* Author
[2024] 1 S.C.R. 642 : 2024 INSC 53
M/s Mangalam Publications, Kottayam
v.
Commissioner of Income Tax, Kottayam
(Civil Appeal Nos. 8580-8582 of 2011)
23 January 2024
[B. V. Nagarathna and Ujjal Bhuyan*, JJ.]
Issue for Consideration
Reopening of a concluded assessment-reassessment u/s. 147 of
the Income Tax Act, 1961 following issuance of notice u/s. 148 of
the Act, legally sustainable or bad in law.
Headnotes
Income Tax Act, 1961 – ss. 147 and 148 – Reopening of a
concluded assessment-reassessment u/s. 147 following
issuance of notice u/s. 148 – Sustainability:
Held: On the basis of the balance sheet submitted by the
assessee before the Bank for obtaining credit, the assessing
officer upon a comparison of the same with a subsequent balance
sheet filed by the assessee for the assessment year 1993-94
concluded that there was escapement of income and initiated
reassessment proceedings – Dehors such balance sheet, there
were no other material in the possession of the assessing officer
to hold that income of the assessee for the assessment years
had escaped assessment – When the assessee had not made
any false declaration, it was nothing but a subsequent subjective
analysis of the assessing officer that income of the assessee for
the assessment years was much higher than what was assessed
and thus, had escaped assessment – This was a mere change
of opinion which cannot be a ground for reopening of assessment
– Returns for the assessment years were not accompanied by
the regular books of account – Such return may be a defective
one but certainly not invalid return – Furthermore, in none of the
assessment years, the assessing officer had issued any declaration
that the returns were defective – Assessee asserted both in the
pleadings and in the oral hearing that though it could not file regular
books of account along with the returns for the assessment years
because of seizure by the department, nonetheless the returns
[2024] 1 S.C.R. 643
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
of income were accompanied by tentative profit and loss account
and other details of income which were duly enquired into by the
assessing officer in the assessment proceedings – Thus, the tribunal
justified in holding that the reassessments for the assessment
years not justified – High Court erred in reversing the findings of
the tribunal – Order of the High Court set aside and that of the
tribunal restored. [Paras 41-45]
Income Tax Act, 1961 – s. 147 – Income escaping assessment
– ‘Full and true disclosure’ – Meaning of:
Held: Word ‘disclosure’ means to disclose, reveal, unravel or
bring to notice –Word ‘true’ qualifies a fact or averment as correct,
exact, actual, genuine or honest – Word ‘full’ means complete –
True disclosure of concealed income must relate to the assessee
concerned – Full disclosure, in the context of financial documents,
means that all material or significant information should be disclosed
– Thus, the meaning of ‘full and true disclosure’ is the voluntary
filing of a return of income that the assessee earnestly believes
to be true – Production of books of accounts or other material
evidence that could ordinarily be discovered by the assessing
officer does not amount to a true and full disclosure. [Para 31]
Income Tax Act, 1961 – s. 147 – Income escaping assessment
– Expression “change of opinion” in terms of assessment
proceedings:
Held: Expression “change of opinion” would imply formulation
of opinion and then a change thereof – In terms of assessment
proceedings, it means formulation of belief by the assessing officer
resulting from what he thinks on a particular question – Thus, before
interfering with the proposed reopening of the assessment on the
ground that the same is based only on a change of opinion, the
court ought to verify whether the assessment earlier made has either
expressly or by necessary implication expressed an opinion on a
matter which is the basis of the alleged escapement of income that
was taxable – If the assessment order is non-speaking, cryptic or
perfunctory in nature, it may be difficult to attribute to the assessing
officer any opinion on the questions that are raised in the proposed
reassessment proceedings. [Para 36]
Income Tax Act, 1961 – s. 139 – Return of income – Obligation
on assessee to disclose all material facts necessary for his
assessment:
644 [2024] 1 S.C.R.
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Held: s.139 places an obligation upon every person to furnish
voluntarily a return of his total income if such income during
the previous year exceeded the maximum amount which is not
chargeable to income tax – Assessee is under further obligation
to disclose all material facts necessary for his assessment for
that year fully and truly – While the duty of the assessee is to
disclose fully and truly all primary and relevant facts necessary for
assessment, it does not extend beyond this – Once the primary
facts are disclosed by the assessee, the burden shifts onto the
assessing officer. [Para 41]
s. 139 – Return of income – When to be treated as invalid return:
Held: U/s. 139(9), where the assessing officer considers that the
return of income furnished by the assessee is defective, he may
intimate the defect to the assessee and give him an opportunity
to rectify the defect within fifteen days from the date of such
intimation or within such further period, the assessing officer may
in his discretion allow – Burden is on the assessing officer – If
he does not exercise the discretion, the return of income cannot
be construed as a defective return – If the defect is not rectified
within the specified period or within the further period as may
be allowed, the return shall be treated as an invalid return – In
such an eventuality, it would be construed that the assessee
had failed to furnish the return. [Para 24.1-24.2]
Case Law Cited
Calcutta Discount Company Limited v. Income Tax
Officer, [1961] 2 SCR 241 : (1961) 41 ITR 1991 –
followed.
M/s Phool Chand Bajrang Lal v. Income Tax Officer,
[1993] 1 Suppl. SCR 28 : (1993) 4 SCC 77; Srikrishna
Private Limited v. ITO, Calcutta, [1996] 3 Suppl. SCR
627 : (1996) 9 SCC 534; CIT, Delhi v. Kelvinator of India
Limited, [2010] 1 SCR 768 : (2010) 2 SCC 723; CIT v.
Bimal Kumar Damani, (2003) 261 ITR 87 (Cal); Income
Tax Officer v. Lakhmani Mewal Das, [1976] 3 SCR 956 :
1976 (3) SCC 757 : 1976 (103) ITR 437 – referred to.
Books and Periodicals cited
P. Ramanatha Aiyar, Advanced Law Lexicon, Volume
2, Edition 6 – referred to.
[2024] 1 S.C.R. 645
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
List of Acts
Income Tax Act, 1961; Direct Tax Laws (Amendment) Act, 1987
List of Keywords
Income Tax Jurisprudence; Concluded assessment; Reassessment;
Search and seizure operations; Disclosed income; Limitation period;
Reopening the assessment; Omission; Reason to believe; Time
limit; Full and true disclosure; Production of books of accounts;
Change of opinion.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8580-8582
of 2011.
From the Judgment and Order dated 12.10.2009 of the High Court of
Kerala at Ernakulam in ITA Nos.400 and 557 of 2009.
With
Civil Appeal Nos.8599-8603, 8604, 8593-8598, 8583-8587 and 8588-
8592 of 2011.
Appearances for Parties
Raghenth Basant, Ms. Kaushitaki Sharma, Ms. Liz Mathew, Advs.
for the Appellant.
N. Venkataraman, ASG, Shyam Gopal, Raj Bahadur Yadav, Prahlad
Singh, Shashank Bajpai, Suyash Pandey, Prashant Singh Ii, T. S.
Sabarish, Advs. for the Respondent.
Judgment / Order of the Supreme Court
Judgment
Ujjal Bhuyan, J.
The perennial question in income tax jurisprudence, whether
reopening of a concluded assessment i.e. reassessment under
Section 147 of the Income Tax Act, 1961 (briefly “the Act” hereinafter)
following issuance of notice under Section 148 of the Act is legally
sustainable or is bad in law, is again confronting us in the present
batch of appeals. The Income Tax Appellate Tribunal, Cochin Bench,
Cochin (‘Tribunal’ hereinafter) had decided in favour of the assessee
646 [2024] 1 S.C.R.
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by setting aside the orders of reassessment. However, the High
Court of Kerala in appeals filed by the revenue under Section 260A
of the Act has reversed the findings of the Tribunal by deciding the
appeals preferred by the revenue in its favour.
2. Aggrieved by the aforesaid orders passed by the High Court of Kerala
(briefly “the High Court” hereinafter), the assessee had preferred
special leave petitions to appeal before this Court and on leave
being granted, civil appeals have been registered.
