1990-VIL-87-ITAT-

Equivalent Citation: ITD 036, 185, TTJ 039,

Income Tax Appellate Tribunal BOMBAY

Date: 21.09.1990

MRS. JERBANOO N. WADIA.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : U. T. SHAH., M. A. AJINKYA.

JUDGMENT

Per Shri M.A. Ajinkya, Accountant Member : Although several grounds are raised in this appeal by the assessee, the main objection is to the decision of the CIT(Appeals) upholding the validity of the reassessment proceedings under section 147 of the IT Act. Certain relevant facts may first be stated.

2. The assessee herein was an old lady of nearly 80 years when she died on 27-10-1987. Some time in July 1970, she purchased a 2-bed room flat on the 18th floor of a building called " Sky Scraper-A " admeasuring about 1112 sq.ft. In this flat, the appellant stayed with her son, daughter and grand-children. The neighbouring flat was occupied by one Kamal Bhatia. Since this flat was on the 18th floor and was not large enough for her family, the assessee decided to purchase a 3-bed room flat on the ground floor of a building called " Sneha Sadan ", 10 Nowrojee Gamadia Road, Bombay-26, admeasuring about sq.ft. of area. With this end in view, she sold her self-occupied flat No. 181 in the building called " Sky Scraper " to Master Anurag Kamal Bhatia and Priti Kamal Bhatia for Rs. 4,50,000 some time on 10-5-1982. Since she had invested an amount of Rs. 1,13,100 in Sky Scraper flat in 1970 when she purchased it, she earned capital gains of Rs. 3,36,900 which she claimed, were exempt because the entire sale proceeds of this flat, namely, Rs. 4,50,000, were re-invested by her for purchase of a flat in a building called " Sneha Sadan " situated at 10 Nowrojee Gamadia Road, Bombay-26. These facts were stated by the assessee in her letter dated 27-6-1983 under which she filed her return of income for the assessment year 1983-84. This return was accepted by the ITO, BRC, on 30-8-1983. The flat in Sneha Sadan was purchased by the assessee from one M.T. Samant who in an affidavit filed with the 3rd ITO, BSD(W), Bombay, on 26-12-1985, stated that he had received on the sale of this flat jointly with another person a sum of Rs. 9,20,000 in addition to the declared price of Rs. 4,50,000 from the assessee. The ITO, therefore, came to the conclusion that the assessee, namely, Mrs. Wadia, had paid on-money to the extent of Rs. 9,20,000 to the seller of the flat in Sneha Sadan and such money was paid out of her undisclosed income relating to the assessment year 1983-84. It is necessary to state here, to complete the recital of facts, that the assessee died on 27-10-1987 and her son had intimated this fact to the ITO in a letter dated 30-10-1987. Since, according to the ITO, the income had escaped assessment, the ITO took action under section 147 of the Act by issuing notice under section 148. Such notice was issued in the name of the assessee. After hearing the assessee's representative and recording the various arguments advanced, the Asstt. Commr. of Income-tax, (Inv.) Cir. 12(1), added the entire amount of Rs. 9,20,000 as, according to him, the late assessee and her legal representatives had failed to prove the sources of this amount which, therefore, had to be treated as unexplained money paid for purchasing a flat. The assessment so made was confirmed in appeal by the CIT(A) and hence this appeal before us.

