as capital gains on the sale of shares, held by each of the assessees as investment. Subsequently, the Revenue Audit pointed out that the company whose shares were sold issued bonus shares few years back and as such the cost claimed by the assessees and accepted in the original assessments was grossly overvalued and as a result, income relating to capital gains was under-assessed. Following the observation of the Revenue Audit, the ITO initiated proceedings under S. 147 of the Act on 5th March, 1976 and returns of income were filed pursuant to the notices under S. 148 of the Act. No order of assessment was passed. The second reopening was also based on the said Audit Report. The second notice was issued under S. 147(a). The ITO, however, pursuant to the first notice dt. 5th March, 1976 did not complete the assessments but dropped the proceedings. He could however, proceed under S. 147(a) although notice might have been issued under S. 147(b). It is not necessary to state in the notice under S. 148 whether the proceeding was initiated under s. 147(a) or S. 147(b). The reopening was made within 4 years and accordingly, the ITO was at liberty to make the assessment either under S. 147(a) or under S. 147(b) of the Act, but he did not do so. The question is whether there was any omission or failure on the part of the assessees to disclose fully and truly the material facts. Admittedly, there was no column in the return for showing the number of bonus shares. Once the fact of sale of the shares was disclosed, it was for the ITO to check up the correctness of the assessees' claim. Even when the second reassessment proceedings were initiated, the ITO did not consider it proper to complete the assessment proceedings already initiated on 5th March, 1976. It is not the case of the ITO that the returns were pending pursuant to the first notice dt. 5th March, 1976 or that the returns were not bona fide returns. It is the case of the assessees that the ITO while making the original assessments did not check up the claim of cost of shares properly and did not complete the assessments.