3. We have heard Mr. Raghenth Basant, learned counsel for the
appellant/assessee (which would be referred to either as the appellant
or as the assessee) and Mr. Shyam Gopal, learned counsel for
the respondent/revenue (again, would be referred to either as the
respondent or as the revenue).
4. A brief narration of facts is necessary.
5. For the sake of convenience, we may refer to civil appeal Nos. 8580,
8581 and 8582 of 2011 (M/s Mangalam Publications, Kottayam Vs.
Commissioner of Income Tax, Kottayam).
6. The above three civil appeals pertain to assessment years 1990-91,
1991-92 and 1992-93.
7. The assessee was a partnership firm at the relevant point of time
though it got itself registered as a company since the assessment
year 1994-95. The assessee is carrying on the business of publishing
newspaper, weeklies and other periodicals in several languages
under the brand name “Mangalam”. Prior to the assessment year
1994-95 including the assessment years under consideration, the
status of the assessee was that of a firm, being regularly assessed
to income tax.
8. For the assessment year 1990-91, assessee filed return of income
on 22.10.1991 showing loss of Rs.5,99,390.00. Subsequently,
the assessee filed a revised computation showing income at
Rs.5,63,920.00. Assessee did not file any balance sheet alongwith
the return of income on the ground that books of account were
seized by the income tax department (department) in the course of
search and seizure operations on 03.12.1995 and that those books
of account were not yet returned. In the assessment proceedings, the
assessing officer did not accept the contention of the assessee and
[2024] 1 S.C.R. 647
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
made an analysis of the incomings and outgoings of the assessee
for the previous year under consideration. After considering various
heads of income and sale of publications, the assessing officer made
a lumpsum addition of Rs. 1 lakh to the disclosed income vide the
assessment order dated 29.01.1992 passed under Section 143 (3)
of the Act.
9. Likewise, for the assessment year 1991-1992, the assessee did not file
any balance sheet along with the return of income for the same reason
mentioned for the assessment year 1990-1991. The return of income
was filed on 22.10.1991 showing a loss of Rs.21,66,760.00. As per the
revised profit and loss account, the sale proceeds of the publications
were shown at Rs.8,21,24,873.00. Assessing officer scrutinised the
net sale proceeds as per the Audit Bureau of Circulation figure and
the certified Performance Audit Report. On that basis assessing
officer accepted the sale proceeds of Rs.8,21,24,873.00 as correct
being in conformity with the facts and figures available in the Audit
Bureau of Circulation report and the Performance Audit Report. After
considering the incomings and outgoings of the relevant previous year
assessing officer reworked the aforesaid figures but found that there
was a deficiency of Rs.29,17,931.00 in the incoming and outgoing
statement which the assessee could not explain. Accordingly, this
amount was added to the total income of the assessee. Further, the
assessee could not produce proper vouchers in respect of a number
of items of expenditure. Accordingly, an addition of Rs.1,50,000.00
was made to the total income of the assessee vide the assessment
order dated 29.01.2022 passed under Section 143 (3) of the Act.
10. For the assessment year 1992-1993 also, the assessee filed the
return of income on 07.12.1992 showing a loss of Rs.10,50,000.00.
However, a revised return was filed subsequently on 28.01.1993
showing loss of Rs.44,75,212.00. Like the earlier years, assessee
did not maintain books of account and did not file the balance sheet
for the same reason. However, the assessee disclosed total sale
proceeds of the weeklies at Rs.7,16,95,530.00 and also advertisement
receipts to the extent of Rs.40 lakhs. The profit was estimated at
Rs.41,63,500.00 before allowing depreciation.
10.1. On scrutiny of the performance certificate issued by the Audit
Bureau of Circulation, the assessing officer observed that total
sale proceeds of the weeklies after allowing sale commission
648 [2024] 1 S.C.R.
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came to Rs.7,22,94,757.00. Following the profit percentage
adopted in earlier years, the assessing officer estimated the
income from the weeklies and other periodicals at 7.50% before
depreciation, adding the estimated advertisement receipts of
Rs.40 lakhs to the total sale receipts of Rs.7,22,94,757.00.
The assessing officer held that the total receipt from sale of
weeklies and periodicals came to Rs.7,62,94,757.00. The profit
earned before depreciation at the rate of 7.50% on the turnover
came to Rs.57,22,106.00. In respect of the daily newspaper,
the assessing officer worked out the loss at Rs.22,95,872.00 as
against the loss of Rs.41,23,500.00 claimed by the assessee.
Taking an overall view of the matter, the assessing officer
estimated the business income of the assessee during the
assessment year 1992-1993 at Rs.10,00,000.00 vide the
assessment order dated 26.03.1993 passed under Section
143(3) of the Act.
11. It may be mentioned that for the assessment year 1993-1994, the
assessee had submitted the profit and loss account as well as the
balance sheet along with the return of income. While examining
the balance sheet, the assessing officer noticed that the balance in
the capital account of all the partners of the assessee firm together
was Rs.1,85,75,455.00 as on 31.03.1993 whereas the capital of the
partners as on 31.12.1985 was only Rs.2,55,117.00. According to
the assessing officer, none of the partners had any other source of
income apart from one of the partners, Smt. Cleramma Vargese, who
had a business under the name and style of “Mangalam Finance”.
As the income assessed for all the years was found to be not
commensurate with the increase in the capital by Rs.1,83,20,338.00
(Rs.1,85,75,455.00 – Rs.2,55,117.00) from 1985 to 1993, it was
considered necessary to reassess the income of the assessee as
well as that of the partners for the assessment years 1988-1989
to 1993-1994. After obtaining the approval of the Commissioner of
Income Tax, Trivandrum, notice under Section 148 of the Act was
issued and served upon the assessee on 29.03.2000.
12. In respect of the assessment year 1990-1991, the assessee informed
the assessing officer that the return of income filed which culminated
in the assessment order dated 29.01.1992 may be considered as the
return in the reassessment proceedings. The assessing officer took
cognizance of the profit and loss account and the balance sheet filed
[2024] 1 S.C.R. 649
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
by the assessee before the South Indian Bank on the basis of which
assessment of income for the assessment years 1988 - 1989 and 1989
- 1990 were completed. Objection of the assessee that the aforesaid
balance sheet was prepared only for the purpose of obtaining loan
from the South Indian Bank and therefore could not be relied upon
for income tax assessment was brushed aside. The reassessment
was made on the basis of the accounts submitted to the South Indian
Bank. By the reassessment order dated 21.03.2002 passed under
Section 144/147 of the Act, the assessing officer quantified the total
income of the assessee at Rs.29,66,910.00 whereafter order was
passed allocating income among the partners.
13. Likewise, for the assessment year 1991-1992, the assessing officer
passed reassessment order dated 21.03.2002 under Section 144/147
of the Act determining total income at Rs.13,91,700.00. Following the
same, allocation of income was also made amongst the partners.
14. In so far assessment year 1992-1993 is concerned, the assessing
officer passed the reassessment order also on 21.03.2002 under
Section 144/147 of the Act determining the total income of the
assessee at Rs.25,06,660.00. Thereafter allocation of income was
made amongst the partners in the manner indicated in the order of
reassessment.
15. At this stage, we may mention that the assessing officer had worked
out the escaped income for the three assessment years of 1990-91,
1991-92 and 1992-93 at Rs.50,96,041.00. This amount was further
apportioned between the three assessment years in proportion to
the sales declared by the assessee in the aforesaid assessment
years as under:
Sr. No. Assessment year Amount
1. 1990-91 Rs.19,05,476.00
2. 1991-92 Rs.16,83,910.00
3. 1992-93 Rs.15,06,655.00
Total Rs.50,96,041.00
rounded off to
Rs.50,96,040.00
16. Against the aforesaid three reassessment orders for the assessment
years 1990-91, 1991-92 and 1992-93, assessee preferred three
650 [2024] 1 S.C.R.
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appeals before the first appellate authority i.e. Commissioner of
Income Tax (Appeals), IV Cochin (briefly “the CIT(A)” hereinafter).