3. Shri Dastur, the learned counsel for the assessee, after explaining the facts which are narrated above, pointed out that the Bhatias who were the assessee's neighbours in the Sky Scraper building were interested in purchasing the assessee's flat on 18th floor of that building and had, therefore, suggested the flat in Sneha Sadan which was a bigger flat and the same was on the ground floor. The assessee was an old lady who never had income from business or any other source. She used to file her returns only for claiming refund of tax deducted at source. Her son was employed with Tata Electric Co. for the last 33 years. Mr. Samant, who had purchased the flat in Sneha Sadan in December 1980 and who was introduced to the assessee, fell out with Bhatia. Consequently, there was a search on the assessee's premises on 5th June/9th Sept. 1985 (and not 1989 as mentioned by the ITO). Some jewellery, papers and documents were seized but no cash was found. The department had started 147(a) proceedings on the basis of an affidavit filed by Samant on 26-12-1985 to the effect that he had received undisclosed money from Mrs. Wadia (Rs. 9,20,000). The notice issued u/s. 148 of the Act was, according to Shri Dastur, patently illegal. Shri Dastur, in this context, advanced three-fold arguments. He argued that the notice u/s. 148 was bad in law because it was addressed to a dead person. Secondly, it was in any case bad because there was no escapement of income on account of failure on the part of the assessee to disclose all material facts. Thirdly, according to Shri Dastur, the assessment on merits was totally not sustainable.

3.1 Elaborating these arguments particularly with reference to the validity of proceedings, Shri Dastur argued that the proceedings u/s. 148 were totally illegal and void in law and the assessment was liable to be quashed on this ground alone. He relied on a decision of the Madhya Pradesh High Court in Shaikh Abdul Kadar v. ITO [1958] 34 ITR 451. The Court in this case held that a notice which is issued in the name of a person who is known to be dead, is purposeless and defective, and the taxing authority cannot make any living person into whose hands the notice goes liable and attribute notice to him. No valid assessment can be made under section 34 (of Indian Income-Tax Act, 1922) on the strength of such a notice. In this connection, Shri Dastur referred to section 159 of the IT Act which provides for assessment of legal representatives in the event of death of an assessee. After referring to section 159(2), which provides for issue of notice on legal representatives of a deceased in proceedings against the deceased before his death or any proceedings which could have been taken against the deceased if he had survived, Shri Dastur argued that in the present case, in spite of the provisions of section 159, the notice was issued not on the legal representatives but on a dead person. Shri Dastur referred to section 292B which is intended to cure procedural irregularities. This section provides that no return of income, assessment, notice, etc., purported to have been made, furnished or issued or taken in pursuance of any of the provisions of this Act shall be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, etc. Shri Dastur argued that in the present case it was not merely a case of procedural defect in the issue of notice. The defect in the issue of notice to the dead person was a basic defect which went to the root of the matter and which rendered the proceedings ab initio void and what is ab initio void cannot be cured by the provisions of section 292B which was intended to cure only procedural defects. Shri Dastur relied on a decision of the Kerala High Court in the case of P.N. Sasikumar v. CIT [1988] 170 ITR 80. The Kerala High Court held that the issue of a notice under section 148 of the IT Act, 1961, is a condition precedent to the validity of any assessment order to be passed under section 147 of the Act, and if no such notice is issued or the notice issued is invalid and not in accordance with law, or is not served on the proper person in accordance with law, the assessment will be illegal and without jurisdiction. He also relied on a decision of the Madhya Pradesh High Court in the case of Umashankar Mishra v. CIT [1982] 136 ITR 330, in which the Madhya Pradesh High Court held that omission to sign the notice invalidates the notice.

