ORDER
B. S. SALUJA, J.M. :
These appeals have been filed by the assessed and the Department respectively against the orders of learned CIT(A), XII, New Delhi, dt. 11th October, 1994, on various grounds. Since the appeals involve common grounds urged by the assessed and the Department the same are being disposed of by this consolidated order for the sake of convenience.
ITA Nos. 7028 & 7029 (Del) 94
2. Ground Nos. 1 to 6 urged by the assessed relate to initiation of reassessment proceedings under s. 148 when notice was issued on 27th March, 1992, and the reasons for issuing the notice were recorded on 31st March, 1992, non-existence of valid reasons for formulation of belief for initiating reassessment proceedings under s. 148, the application of the provisions of ss. 147 and 148, as amended w.e.f. 1st April, 1989, and the invocation of the provisions of s. 292-B with reference to notice issued under s. 148 and the finding that reasons had been recorded by the AO before issue of notice.
2.1 The brief facts in these cases are that the returns for asst. yrs. 1987-88 and 1988-89 were filed on 13th July, 1987, and 7th June, 1988, and the assessments were completed under s. 143(1) at declared income of Rs. 65,026 and Rs. 45,580 respectively. Thereafter a search under s. 132(1) took place on 6th March, 1989, and some papers and documents relating to the assessment years under consideration were seized. With a view to make necessary verification, the assessed was asked to produce relevant books of account. The AO observed that the assessed did not produce the said books. He, thereforee, held that there was reason to believe that taxable income for assessment years under consideration had escaped assessment. He, thereforee, issued notice under s. 148 in relation to both the assessment years.
2.2 On first appeal the learned counsel for the assessed Shri M. Vaidhyanathan challenged the validity of the notices issued under s. 148. He submitted that the AO had issued notice under s. 148 without recording the reasons for issue of said notices. He pointed out that the notices were issued on 27th March, 1992, while reasons were recorded on 31st March, 1992. He, thereforee, urged that provisions of s. 148(2) were not complied with and the mere facts vitiated the issuance of notice. The learned counsel also objected to the application of the provisions of s. 147 as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989. He emphasised that the amended s. 147 did not govern the assessment years under consideration. The learned counsel also mentioned that the provisions of s. 147 as amended were not procedural in nature. The learned CIT(A) considered the submissions and referred to the entry in the order sheet of the AO, wherein it was recorded that 'search under s. 132(1) was conducted in this case on 6th March, 1989, and some of the papers and other documents seized during the search related to asst. yrs. 1987-88 and 1988-89 were also found. With a view to do the necessary verification the assessed was asked to produce the relevant books of accounts and other documents. However, books of accounts were not produced for no valid reasons. He issued notice under s. 148 for asst. yrs. 1987-88 and 1988-89'. The learned CIT(A) thus held that the AO recorded reasons in terms of s. 148(2) on 31st March, 1992, with a direction to the office to issue notice for asst. yrs. 1987-88 and 1988-89. He also noted that the said notice had the date '27th March, 1992'. He referred to the provisions of s. 292B of the IT Act and held that the wrong date indicated in the notice did not make the notice invalid. In the process the learned CIT(A) also observed that notices under s. 148 were sent to the assessed on 31st March, 1992, by registered post and that the AO had recorded reasons before issue of notices. The learned CIT(A) also referred to the provisions of s. 147 as amended w.e.f. 1st April, 1989, and the Departmental Circular No. 549, dt. 31st October, 1989, according to which the amendments made w.e.f. 1st April, 1989, are applicable for opening or reopening assessment for asst. yr. 1988-89 and earlier assessment year. He, thereforee, held that action of the AO was in accordance with law. The assessed is aggrieved.