Assessee raised the ground that it had disclosed all material facts
necessary for completing the assessments. The assessments having
been completed under Section 143(3) of the Act, the assessments
could not have been reopened after expiry of four years from the
end of the relevant assessment year as per the proviso to Section
147 of the Act. It was pointed out that the limitation period for the
last of the three assessment years i.e. 1992-93, had expired on
31.03.1997 whereas the notices under Section 148 of the Act were
issued and served on the assessee only on 29.03.2000. Therefore,
all the three reassessment proceedings were barred by limitation. The
assessee also argued that the alleged income escaping assessment
could not be computed on an estimate basis. In the present case,
the assessing officer had allocated the alleged escaped income for
the three assessment years in proportion to the corresponding sales
turnover. It was further argued that as per Section 282(2), notice
under Section 148 of the Act in the case of a partnership firm was
required to be made to a member of the firm. In the present case,
the notices were issued to the partnership firm. Therefore, such
notices could not be treated as valid.
16.1. CIT(A) rejected all the above contentions urged by the
assessee. CIT(A) relied on Section 139(9)(f) of the Act and
thereafter held that the assessee had not furnished the
details as per the aforesaid provisions and therefore fell
short of the requirements specified therein. Vide the common
appellate order dated 26.02.2004, CIT(A) held that, as the
assessee had failed to disclose all material facts necessary
to make assessments, therefore it could not be said that the
reassessment proceedings were barred by limitation in terms
of the proviso to Section 147. The other two grounds raised
by the assessee were also repelled by the first appellate
authority. Thereafter, CIT(A) made a detailed examination of
the factual aspect whereafter it proposed enhancement of
the quantum of escaped income. Following the same, CIT(A)
enhanced the assessment by fixing the unexplained income
at Rs.1,44,02,560.00 for the assessment years 1987-88 to
1993-94 which was thereafter apportioned in respect of the
relevant three assessment years. The pro-rata allotment of
[2024] 1 S.C.R. 651
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
escaped income for the three assessment years as directed
by CIT(A) are as follows:
Sr. No. Assessment year Escaped income
1. 1990-91 Rs.24,98,755.00
2. 1991-92 Rs.23,01,204.00
3. 1992-93 Rs.20,20,895.00
Total Rs.68,20,854.00
16.2. Thus, as against the total escaped income of Rs.50,96,040.00
for the above three assessment years as quantified by the
assessing officer, CIT(A) enhanced and redetermined such
income at Rs.68,20,854.00.
16.3. However, it would be relevant to mention that CIT(A) in the
appellate order had noted that the assessee had filed its balance
sheet as on 31.12.1985 while filing the return of income for
the assessment year 1986-87. The next balance sheet was
filed as on 31.03.1993. No balance sheet was filed in the
interregnum on the ground that it could not maintain proper
books of accounts as the relevant materials were seized by
the department in the course of a search and seizure operation
and not yet returned. CIT(A) further noted that the assessing
officer had taken the balance sheet as on 31.03.1989 filed by
the assessee before the South Indian Bank as the base for
reconciling the accounts of the partners. It was noticed that
CIT(A) in an earlier appellate order dated 26.03.2002 for the
assessment year 1989-90 in the assessee’s own case had
held that the profit and loss account and the balance sheet
furnished to the South Indian Bank were not reliable. CIT(A)
in the present proceedings agreed with such finding of his
predecessor and held that the unexplained portion, if any, of
the increase in capital and current account balance with the
assessee had to be analysed on the basis of the balance
sheet filed before the assessing officer as on 31.12.1985 and
as on 31.03.1993.
17. Aggrieved by the common appellate order passed by the CIT(A)
dated 26.02.2004, assessee preferred three separate appeals before
the Tribunal which were registered as under:
652 [2024] 1 S.C.R.
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(i) ITA No. 282(Coch)/2004 for the assessment year 1990-91.
(ii) ITA No. 283(Coch)/2004 for the assessment year 1991-92.
(iii) ITA No. 284(Coch)/2004 for the assessment year 1992-93.
17.1. In the three appeals filed by the assessee, revenue also filed
cross objections.
17.2. By the common order dated 29.10.2004, the Tribunal allowed
the appeals filed by the assessee and set aside the orders of
reassessment for the three assessment years as affirmed and
enhanced by the CIT(A). Tribunal held that the re-examination
carried out by the assessing officer was not based on any
fresh material or evidence. The reassessment orders could
not be sustained on the basis of the balance sheet filed by
the assessee before the South Indian Bank because in an
earlier appeal of the assessee itself, CIT(A) had held that
such balance sheet and profit and loss account furnished to
the bank were not reliable. The original assessments were
completed under Section 143(3) of the Act. Therefore, it was not
possible to hold that the assessee had not furnished necessary
details for completing the assessments at the time of original
assessment. In such circumstances, Tribunal held that the
case of the assessee squarely fell within the four corners of
the proviso to Section 147. Consequently, the reassessments
were held to be barred by limitation, thus without jurisdiction.
While allowing the appeals of the assessee, Tribunal dismissed
the cross objections filed by the revenue.
18. Against the aforesaid common order of the Tribunal, the respondent
preferred three appeals before the High Court under Section 260A
of the Act, being IT Appeal Nos. 400, 557 and 558 of 2009 for the
assessment years 1990-91, 1991-92 and 1992-93 respectively. All
the three appeals were allowed by the High Court vide the common
order dated 12.10.2009. According to the High Court, the finding of
the Tribunal that the assessee had disclosed fully and truly all material
facts necessary for completion of the original assessments was not
tenable. Holding that there was no material before the Tribunal to
come to the conclusion that the assessee had disclosed fully and
truly all material facts required for completion of original assessments,
[2024] 1 S.C.R. 653
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
the High Court set aside the order of the Tribunal and remanded the
appeals back to the Tribunal to consider the appeals on merit after
issuing notice to the parties.
19. It is against this order that the assessee had filed the special leave
petitions which on leave being granted have been registered as civil
appeals. The related civil appeals have been filed by the partners
of the assessee firm which would be dependent on the outcome of
the present set of civil appeals.
20. Respondent has filed counter affidavit supporting the judgment
under appeal. It is contended that the High Court has correctly
appreciated the facts and the law and thereafter given a reasoned
order as to why the reopening of assessment is valid. High Court
has correctly held that the assessee had not disclosed fully and truly
all the material facts necessary for completion of the assessments.
Adverting to Section 139 (9) of the Act, it is submitted that, it is not
mandatory for the assessing officer to treat a return as invalid even
if the return is defective under any of the sub-clauses of Section
139 (9). It is the discretion of the assessing officer to issue notice.
Since no notice was issued, the return and the assessment made
thereon would be valid.
20.1. It is submitted that the assessee had not even had accounts
pertaining to the advertisement receipts which is a major
source of income of a publication entity; as a matter of fact,
the assessee had shown the income from advertisements on
estimation basis.
20.2. Though the assessee had been claiming that it did not
maintain any books of account from the assessment years
1989- 1990 onwards, an audited balance sheet and profit and
loss account submitted to the South Indian Bank were traced
out and used as evidence against the assessee for reopening
the assessment for the assessment year 1989- 1990. In the
first appellate proceedings, CIT(A) took the view that the profit
shown in the statement was for availing credit facility only and
therefore set aside the reopening of assessment. Though the
Tribunal concurred with the view of CIT(A), the department
filed an appeal before the High Court. The assessing officer
had compared the balance of the partners in their capital
account in the firm in the said balance sheet (filed before the
654 [2024] 1 S.C.R.
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bank) with capital in the balance sheet filed for the assessment
year 1993 – 1994 and thereafter determined the probable
escapement of income which is fully justified and rightly upheld
by the High Court.
20.3. Respondent has contended that in the original assessments the
assessing officer had made the assessments on the basis of
limited information furnished by the assessee. The assessing
officer made the reassessments on the basis of the increase
in the capital in the balance sheets between the years ending
31.03.1989 and 31.03.1993. Respondent has denied that the
reassessments were made on the basis of change of opinion.