3.2 Shri Dastur then argued that although the proceedings were started under section 147(a) of the Act the reasons for re-opening were not furnished to the assessee, although the legal heir of the assessee, by his letter dated 23-11-1988 addressed to the Asstt. Commr. of Income-tax, had specifically requested him to furnish the exact information which gave him reason to believe that the late assessee's income chargeable to tax had escaped assessment. Shri Dastur then pointed out that Samant's affidavit was filed on 26-12-1985 and this affidavit was the only basis of re-opening the assessment. Still, copy of the affidavit was not furnished to the assessee. The assessee, according to Shri Dastur, had made a full and true disclosure of primary facts. The department had not pointed out a single primary fact which had not been disclosed by the assessee. The basis of assessment was not discussed and, therefore, the assessment deserved to be quashed on this ground alone. In this connection, he relied on a decision of the Supreme Court in the case of CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 and a decision of the Calcutta High Court in the case of Calcutta Credit Corpn. Ltd v. ITO [1971] 79 ITR 483.The Supreme Court in Burlop Dealers Ltd.'s case observed that where on the evidence and materials produced during the original assessment proceedings the ITO could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) of the IT Act 1922 will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous. Shri Dastur relied on a decision of the Madhya Pradesh High Court in the case of M. V. Kibe v. CWT [1988] 169 ITR 40 where the Madhya Pradesh High Court held that section 17(1)(a) of the Wealth-tax Act does not empower the WTO to re-open a final assessment if proper investigation was not made, where all the primary facts, which the assessee was required to place before him, had been so placed. Shri Dastur pointed out that in this case the Court had referred to the decision of the Supreme Court in Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624/25 Taxman 356 where the Supreme Court had observed that the obligation of the assessee is to disclose only primary facts and not inferential facts. Although this was the case relied upon by the CIT(A) in support of his finding the ratio of this case according to Shri Dastur was not applicable to the facts of the present case.

4. Coming to the merits of the case, Shri Dastur pointed out that the assessment of on-money payment could not stand on merits. Shri Dastur then referred to the statement dated 28-10-1988 of Shri Madan T. Samant (copy enclosed at page 9 of assessee's compilation). He pointed out that there were apparent contradictions in this statement. Initially, he stated that he had received from Mrs. Jerbanoo N. Wadia total consideration of Rs. 13,20,000 as under :

Rs. 2,50,000 - by cheque

Rs. 10,70,000 - in cash.

Thereafter, he stated that the sale deed executed between the purchaser and seller and the amount mentioned therein was Rs. 4,50,000 and that he had received the balance of Rs. 9,20,000 as on money which was equally distributed between him and his co-owner Kamal Bhatia. Thus, at one stage he stated total consideration of Rs. 13,20,000 and at another stage Rs. 13,70,000. Also, he stated first that Rs. 2,50,000 was paid by cheque and Rs. 10,70,000 in cash initially and later on stated that as per the sale agreement he received Rs. 4,50,000 and on-money of Rs. 9,20,000. These apparent contradictions rendered his statement unreliable. Shri Dastur referred to the cross examination of Samant by K.N. Wadia, the legal heir of the assessee. Such cross examination indicated that the said Samant did not know when he had filed his income-tax and wealth-tax returns for the assessment year 1983-84, he did not know what capital gains he had disclosed in the return and whether he had earned short-term capital gain or long-term capital gain. He admitted that the amount received by him was concealed income and was declared by him at a later stage voluntarily. He also admitted that he had purchased a flat in Sneha Sadan along with Kamal Bhatia. Shri Dastur argued that there was a business rivalry and dispute between Samant and Kamal Bhatia and the assessee who was an old lady - 76 years old in 1982 - was made a scapegoat and there was no material whatsoever to hold that she had earned so much money as to be able to pay Samant by way of on-money on purchasing a flat from him. Alternatively and without prejudice, Shri Dastur argued that assuming that the lady got Rs. 9,20,000 on selling her original flat, the amount should be treated to have been reinvested and she would then be entitled to adjustment u/s. 54. Shri Dastur then referred to a decision of the Bombay High Court in the case of S.P. Divekar and A.P. Divekar v. CIT [1986] 157 ITR 629, where the Bombay High Court held that where there is nowhere in the record of the ITO indicating the reasons for and the materials upon which the ITO had formed a belief that the assessee's income had escaped assessment when he issued notice u/s. 34(1)(a), the re-assessment proceedings had not been validly initiated. Shri Dastur finally argued that on merits there was no material on record to support the orders of the revenue authorities.