An audited balance sheet for the period ending 31.12.1984
was available with the department. Thereafter, no audited
or unaudited balance sheets were furnished on the ground
that books of account could not be maintained. However, an
audited balance sheet for the period ending 31.03.1993 was
furnished in the course of the assessment proceedings for the
assessment year 1993 – 1994. Another balance sheet for the
period ending 31.03.1989 which was claimed by the assessee
to be an account prepared only for submission before the South
Indian Bank for availing loan could be traced out. A perusal of
the balance sheet for the assessment year 1993-1994 revealed
that the increase in capital was not commensurate with the
income assessed on estimation basis by the assessing officer
for the assessment years 1989 – 1990 to 1992-1993. It was
in view of such changed circumstances that notices under
Section 148 were issued. The original assessments for the
assessment years 1990 – 1991, 1991 – 1992 and 1992 – 1993
were completed on 29.01.1992, 29.01.1992 and 26.03.1993
respectively. The balance sheet for the assessment year
1993 – 1994 which was used as the basis for reassessment
was not available with the assessing officer when the original
assessments were made. Facts available with the assessing
officer in the original assessments and in the reassessments
were different. Since facts were different, question of any
change in the opinion did not arise. In the circumstances
respondent sought for dismissal of the special leave petitions
since registered as civil appeals.
[2024] 1 S.C.R. 655
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
21. Mr. Raghenth Basant, learned counsel for the appellant at the outset
submits that the High Court fell in error while setting aside the wellreasoned and correct order of the Tribunal. Order of the High Court
should be set aside and the order of the Tribunal restored.
21.1. He submits that the appellant is a partnership firm engaged
in the business of publication of newspaper, weeklies and
other periodicals under the brand name “Mangalam”. Being
an assessee under the Act it was maintaining proper books
of accounts and had filed profit and loss accounts as well
as balance sheets along with the returns of income till the
assessment year 1985 – 1986. A search operation was carried
out by officials of the department under Section 132 of the Act
in the business premises of the appellant on 31.12.1985. In the
said search operation, books of account, registers and ledgers
of the appellant were seized. Because of the aforesaid, the
appellant was unable to maintain proper books of account as it
was not possible for it to obtain ledger balances to be brought
down for the succeeding accounting years. Nonetheless,
appellant maintained primary books of account and used to
prepare profit and loss accounts. It also used to prepare a
statement of source and application of funds in support of the
income returned by it in the returns of income. Being a member
of the Audit Bureau of Circulation, appellant was also required
to maintain exhaustive details regarding printing and sale of
newspaper and other periodicals published by it.
21.2. Learned counsel submits that returns were filed by the appellant
for the three assessment years in question. Those returns were
supported by profit and loss accounts and statements showing
the source and application of funds. Assessments for the three
assessment years were carried out and completed under
Section 143 (3) of the Act after making additions and providing
for certain disallowances. He submits that for the assessment
year 1993–1994, the appellant had maintained complete set of
books of account, audited profit and loss account and balance
sheet which were duly filed before the assessing officer.
Following assessment proceedings, assessing officer passed
the assessment order for the assessment year 1993 – 1994
on 27.01.1994 under Section 143 (3) of the Act.
656 [2024] 1 S.C.R.
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21.3. More than eight to ten years after expiry of the relevant
assessment years, appellant was served with notices dated
29.03.2000 issued under Section 148 of the Act for the
assessment years 1990 – 1991, 1991 – 1992 and 1992 – 1993.
He submits that the basis for reassessment was purportedly
comparison of the current and capital accounts of the partners
of the assessee firm in the balance sheet filed along with the
return for the assessment year 1993 – 1994 with the capital
and current accounts of the partners as on 31.12.1985, which
showed unexplained increase. The revenue also sought to rely
upon the balance sheet for the assessment year 1988 – 1989
obtained by the assessing officer from the South Indian Bank
which was submitted by the assessee to the said bank to avail
credit facility. He submits that on such comparison the assessing
officer came to an erroneous conclusion that the profits for the
assessment years 1990 – 1991, 1991 – 1992 and 1992 -1993
would be Rs.1,86,57,246.00 and as the assessment for the
said years came to Rs.16,64,518.00 only, there was an under
assessment of income to the tune of Rs.1,69,92,728.00.
21.4. Learned counsel submits that during the reassessment
proceedings assessee sought for return of the books seized
by the department. Though some books were returned, the
entire seized materials were not returned. As it was an old
matter assessee had sought for time to look into the old records
and to consult its representative. However, the assessing
officer declined to grant time and went ahead and passed the
reassessment orders ex parte under Section 144/147 of the Act.
He submits that the assessing officer made the reassessment
on a comparison of the increase in the capital and current
accounts of the partners for the period from 1986 to 1993.
According to him, the assessing officer could not have done
that because the balance sheet for the assessment year 1989
– 1990, which was obtained by the assessing officer from the
South Indian Bank, was not prepared on actual and current
accounts; that was prepared on provisional and estimate basis
in the absence of the account books which were seized by the
department, that too, only for the purpose of obtaining credit
facilities from the bank.
[2024] 1 S.C.R. 657
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
21.5. It is the submission of learned counsel for the assessee
that the High Court has erred in holding that even in the
absence of the entire books of accounts, the assessee had
not furnished the documents and particulars required under
Section 139 (9) (f) of the Act. According to the High Court
since the original assessment was completed without the
books of account and the details under Section 139 (9) (f)
being furnished, therefore, the assessee had not disclosed
fully and truly all material facts necessary for completion of
assessment. Learned counsel submits that for non-furnishing
of particulars under Section 139 (9) (f) the original assessment
would be rendered invalid. However, the assessing officer did
not adopt the aforesaid course of action but instead proceeded
to complete the assessments under Section 143 (3) of the Act.
In the circumstances, he submits that non furnishing of details
under Section 139 (9) (f) cannot lead to any inference that
material facts had not been disclosed so as to justify reopening
of assessments that too eight to ten years after expiry of the
relevant assessment years.
21.6. Learned counsel asserts that even though the assessee was
not maintaining regular books of accounts, all relevant details
necessary for making the assessments were furnished before
the assessing officer. These included detailed cash flow
statements, profit and loss accounts, statements showing the
source and application of funds reflecting the increase in the
capital and current accounts of the partners of the assessee
firm etc. It was thereafter that assessments were completed not
only in respect of the assessee for the above three assessment
years but also for the partners as well under Section 143(3)
of the Act.
21.7. It is contended by learned counsel for the assessee that
there was no specific information before the assessing officer
wherefrom he could form a reason to believe that income
exigible to income tax had escaped assessment for the three
assessment years. The only reason for initiating reassessment
proceedings was the impression of the assessing officer that
there was an increase in the capital and current accounts of
the partners upon a comparison of the balance sheets for
the assessment year 1985 – 1986 and for the assessment
year 1993 – 1994 which could not be properly explained. The
658 [2024] 1 S.C.R.
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assessing officer also formed the above belief on the basis of
the balance sheet for the assessment year 1989 – 1990 which
was obtained from the South Indian Bank. According to him, on
both counts, the revenue could not have initiated proceedings
for reopening of concluded assessments that too under Section
143 (3) of the Act. He submits that CIT(A), in the appeal of
the assessee for the assessment year 1989 -1990, had clearly
held that such a balance sheet submitted before the bank was
not reliable. Learned counsel asserts that an assessing officer
would get the jurisdiction to reopen an assessment only on
the basis of specific, reliable and relevant information coming
to his possession subsequent to the original assessment and
not otherwise. In support of such submission learned counsel
has relied upon the decisions of this Court in:
(i) M/s Phool Chand Bajrang Lal Vs. Income Tax Officer,
(1993) 4 SCC 77.
(ii) Srikrishna Private Limited Vs. ITO, Calcutta,
(1996) 9 SCC 534.
21.8. Summing up his submissions, learned counsel submits that as
rightly held by the Tribunal, it was the change of view of the
assessing officer upon assessing the comparative accounts
of the partners which led to the reassessments which is not
based on any fresh material or evidence. It is evident that the
assessing officer had only reviewed the original assessments
on the basis of a fresh application of mind to the same set
of facts. Therefore, it is a clear case of change of opinion
leading to reassessment proceedings which is not permissible
in law as held by this Court in CIT, Delhi Vs. Kelvinator of
India Limited, (2010) 2 SCC 723. He therefore submits that
the order of the High Court is liable to be set aside and that
of the Tribunal restored.
22. Mr. Shyam Gopal, learned counsel for the respondent at the outset
submits that there is no merit at all in the civil appeals, and therefore,
the civil appeals should be dismissed.
22.1. Adverting to Section 145 (1) of the Act, he submits that income
from the profits of business shall be computed in accordance
with the cash or mercantile or any other system of accounting
regularly employed by the assessee. Since the business income
[2024] 1 S.C.R. 659
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
had to be computed by following the method of accounting
adopted by the assessee and based on the books of accounts
so maintained, the assessee was required to produce the
books of accounts but when the books of accounts were not
available, at least to furnish the particulars in terms of Section
139 (9) (f) of the Act.
22.2. Referring to Section 139 (9) (f) of the Act, he submits that even
in the absence of regular books of accounts, the assessee is
bound to provide the information required under the aforesaid
provision. An assessee who does not disclose the above
information and instead submits returns on estimation basis
cannot claim that it has fully and truly disclosed all material
facts required for assessment.
22.3. According to Mr. Gopal, Tribunal erred in holding that the
assessee had disclosed fully and truly all material facts
necessary for assessment. In fact, Tribunal did not go into
the merit of the case. Rather, Tribunal held that there were
no materials before the assessing officer to take the view that
income chargeable to tax had escaped assessment.
22.4. Learned counsel for the revenue strenuously argued that
assessing officer had made a comparative analysis of the
two balance sheets, one as on 31.12.1985 relevant to the
assessment year 1986-1987 and the balance sheet dated
31.03.1994 relevant to the assessment year 1994–1995
and found therefrom unexplained increase in the capital and
current accounts of the partners. That apart, the assessing
officer also obtained a balance sheet for the assessment year
1988–1989 from the South Indian Bank which also indicated
unexplained profits and gains of the partners. It was thereafter
that reassessment proceedings were initiated. First appellate
authority i.e. CIT(A) not only affirmed the reassessment orders
of the assessing officer but also enhanced the quantum of
escaped income which was restored by the High Court after
setting aside the reversal order of the Tribunal.
22.5. Learned counsel for the respondent has submitted a
convenience compilation and drew the attention of the Court
therefrom to the relevant provisions of the Act i.e. Section 139
(9), 143, 144, 145, 147, 148, 149 and 151 of the Act, both pre
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01.04.1989 and post 01.04.1989. He submits that there was
admittedly non-disclosure of material facts by the assessee,
and, therefore, the extended period under the proviso to Section
147 of the Act was available to the department. Viewed in the
above context, the notices issued under Section 148 of the Act
as well as the orders of reassessment passed under Section
144/147 of the Act were within limitation.
22.6. Learned counsel has specifically referred to Section 149 of
the Act which deals with the time limit for issuance of notice
under Section 148 of the Act. Post amendment with effect from
01.04.1989, he submits that under Section 149 (1) (b) (iii), the
limitation is, if seven years but not more than ten years had
elapsed from the relevant assessment year unless the income
chargeable to tax which has escaped assessment amounts to
or is likely to amount to rupees fifty thousand or more for that
year. In the instant case, the quantum of escaped assessment
is admittedly in excess of rupees fifty thousand. Therefore, the
notices issued under Section 148 of the Act on 29.03.2000 for
the three assessment years of 1990 – 1991, 1991 – 1992 and
1992 – 1993 were well within the limitation period.
22.7. Learned counsel has referred to the decision of this Court in
Calcutta Discount Company Limited Vs. Income Tax Officer,
(1961) 41 ITR 1991 and submits that the duty of disclosing all
the primary facts relevant to assessment before the assessing
authority lies on the assessee. Only when all the primary facts
are disclosed, the burden would shift to the assessing authority.
22.8. Asserting that the order of the High Court is fully justified,
learned counsel seeks dismissal of the civil appeals.
23. Submissions made by learned counsel for the parties have received
the due consideration of the Court.
24. At the outset, we may advert to certain provisions of the Act as
existed at the relevant point of time having a bearing on the present
lis. Chapter XIV of the Act comprising Sections 139 to 158 deals with
procedure for assessment. Section 139 mandates filing of income
tax return. At the relevant point of time, this provision provided that
every person, if his total income or the total income of any other
person in respect of whom he was assessable under the Act during
the previous year had exceeded the maximum amount which is not
[2024] 1 S.C.R. 661
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
chargeable to income tax, he shall on or before the due date furnish
a return of his income or the income of such other person during the
previous year in the prescribed form and verified in the prescribed
manner, setting forth such other particulars as may be prescribed.
24.1. Since reference was made to sub-section (9)(f) of Section
139, both in the pleadings and in the oral hearing, we may
mention that under sub-section (9) of Section 139, where
the assessing officer considers that the return of income
furnished by the assessee is defective, he may intimate the
defect to the assessee and give him an opportunity to rectify
the defect within a period of fifteen days from the date of such
intimation or within such further period, the assessing officer
may in his discretion allow. If the defect is not rectified within
the specified period or within the further period as may be
allowed, the return shall be treated as an invalid return. In
such an eventuality, it would be construed that the assessee
had failed to furnish the return. There is an Explanation below
sub-section (9) which clarifies that a return of income shall
be regarded as defective unless all the conditions mentioned
thereunder are fulfilled. Clause (f) says that where regular
books of account are not maintained by the assessee but the
return is accompanied by a statement indicating the amounts
of turnover or gross receipts, gross profit, expenses and net
profit of the business or profession and the basis on which
such amounts have been computed and also disclosing the
amounts of total sundry debtors, sundry creditors, stock in
trade and cash balance as at the end of the previous year,
such a return shall not be treated as defective.
24.2. Thus, Section 139 places an obligation upon every person to
furnish voluntarily a return of his total income if such income
during the relevant previous year had exceeded the maximum
amount which is not chargeable to income tax. Under subsection (9), if there are defects in the return which are not
rectified within the stipulated period after being intimated by the
assessing officer, the return of income would be treated as an
invalid return. Of course, it would not be treated as defective
and consequently invalid if in a case, such as, under clause
(f) where regular books of account are not maintained but the
return of income is accompanied by a statement indicating the
amounts of turnover etc.
662 [2024] 1 S.C.R.
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25. Section 142 deals with enquiry before assessment. As per sub-section
(1), the assessing officer may issue notice upon an assessee who
has made a return seeking details of such accounts, information or
documents etc. which may be necessary for the purpose of making
an assessment. Sub-section (2) empowers the assessing officer
to make such enquiry as he considers necessary for obtaining full
information and sub-section (3) requires the assessing officer to
provide an opportunity of hearing to the assessee in respect of any
material gathered on the basis of the enquiry.
26. This takes us to Section 143 which is the provision for assessment.
As per sub-section (1), where a return is made under Section 139 or
in response to a notice under Section 142(1), the assessing officer
may carry out adjustments in accordance with law and thereafter,
issue intimation to the assessee specifying the sums payable. Such
intimation shall be deemed to be a notice of demand under Section
156 of the Act.
26.1. Sub-section (2) provides that where a return has been furnished
under Section 139 or in response to a notice under sub-section
(1) of Section 142, to ensure that the assessee has not understated the income or has not computed excessive loss or has
not under-paid the tax in any manner, the assessing officer
shall serve on the assessee a notice to produce evidence in
support of the claim made by the assessee.
26.2. As per sub-section (3) of Section 143, after hearing such
evidence as the assessee may produce and such other
evidence as the assessing officer may require on specified
points and after taking into account all relevant material
which he has gathered, the assessing officer shall make an
assessment of the total income or loss of the assessee by an
order in writing. In the said exercise, he shall determine the
sum payable by the assessee or refund of any amount due
to him on the basis of such assessment.