5. Shri Mansukhani for the department, while relying on the orders of the revenue authorities, pointed out firstly that the original assessment was made under section 143(1) of the Act and that, therefore, the ITO had no occasion to examine the records of the assessee's case. Shri Mansukhani argued that this was not a case of a mere exchange of flat. There was no documentation in respect of the transaction of exchange of flat. The fair market value of the flat purchased by the assessee at Gamadia Road was Rs. 13,50,000 as per the order under section 132(5). Shri Mansukhani argued that there was some connection between the legal heir of the assessee and Kamal Bhatia, and Samant was an associate of Kamal Bhatia. The sale and purchase agreement in respect of the transaction involved in the purchase of the flat at Gamadia Road was not available but, in any case, it was not a case of mere exchange of a flat. The question to be considered was whether the fair market value of the flat was correct. Shri Mansukhani argued that the list of the reasons recorded for taking action under section 148 was given to the legal heir. As regards the validity of notice, Shri Mansukhani relied on a decision in the case of Maharaja of Patiala v. CIT [1943] 11 ITR 202 (Bom.) and the commentary of learned authors Kanga & Palkhivala at page 945, Vol. I, 7th Edition. He referred to the observations of the learned authors on section 292B which provided that no notice or assessment shall be deemed to be invalid merely by reason of any defect or omission therein if the assessment or notice is in substance and effect in conformity with or according to the intent and purpose of this Act. Shri Mansukhani pointed out that there was compliance with the notice issued u/s. 148 by the legal heir and the provisions of sec. 292B cured the alleged defect pointed out by the appellant's counsel. The gist and purport of the reason for re-opening the assessment were brought to the notice of the legal heir and Shri Mansukhani for this purpose relied on the order sheet entries in the record of the assessee at pages 56 to 59 of the compilation. He argued that the primary facts were not available in the original record which was accepted under section 143(1). He also relied on a decision of the Supreme Court in the case of Indo-Aden Sall Mfg. & Trading Co. (P.) Ltd. The affidavit filed by Samant in 1985 gave enough reason to believe that on-money had been paid by the assessee in the transaction of purchase of flat. Shri Mansukhani then argued that the fact that the notice was defective was not fatal to the assessment proceedings and relied on a decision of the Bombay High Court in Rajabally Hirji Meghani v. S.N. Sahane [1988] 170 ITR 614 in support of this proposition. Shri Mansukhani also relied on a host of decisions which, according to him, provided authorities to support the case of the department. He particularly relied on a decision of the Privy Council in the case of CIT v. Mahaliram Ramjidas [1940] 8 ITR 442, CIT v. Lakhiram Ramdas [1962] 44 ITR 726 (SC), S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), Gundathur Thimmappa & Sons v. CIT [1968] 70 ITR 70 (Mys.), Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and CIT v. T.S.PL.P. Chidambaram Chettiar [1971] 80 ITR 467 (SC). He also relied, apart from the aforesaid decision of Bombay High Court, on Rajabally Hirji Meghani's case, on the decision of Allahabad High Court in Elgin Mills Co. Ltd. v. CIT [1990] 184 ITR 326, Andhra Pradesh High Court in A. Pusa Lal v. CIT [1988] 169 ITR 215 and Orissa High Court in Sambalpur Rolling & Flour Mill (P.) Ltd. v. ITO [1988] 173 ITR 588/36 Taxman 291.