27. Section 144 provides for best judgment assessment. It says that if
any person fails to submit a return under sub-section (1) of Section
139 or fails to comply with the terms of a notice under sub-section
(1) of Section 142 or having made a return fails to comply with all
the terms of a notice issued under sub-section (2) of Section 143,
the assessing officer after taking into account all relevant materials
[2024] 1 S.C.R. 663
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
and after giving the assessee an opportunity of being heard make
the assessment to the best of his judgment and determine the sum
payable by the assessee on the basis of such assessment.
28. This brings us to the pivotal section i.e. Section 147. Prior to the
Direct Tax Laws (Amendment) Act, 1987, Section 147 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).
28.1. This provision was amended by the Direct Tax Laws
(Amendment) Act, 1987 with effect from 01.04.1989. Post such
amendment, Section 147 read as under:
147. Income escaping assessment.—If the assessing
officer, for reasons to be recorded by him in writing, is
of the opinion that any 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 and also any other income
chargeable to tax which has escaped assessment and
which comes to his notice subsequently in the course of
the proceedings under this section, or recompute the loss
or the depreciation allowance or any other allowance, as
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the case may be, for the assessment year concerned
(hereafter in this section and in Sections 148 to 153
referred to as the relevant assessment year).
28.2. As can be seen from the above, prior to 01.04.1989, the income
tax officer was required to have 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 or to disclose
fully and truly all material facts necessary for such assessment,
income chargeable to tax had escaped assessment for that
assessment year or the income tax officer had in consequence
of information in his possession reason to believe that income
chargeable to tax had escaped assessment for any assessment
year, the income tax officer could reopen an assessment. But
with effect from 01.04.1989, the requirement of law underwent
a change. It was sufficient if the assessing officer for reasons
to be recorded by him in writing was of the opinion that any
income chargeable to tax had escaped assessment for any
assessment year, he could assess or reassess such income
chargeable to tax which had escaped assessment and which
came to his notice subsequently. Therefore, post 01.04.1989,
the power to reopen an assessment became much wider.
28.3. It appears that a number of representations were received
against the omission of the words “reason to believe” from
Section 147 and their substitution by the word “opinion” of the
assessing officer. It was pointed out by the representationists
that the meaning of the expression “reason to believe” was
explained in a number of judgments and was well settled.
Omission of such an expression from Section 147 would
give arbitrary powers to the assessing officer to reopen
past assessments. To allay such apprehensions, Parliament
enacted the Direct Tax Laws (Amendment) Act, 1989 again
amending Section 147 by re-introducing the expression “reason
to believe”. Section 147 after the amendment carried out by
the Direct Tax Laws (Amendment) Act, 1989 reads as under:
147. Income escaping assessment.—If the assessing
officer has reason to believe that any 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 and also any other
[2024] 1 S.C.R. 665
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
income chargeable to tax which has escaped assessment
and which comes to his notice subsequently in the course
of the proceedings under this section, or recompute the
loss or the depreciation allowance or any other allowance,
as the case may be, for the assessment year concerned
(hereafter in this section and in Sections 148 to 153 referred
to as the relevant assessment year).
28.4. Thus, Section 147 as it stood at the relevant point of time
provides that if the assessing officer has reason to believe
that any income chargeable to tax has escaped assessment
for any assessment year, he may assess or re-assess such
income and such other income which has escaped assessment
and which comes to his notice subsequently in the course of
proceedings under Section 147.
29. Section 148 says that before making an assessment, re-assessment
etc. under Section 147, the assessing officer is required to issue and
serve a notice on the assessee calling upon the assessee to file a
return of his income in the prescribed form etc., setting forth such
particulars as may be called upon.
30. Such a notice is subject to the time limit prescribed under Section
149. Under sub-Section (1)(b), no notice under Section 148 shall
be issued in a case where an assessment under sub-section (3) of
Section 143 or Section 147 has been made for such assessment year
if seven years but not more than 10 years have elapsed from the
end of the relevant assessment year unless the income chargeable
to tax which has escaped assessment amounts to or is likely to
amount to Rs. 50,000 or more for that year.
31. At this stage, we deem it necessary to expound on the meaning of
disclosure. As per the P. Ramanatha Aiyar, Advanced Law Lexicon,
Volume 2, Edition 6, ‘to disclose’ is to expose to view or knowledge,
anything which before was secret, hidden or concealed. The word
‘disclosure’ means to disclose, reveal, unravel or bring to notice,
vide CIT Vs. Bimal Kumar Damani, (2003) 261 ITR 87 (Cal). The
word ‘true’ qualifies a fact or averment as correct, exact, actual,
genuine or honest. The word ‘full’ means complete. True disclosure
of concealed income must relate to the assessee concerned. Full
disclosure, in the context of financial documents, means that all
material or significant information should be disclosed. Therefore,
the meaning of ‘full and true disclosure’ is the voluntary filing of a
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return of income that the assessee earnestly believes to be true.
Production of books of accounts or other material evidence that could
ordinarily be discovered by the assessing officer does not amount
to a true and full disclosure.
32. Let us now discuss some of the judgments cited at the bar. First
and foremost is the decision of a constitution bench of this Court in
Calcutta Discount Company Limited (supra). That was a case under
Section 34 of the Indian Income Tax Act, 1922 which is in parimateria to Section 147 of the Act. The constitution bench explained
the purport of Section 34 of the Indian Income Tax Act, 1922 and
highlighted two conditions which would have to be satisfied before
issuing a notice to reopen an assessment beyond four years but
within eight years (as was the then limitation). The first condition
was that the income tax officer must have reason to believe that
income, profits or gains chargeable to income tax had been underassessed. The second condition was that he must have also reason
to believe that such under-assessment had occurred by reason of
either (i) omission or failure on the part of the assessee to make a
return of his income under Section 22, or (ii) omission or failure on
the part of the assessee to disclose fully and truly all material facts
necessary for his assessment for that year. It was emphasized that
both these were conditions precedent to be satisfied before the
income tax officer could have jurisdiction to issue a notice for the
assessment or re-assessment beyond the period of four years but
within the period of eight years from the end of the year in question.
The words used in the expression “omission or failure to disclose
fully and truly all material facts necessary for his assessment for that
year” would postulate a duty on every assessee to disclose fully and
truly all material facts necessary for his assessment though what
facts are material and necessary for assessment would differ from
case to case. On the above basis, this Court came to the conclusion
that while the duty of the assessee is to disclose fully and truly all
primary facts, it does not extend beyond this. This position has been
reiterated in subsequent decisions by this Court including in Income
Tax Officer Vs. Lakhmani Mewal Das, 1976 (3) SCC 757; 1976 (103)
ITR 437. The expression “reason to believe” has also been explained
to mean reasons deducible from the materials on record and which
have a live link to the formation of the belief that income chargeable
to tax has escaped assessment. Such reasons must be based on
material and specific information obtained subsequently and not on
[2024] 1 S.C.R. 667
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
the basis of surmises, conjectures or gossip. The reasons formed
must be bona fide.
33. In Phool Chand Bajrang Lal (supra), this Court examined the purport
of Section 147 of the Act and observed that the object of Section 147
is to ensure that a party cannot get away by willfully making a false
or untrue statement at the time of original assessment and when
that falsity comes to notice, to turn around and say “you accepted
my lie, now your hands are tied and you can do nothing”. This Court
opined that it would be a travesty of justice to allow an assessee
such latitude. After adverting to various previous decisions, this
Court held that an income tax officer acquires jurisdiction to reopen
an assessment under Section 147(a) read with Section 148 of the
Act only if on the basis of specific, reliable and relevant information
coming to his possession subsequently, he has reasons, which he
must record, to believe that due to omission or failure on the part of
the assessee to make a true and full disclosure of all material facts
necessary for his assessment during the concluded assessment
proceedings, any part of his income, profit or gains chargeable to
income tax has escaped assessment. In the above context, Supreme
Court has held as under:
25. …...He may start reassessment proceedings either
because some fresh facts come to light which were not
previously disclosed or some information with regard to
the facts previously disclosed comes into his possession
which tends to expose the untruthfulness of those facts. In
such situations, it is not a case of mere change of opinion
or the drawing of a different inference from the same facts
as were earlier available but acting on fresh information.
Since, the belief is that of the Income Tax Officer, the
sufficiency of reasons for forming the belief, is not for the
Court to judge but it is open to an assessee to establish
that there in fact existed no belief or that the belief was not
at all a bona fide one or was based on vague, irrelevant
and non-specific information. To that limited extent, the
Court may look into the conclusion arrived at by the Income
Tax Officer and examine whether there was any material
available on the record from which the requisite belief
could be formed by the Income Tax Officer and further
whether that material had any rational connection or a
668 [2024] 1 S.C.R.
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live link for the formation of the requisite belief. It would
be immaterial whether the Income Tax Officer at the time
of making the original assessment could or, could not
have found by further enquiry or investigation, whether
the transaction was genuine or not, if on the basis of
subsequent information, the Income Tax Officer arrives at a
conclusion, after satisfying the twin conditions prescribed in
Section 147(a) of the Act, that the assessee had not made
a full and true disclosure of the material facts at the time
of original assessment and therefore income chargeable
to tax had escaped assessment.……
34. This Court in the case of Srikrishna Private Limited (supra) emphasized
that what is required of an assessee in the course of assessment
proceedings is a full and true disclosure of all material facts necessary
for making assessment for that year. It was emphasized that it is the
obligation of the assessee to disclose the material facts or what are
called primary facts. It is not a mere disclosure but a disclosure which
is full and true. Referring to the decision in Phool Chand Bajrang
Lal (supra), it has been highlighted that a false disclosure is not a
true disclosure and would not satisfy the requirement of making a
full and true disclosure. The obligation of the assessee to disclose
the primary facts necessary for his assessment fully and truly can
neither be ignored nor watered down. All the requirements stipulated
by Section 147 must be given due and equal weight.
35. Kelvinator of India Limited (supra) is a case where this Court examined
the question as to whether the concept of “change of opinion”
stands obliterated with effect from 01.04.1989 i.e. after substitution
of Section 147 of the Act by the Direct Tax Laws (Amendment) Act,
1987. This Court considered the changes made in Section 147 and
found that prior to the Direct Tax Laws (Amendment) Act, 1987,
reopening could be done under two conditions i.e., (a) the Income
Tax Officer had reason to believe that by reason of omission or failure
on the part of the assessee to make a return under Section 139 for
any assessment year or to disclose fully and truly all material facts
necessary for his assessment for that year, income chargeable to tax
had escaped assessment for that year, or (b) notwithstanding that
there was no such omission or failure on the part of the assessee,
the Income Tax Officer had in consequence of information in his
[2024] 1 S.C.R. 669
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
possession reason to believe that income chargeable to tax had
escaped assessment for any assessment year. Fulfilment of the
above two conditions alone conferred jurisdiction on the assessing
officer to make a re-assessment. But with effect from 01.04.1989,
the above two conditions have been given a go-by in Section 147
and only one condition has remained, viz, that where the assessing
officer has reason to believe that income has escaped assessment,
that would be enough to confer jurisdiction on the assessing officer
to reopen the assessment. Therefore, post 01.04.1989, power to
reopen assessment is much wider. However, this Court cautioned that
one needs to give a schematic interpretation to the words “reason
to believe”, otherwise Section 147 would give arbitrary powers to
the assessing officer to reopen assessments on the basis of “mere
change of opinion”, which cannot be per se reason to reopen.
35.1. This Court also referred to Circular No.549 dated 31.10.1989
of the Central Board of Direct Taxes (CBDT) to allay the
apprehension that omission of the expression “reason to
believe” from Section 147 and its substitution by the word
“opinion” would give arbitrary powers to the assessing officer
to reopen past assessments on mere change of opinion and
pointed out that in 1989 Section 147 was once again amended
to reintroduce the expression “has reason to believe” in place
of the expression “for reasons to be recorded by him in writing,
is of the opinion”. This Court thereafter explained as under:
6. We must also keep in mind the conceptual difference
between power to review and power to reassess. The
assessing officer has no power to review; he has the
power to reassess. But reassessment has to be based
on fulfilment of certain precondition and if the concept of
“change of opinion” is removed, as contended on behalf
of the Department, then, in the garb of reopening the
assessment, review would take place.
7. One must treat the concept of “change of opinion” as
an in-built test to check abuse of power by the assessing
officer. Hence, after 1-4-1989, the assessing officer has
power to reopen, provided there is “tangible material”
to come to the conclusion that there is escapement
of income from assessment. Reasons must have a
670 [2024] 1 S.C.R.
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live link with the formation of the belief. Our view gets
support from the changes made to Section 147 of the
Act, as quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted
the words “reason to believe” but also inserted the
word “opinion” in Section 147 of the Act. However, on
receipt of representations from the companies against
omission of the words “reason to believe”, Parliament
reintroduced the said expression and deleted the word
“opinion” on the ground that it would vest arbitrary
powers in the assessing officer.
36. Elaborating further on the expression “change of opinion”, this Court
in Techspan India Private Limited (supra) observed that to check
whether it is a case of change of opinion or not one would have
to see its meaning in literal as well as legal terms. The expression
“change of opinion” would imply formulation of opinion and then
a change thereof. In terms of assessment proceedings, it means
formulation of belief by the assessing officer resulting from what he
thinks on a particular question. Therefore, before interfering with
the proposed reopening of the assessment on the ground that the
same is based only on a change of opinion, the court ought to verify
whether the assessment earlier made has either expressly or by
necessary implication expressed an opinion on a matter which is the
basis of the alleged escapement of income that was taxable. If the
assessment order is non-speaking, cryptic or perfunctory in nature, it
may be difficult to attribute to the assessing officer any opinion on the
questions that are raised in the proposed reassessment proceedings.
37. Learned counsel for the respondent has placed before the Court in
the convenience compilation the reasons recorded by the assessing
officer for initiating reassessment proceedings. The same is extracted
as under:
Reasons for the belief that income has escaped assessment.
As per the last balance sheet of the assessee for AY
1989-90 obtained from the South Indian Bank, the capital
of the assessee is as under:-
Fixed capital of partners. Rs. 20,50,000/-
Investment allowance. Rs. 41,47,873/-
[2024] 1 S.C.R. 671
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
Current a/c of partners. Rs. 44,28,597/-
________________
Total Rs. 1,06,26,470/-
________________
The B/S/P & L a/c for the intervening period is not available.
But the balance sheet/P&L a/c for AY 1993-94 shows
increase in capital which is as under:
Fixed capital of partners. Rs. 20,50,000/-
Investment allowance. Rs. 40,02,614/-
Current a/c of partners. Rs. 1,65,25,455/-
________________
Total Rs. 2,25,78,069/-
________________
The difference of Rs. 1,19,51,599/- is obviously the profit
of the assessee during the AY 1990-91 to 1993-94. The
profit of AY 1993-94 as per the accounts is Rs. 5,08,548/-.
If this is excluded, the profit for the three years i.e. 1990-
91, 1991-92 and AY 1992-93 is Rs. 1,14,43,051/-. The
profit will be more, if the drawings during the period of
the partners are included. The drawings and taxes paid is:
drawings taxes paid
1990-91 Rs.20,30,584/- Rs.2,48,287/-
1991-92 Rs.18,87,648/-
1992-93 Rs.29,12,038/- Rs.2,72,212/-
1993-94
(Figures not available from
assessment records.)
Rs.68,30,270/- Rs.3,83,925/-
Thus, the profit for the three years would be Rs. 1,86,
57, 246/- (1,14,43,051 + 68,30,270 + 3,83,925). Under
assessment of income for the three years is, therefore,
Rs.1,69,92,728 i.e., (18657246 – 1664518).
The sales estimated by AO for each of the 3 years less
depreciation for each year is taken as the basis for
determining the proportion in which the under-assessment
has been made.
672 [2024] 1 S.C.R.
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AY Sales
estimated
by AO
Depreciation Balance UnderAssessment
1990-91 90079199 4329815 85749384 6324989
1991-92 82124877 6222432 75902441 5598817
1992-93 72294757 3575079 68719678 5068892
Total under-assessment 16992728
In view of the above, I have reason to believe that by
reason of omission or failure on the part of the assessee
to disclose fully and truly all material facts necessary for
his assessment, income as determined above, chargeable
to tax has escaped assessment.