6. Shri Dastur, in reply, argued that the fair market value of the property purchased had no relevance in the income-tax proceedings. What was found in the course of search proceedings had to be seen. Nothing in such proceedings was found warrant action under section 148. Section 292B, reiterated Shri Dastur, only cured procedural defects. In the present case, there was a fundamental defect in a notice which conferred jurisdiction on the ITO. The defect in a notice under section 148 which confers jurisdiction on the ITO was a fundamental defect. A notice issued on a dead person is a nullity in law and such nullity cannot be cured by section 292B. In this connection, Shri Dastur relied on a decision of the Gujarat High Court in CIT v. Sumantbhai. C. Munshaw [1981] 128 ITR 142 and the decision of the Patna High Court in CIT v. Surendra Kumar Bhadani [1987] 164 ITR 323. Shri Dastur, in particular, relied on the observations at page 337 in this case. He also relied on a decision of the Supreme Court in Y. Narayana Chetty v. ITO [1959] 35 ITR 388. Shri Dastur then pointed out that the affidavit of Samant was full of contradictions. It could not form a starting point for initiating proceedings u/s. 147(1). Relying on a decision of the Supreme Court in Gemini Leather Stores v. ITO [1975] 100 ITR 1, Shri Dastur argued that re-assessment under section 147(a) could be sustained only if the ITO was satisfied that income had escaped assessment by reason of omission or failure on the part of the assessee to disclose all the primary facts. There was no such omission on the part of the assessee to disclose primary facts. The department had not stated what primary facts had not been disclosed by the assessee. Shri Dastur finally relied on a decision in CIT v. Smt. P.K. Noorjehan [1980] 123 ITR 3 (Ker.).

7. We have carefully considered the submissions made on either side and have gone th rough the case law cited. The first and the most important issue for consideration is whether the proceedings started by issue of notice under section 148 on a deceased person are valid proceedings or whether they are ab initio void. It is not disputed by the department that notice u/s. 148 dated 14-3-1989 was issued to Smt. Jerbanoo N. Wadia, Sneha Sadan, Nowroji Gamadia Road, Bombay-26, and received on her behalf on 19-3-1988. At this point of time, i.e., on 14-3-1988, the ITO was expected to be aware of the fact that Smt. J.N. Wadia was no more alive. This is clear from the fact that in connection with the rectification proceedings in the assessee's case for the assessment year 1986-87, when the same ITO had issued a notice under section 154/155, the assessee's son in a letter dated 30-10-1987 addressed to the 1st ITO, X-Ward, Aaykar Bhavan, Bombay, had informed the ITO that the assessee, Mrs. J.N. Wadia, had expired on 27-10-1987. The intimation of her death was given to the ITO as early as on 30-10-1987 and the ITO in an order under section 155 (sic) of the Act dated 11-10-1987 (which date perhaps was 10- 11- 1987 since the order was received by the assessee's heir on 16-11-1987) had taken cognizance of the fact that the assessee was dead, as can be seen from the fact, that the ITO had described the assessee as 'Smt. J.N. Wadia (deceased)'. Thus, although the ITO was aware of the death of the assessee as early as in November 1987, he chose to issue the notice u/s. 148 on 14-3-1988 on Smt. J.N. Wadia and not on her legal heir. Thus, there was admittedly a fundamental defect in the notice which was issued on a dead person. It was issued by the ITO on a person who was dead and of whose death the ITO had prior intimation and knowledge. Therefore, the question for consideration is whether such notice can be said to be 'ab initio void' and proceedings started in consequence of such notice invalid. As we have seen earlier, the Madhya Pradesh High Court in Shaikh Abdul Kadar's case had unambiguously held that a notice which is issued in the name of a person who is known to be dead is purposeless and defective and no valid assessment can be made on the strength of such a notice. This authority has not been controverted by any subsequent decision of any other High Court. A similar view was expressed by the Madras High Court in E. Alfred v. First Addl. ITO [1957] 32 ITR 401 where the Court observed that before an ITO can proceed under section 34 with reference to an assessment of an assessee who dies before a notice under that section is served on him, it is his duty to give notice to all the legal heirs of the deceased assessee and attempt to make them parties to the re-assessment proceedings. No such effort has been made by the ITO by bringing the legal representatives of the deceased on record or by issuing notices to them and as held by the Kerala High Court in P.N. Sasikumar's case, the issue of a valid notice is a condition precedent to the assumption of jurisdiction under section 148. The point for consideration is whether section 292B cures a defect of this type. In this connection, it is necessary to point out that section 159 of the IT Act specifically provides that where a person dies, his legal representatives shall be liable to pay any sum which the deceased should have been liable to pay. Therefore, this section provides that for the purpose of making an assessment including a re-assessment on the income of a deceased, any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and any proceedings which could have been taken against the deceased if he had survived may be taken against the legal representatives and the legal representatives of the deceased shall for the purposes of this Act be deemed to be the assessee. Thus, the provisions of section 159(2)(b) and section 159(3) enable the taxing authority to proceed against the legal representative by issue of appropriate notice if such authority intends to bring to tax any income of the deceased which has escaped assessment or which has to be subjected to assessment. This section would have no meaning if the tax authorities were to proceed to issue notice on assessees who are deceased and of whose death the taxing authority has had advance and adequate intimation. We are not prepared to accept Shri Mansukhani's argument that section 292B only provides that a return of income or a notice or an assessment shall not be treated as invalid merely by reason of any mistake, defect or omission in the return of income, assessment or notice. This section is intended to cure only procedural errors in the notices or orders of assessment but cannot be relied upon by the revenue to explain away what is obviously a fundamental and grievous error of the type which has been brought to our notice, i.e., the error of issue of notice on a dead person or a person who is known to be dead. Shri Mansukhani's reliance on Maharaja of Patiala's case does not at all advance the case of the revenue. In fact, the Bombay High Court observed in that case that it is wholly irregular to assess a deceased person and the assessment should have been made on the legal representative in respect of the income of the deceased. The assessment was considered valid in view of the peculiar facts and circumstances of that case. Even the fact that in the present case, there was a compliance of this notice by the legal heir does not, in our opinion, cure the defect. Although reference in this context was made to the Gujarat High Court decision in Sumantbhai C. Munshaw's case, the facts in that case were slightly distinguishable inasmuch as the ITO who passed the assessment order was not aware of the death of Munshaw when he made the said order, and it was the case of the department that it was the responsibility of the legal representative of the deceased to inform the ITO about the death of the deceased and he had failed to do so. Further, in that case, notices under section 142(2) were issued in the name of the deceased from time to time and the notices issued during the life-time of the deceased were received by one of the employees and those issued after his death by some employees who were the employees of the deceased. Notices issued in that case were procedural inasmuch as they were notices issued in connection the assessment proceedings which were validly initiated, such as notices under section 143(2) & 142(1) of the Act. Where, we are concerned with a fundamental defect in the notice under section 148 by which the ITO has sought to assume jurisdiction for starting re-assessment proceedings. In the present case, the ITO was aware of the death of the deceased and he was made aware of it by the legal representative who informed the ITO about the death of the assessee much earlier, i.e., in November 1987, though in a different proceeding, i.e., rectification proceedings relating to the assessment year 1986-87. Therefore, in our opinion, the notice issued on a dead person is a defective notice, it is a nullity in law and, therefore, the ITO had not validly assumed jurisdiction u /s. 148 and for this reason alone the assessment is liable to be set aside. Reference in this connection may be made to a decision of the Patna High Court in Surendrakumar Bhadani's case. At page 337, the Court observed as under :