38. Thus, from a reading of the reasons recorded by the assessing officer
leading to formation of his belief that income of the assessee had
escaped assessment for the assessment years under consideration,
it is seen that the only material which came into possession of
the assessing officer subsequently was the balance sheet of the
assessee for the assessment year 1989-90 obtained from the
South Indian Bank. After obtaining this balance sheet, the assessing
officer compared the same with the balance sheet and profit loss
account of the assessee for the assessment year 1993-94. On such
comparison, the assessing officer noticed significant increase in the
current and capital accounts of the partners of the assessee. On that
basis, he drew the inference that profit of the assessee for the three
assessment years under consideration would be significantly higher
which had escaped assessment. The figure of under assessment was
quantified at Rs.1,69,92,728.00. Therefore, he recorded that he had
reason to believe that due to omission or failure on the part of the
assessee to disclose fully and truly all material facts necessary for the
assessments, incomes chargeable to tax for the three assessment
years had escaped assessment.
39. Assessee did not submit regular balance sheet and profit and loss
account for the three assessment years under consideration on the
ground that books of account and other materials/documents of the
assessee were seized by the department in the course of search and
seizure operation which were not yet returned to the assessee. In
[2024] 1 S.C.R. 673
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
the absence of such books etc., it became difficult for the assessee
to maintain yearwise regular books of account etc. However, regular
books of account and profit and loss account were filed by the
assessee along with the return of income for the assessment year
1993-94. What the assessing officer did was to cull out the figures
discernible from the balance sheet for the assessment year 1989-90
obtained from the South Indian Bank and compared the same with
the balance sheet submitted by the assessee before the assessing
officer for the assessment year 1993-94 and thereafter arrived at
the aforesaid conclusion.
40. It may be mentioned that the assessee had filed its regular balance
sheet as on 31.12.1985 while filing the return of income for the
assessment year 1986-87. The next balance sheet filed was as on
31.03.1993 for the assessment year 1993-94. No balance sheet
was filed in the interregnum as according to the assessee, it could
not maintain proper books of account as the relevant materials were
seized by the department in the course of a search and seizure
operation and not yet returned. It was not possible for it to obtain
ledger balances to be brought down for the succeeding accounting
years. As regards the balance sheet as on 31.03.1989 filed by the
assessee before the South Indian Bank and which was construed by
the assessing officer to be the balance sheet of the assessee for the
assessment year 1989-90, the explanation of the assessee was that
it was prepared on provisional and estimate basis and was submitted
before the South Indian Bank for obtaining credit and therefore could
not be relied upon in assessment proceedings. It appears that this
balance sheet was also relied upon by the assessing officer in the
re-assessment proceedings of the assessee for the assessment year
1989-90. In the first appellate proceedings, CIT(A) in its appellate
order dated 26.03.2002 held that such profit and loss account and
the balance sheet furnished to the South Indian Bank were not
reliable and had discarded the same. That being the position, the
assessing officer could not have placed reliance on such balance
sheet submitted by the assessee allegedly for the assessment year
1989-90 to the South Indian Bank for obtaining credit. Dehors such
balance sheet, there were no other material in the possession of
the assessing officer to come to the conclusion that income of the
674 [2024] 1 S.C.R.
Digital Supreme Court Reports
assessee for the three assessment years had escaped assessment.
41. It is true that Section 139 places an obligation upon every person to
furnish voluntarily a return of his total income if such income during
the previous year exceeded the maximum amount which is not
chargeable to income tax. The assessee is under further obligation
to disclose all material facts necessary for his assessment for that
year fully and truly. However, as has been held by the constitution
bench of this Court in Calcutta Discount Company Limited (supra),
while the duty of the assessee is to disclose fully and truly all primary
and relevant facts necessary for assessment, it does not extend
beyond this. Once the primary facts are disclosed by the assessee,
the burden shifts onto the assessing officer. It is not the case of
the revenue that the assessee had made a false declaration. On
the basis of the “balance sheet” submitted by the assessee before
the South Indian Bank for obtaining credit which was discarded
by the CIT(A) in an earlier appellate proceeding of the assessee
itself, the assessing officer upon a comparison of the same with
a subsequent balance sheet of the assessee for the assessment
year 1993-94 which was filed by the assessee and was on record,
erroneously concluded that there was escapement of income and
initiated reassessment proceedings.
42. We may also mention that while framing the initial assessment
orders of the assessee for the three assessment years in question,
the assessing officer had made an independent analysis of the
incomings and outgoings of the assessee for the relevant previous
years and thereafter had passed the assessment orders under
Section 143(3) of the Act. We have already taken note of the fact
that an assessment order under Section 143(3) is preceded by
notice, enquiry and hearing under Section 142(1), (2) and (3) as
well as under Section 143(2). If that be the position and when the
assessee had not made any false declaration, it was nothing but a
subsequent subjective analysis of the assessing officer that income
of the assessee for the three assessment years was much higher
than what was assessed and therefore, had escaped assessment.
This is nothing but a mere change of opinion which cannot be a
ground for reopening of assessment.
[2024] 1 S.C.R. 675
M/S Mangalam Publications, Kottayam v.
Commissioner of Income Tax, Kottayam
43. There is one more aspect which we may mention. Admittedly, the
returns for the three assessment years under consideration were not
accompanied by the regular books of account. Though under subsection (9)(f) of Section 139, such returns could have been treated
as defective returns by the assessing officer and the assessee
intimated to remove the defect failing which the returns would
have been invalid, however, the materials on record do not indicate
that the assessing officer had issued any notice to the assessee
bringing to its notice such defect and calling upon the assessee to
rectify the defect within the period as provided under the aforesaid
provision. In other words, the assessing officer had accepted the
returns submitted by the assessee for the three assessment years
under question. At this stage, we may also mention that it is the case
of the assessee that though it could not maintain and file regular
books of account with the returns in the assessment proceedings
for the three assessment years under consideration, nonetheless it
had prepared and filed the details of accounts as well as incomings
and outgoings of the assessee etc. for each of the three assessment
years which were duly verified and enquired into by the assessing
officer in the course of the assessment proceedings which culminated
in the orders of assessment under sub-section (3) of Section 143.
Suffice it to say that a return filed without the regular balance sheet
and profit and loss account may be a defective one but certainly not
invalid. A defective return cannot be regarded as an invalid return.
The assessing officer has the discretion to intimate the assessee
about the defect(s) and it is only when the defect(s) are not rectified
within the specified period that the assessing officer may treat the
return as an invalid return. Ascertaining the defects and intimating
the same to the assessee for rectification, are within the realm
of discretion of the assessing officer. It is for him to exercise the
discretion. The burden is on the assessing officer. If he does not
exercise the discretion, the return of income cannot be construed
as a defective return. As a matter of fact, in none of the three
assessment years, the assessing officer had issued any declaration
that the returns were defective.
44. Assessee has asserted both in the pleadings and in the oral hearing
676 [2024] 1 S.C.R.
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that though it could not file regular books of account along with the
returns for the three assessment years under consideration because
of seizure by the department, nonetheless the returns of income
were accompanied by tentative profit and loss account and other
details of income like cash flow statements, statements showing the
source and application of funds reflecting the increase in the capital
and current accounts of the partners of the assessee etc., which
were duly enquired into by the assessing officer in the assessment
proceedings.
45. Thus, having regard to the discussions made above, we are
therefore of the view that the Tribunal was justified in coming to the
conclusion that the reassessments for the three assessment years
under consideration were not justified. The High Court has erred in
reversing such findings of the Tribunal. Consequently, we set aside
the common order of the High Court dated 12.09.2009 and restore
the common order of the Tribunal dated 29.10.2004.
46. The above conclusions reached by us would cover the other civil
appeals of this batch as well. Resultantly, all the civil appeals filed
by the assessee and its partners are hereby allowed. No costs.
Headnotes prepared by: Nidhi Jain Result of the case: Appeals allowed.