". . . it will be seen that the proceeding under section 34(1)(a) was initiated against Jhari Ram Bhadani who was dead long before the initiation of the proceeding. The proceeding was thus against a dead person. It does not require much argument to appreciate that a proceeding against a dead person is a nullity. It must be deemed to be non est in the eye of law. That is why the Tribunal, in its order at paragraph 15, held that although as a fact, a proceeding under section 34(1)(a) had been initiated against the deceased, Jhari Ram Bhadani, that was no proceeding in the eye of law. I am in complete agreement with the view of the Tribunal. That proceeding must be deemed to be non est. "

The above observations support the view taken by us. Further, as held by the Supreme Court in Y. Naranaya Chetty's case, notice prescribed by section 34 of the IT Act, 1922, for the purpose of initiating re-assessment proceedings is not a mere procedural requirement. The service of the prescribed notice on the assessee is a condition precendent to the validity of any re-assessment made under that section. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void. These two Authorities amply support our finding above.

8. Without prejudice to this finding, even otherwise, we are of the view that there was no failure on the part of the assessee to disclose fully and truly all material facts when she filed her return for the assessment year 1983-84. In her letter dated 27-6-1983, under which she filed her return of income the assessee had given full details about the sale of her flat No. 181 in the building known as Sky Scraper - A situated at Bhulabhai Desai Road for Rs. 4,50,000 to Anurag Bhatia and Priti Bhatia and she had also intimated the sale proceeds were re-invested in the purchase of a new flat in a building known as 'Sneha Sadan' situated at 10 Gamadia Road, Bombay. Thus, all the material facts relating to the sale and purchase of the two flats were disclosed in a letter accompanying the original return of income for the assessment year 1983-84 and it was the duty of the ITO to carry out all the requisite enquiries to find out the truth and veracity of the various statements made in this return. If the ITO failed to make any enquiry at the original stage, it cannot be said that there was any omission or failure on the part of the assessee which had led to the escapement of income. The two decisions which support this stand of the appellant are to be seen firstly in the case of Burlop Dealers Ltd. In this case, the Supreme Court held that where on the evidence and material produced during the original assessment proceedings the ITO could have reached a conclusion other than the one he has reached, proceedings under sec. 34(1)(a) of the IT Act, 1922, will not lie merely on the ground that the ITO has raised an inference which he may later on regard as erroneous. In that case, the assessee had disclosed its books of account and evidence from which material facts could be discovered. In the present case also, the relevant facts about purchase and sale of flat were recorded in the original return. Similarly, in the case of Calcutta Credit Corpn. Ltd., the Court held that it was for the ITO to investigate the claims made in the original return and find out the correct state of affairs. The Supreme Court in another case in ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1, applied the ratio of the decision in Burlop Dealers Ltd.'s case and observed that it was for the ITO to investigate and determine whether the documents produced at the time of the original assessment were genuine or not and the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. Although the learned Departmental Representative has relied on a catena of decisions, his substantial reliance was on the decision of the Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. The Supreme Court, no doubt, observed there that the fact that the ITO could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true disclosure of material facts. But, in the same decision, the Supreme Court observed that it is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. This aspect of the Supreme Court's observation was highlighted by the Madhya Pradesh High Court in M. V. Kibe's case 169 ITR 40 at page 43. The Court observed there must be true and full disclosure of all material facts. What facts are material would depend upon the facts and circumstances of each case and there must be escapement of tax or underassessment due to such failure or omission. In the present case, all material facts relating to the sale and purchase of the respective flats were disclosed by the deceased assessee in the original return. The affidavit of Samant dated 28-12-1988 was the only basis on which the re-assessment proceedings appear to have been started. Neither a copy of this affidavit nor the reasons recorded for starting reassessment proceedings was furnished by the ITO in spite of three letters dated 31-10-1988 and 21-2-1988 and 23-11-1988 written by the assessee's legal heir to the Asstt. Commissioner of Income-tax, (Inv.) Circle 12(1).

9. We have carefully gone through the order of the first appellate authority and we do not find any specific treatment of the various arguments advanced before him. We find that the CIT(A) has embarked upon a theoretical discussion of the provisions of the sections concerned and has termed the arguments of the assessee as vacuous without specifically rebutting the several arguments advanced before him. He has assumed that the assessee had received undisclosed money and further assumed that she is pleading innocence when cornered. In our opinion, there is no specific treatment on merits of the case by the CIT(A) on the specific arguments advanced. For the reasons stated above, in our opinion, the re-assessment proceedings are ab initio void. The notice u/s. 148 was illegal and void having been served on a dead person and, in any case, there is no evidence to show that there was any failure on the part of the assessee to disclose primary facts.

10. Several arguments were advanced regarding the merits of the case. Although, in our opinion, even on merits, the assessee has a very strong case, we do not find it necessary to deal with the same, since on the preliminary grounds we have held in favour of the assessee and against the revenue.

11. In the result, the appeal is allowed

 

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