2.3 The learned counsel for the assessed Shri M. S. Syali invited our attention to p. 14 of the paper book where a copy of the notice under s. 148 bearing the dt. 27th March, 1992, is placed. He further invited our attention to the order-sheet entry dt./31st March, 1992, a copy whereof has been filed. He submitted that the reassessment proceedings had been invited by the AO only with a view to make necessary verification from relevant books of accounts and other documents. He submitted that these reasons were insufficient for initiating reassessment proceedings. He further, referred to the provisions of s. 147 as they existed before the amendments made w.e.f. 1st April, 1989, and submitted that the AO was duty-bond to record the reasons for initiating reassessment proceedings before issue of notice under s. 148. However, in the present case the notice bears the date 27th March, 1992, whereas the reasons were recorded by the AO on 31st March, 1992. He, thereforee, urged that the provisions of s. 147 have not been complied with. He further submitted that the amendments made in s. 147 w.e.f. 1st April, 1989, could not be applied in the case of the assessed in relation to assessment years under consideration as such amendments could not be construed as having retrospective effect when the legislature has itself indicated that the amendments will take effect on and from 1st April, 1989. He further referred to para 28 of the statement of facts filed before the learned CIT(A), wherein it is mentioned that the documents were submitted along with the return on 13th July, 1987, and notice dt. 27th March, 1992, was issued which was duly replied by the assessed on 21st April, 1992. It is also mentioned that the notice dt. 5th March, 1993, and the notice for hearing fixed for 23rd March, 1994 were duly replied and attended to by the assessee. It is also mentioned that the Explanationn sought by the AO vide letter dt. 24th March, 1994, was duly submitted vide reply dt. 30th March, 1994. He further referred to pp. 39 of the paper-book where it is mentioned that the assessed had filed the balance sheet, P&L; a/c, auditors report, memo of computation of income, tax deduction certificate which were acknowledged. Copies of those documents were also filed. It is further mentioned that the final statements were available even in the wealth-tax file. It is, thereforee, urged that the AO had wrongly stated that the balance sheet and other documents were not available on the file. He further referred to para 10 of the order of the Tribunal dt. 24th January, 1995, in stay application No. 159/Del/94, wherein the Tribunal had noted that notices under s. 148 were issued on 27th March, 1992, and the said notices were served on the assessed on 2nd April, 1992. The Tribunal has also noted that the assessed requested the AO to furnish reasons for reopening the assessments. The reasons were not furnished and the ultimately the assessed was allowed inspection of the reasons for reopening the assessments and on inspection it was found that reasons were recorded on 31st March, 1992. The learned counsel further referred to p. 38 of the paper-book, wherein the Tribunal also noted in its order that the AO had mentioned in his report submitted to the CIT(A) on 11th July, 1994, that the reasons were recorded on 31st March, 1992, and notice was issued to the assessed by registered post on the same day. The Tribunal also noted that the assessed had made a request that the relevant records, assessment records, revenue records, dispatch register and the original postal receipts on which the said notice was sent to the assessed be called for and summoned before the next date of hearing. The Tribunal also noted that the learned CIT(A) already passed the impugned order on 11th October, 1994, rejecting the legal issue raised by the assessed and substantially upholding the additions made by the AO. The learned counsel further referred to paras 20 and 21 of the said order (p. 142 of the paper-book) wherein the submissions made by the learned counsel to the effect that jurisdictional changes made in s. 147 apply only for asst. yr. 1989-90 onwards and the amended s. 147 does not apply to reopen the assessment for asst. yrs. 1987-88 and 1988-89 since the reassessment was enough in the domain of procedural proceedings were noted. The Tribunal also noted the contention that a vested right was robbed by means of reassessment and, thereforee, it was always the law that reassessments are governed by the law which applies to the assessment year in question. The Tribunal has also noted the reliance of the assessed on the decision in the case of CED vs . M. A. Merchant : [1989]177ITR490(SC) . The learned counsel further invited our attention to the written submissions dt. 8th June, 1994, filed before the CIT(A) (pp. 60-65 of the paper-book), wherein the detailed submissions have been made with reference to assumption of jurisdiction by the AO under s. 147 and the nature of amendments made therein w.e.f. 1st April, 1989. He further referred to the paper-book (p. 144) wherein the Tribunal has noted the submissions of the learned counsel pointing out the following differences evident on comparison of s. 147 as it stood prior to 1st April, 1969, and as it stood subsequent to 1st April, 1989, namely :
1. The preconditions for invoking jurisdiction have been dispensed with.
2. The scope of jurisdiction has been widened to enrobe not only income escaped from assessment at the notice stage but also to tax other such income which comes to the notice of the AO in the course of reopening of the assessment.
3. The time limit for reopening have been effected.
4. Deemed escapement is not only made applicable to the assessees income but also includes income to be clubbed; and
5. The procedure for sanctions has been amended. A comparative reading of the two sections clearly shows that the new section differs from the old section. The new section covers an area substantially different from the earlier section. The incidence of power to reopen relates to a situation materially different from that contemplated by the earlier section.
In view of the foregoing the learned counsel made the following submissions, namely :
1. The jurisdictional pre-conditions for reopening of assessment under s. 147 as it existed before 1st April, 1989, have to be met as otherwise the reopening would be invalid;
2. Sec. 147 is not a machinery provision but a substantive provision and all attributes of substantive law have to be read into this section as the assessed has vested right in the finality of proceedings;
3. There is a presumption against retrospective operation of any law - in this case the amendment is made w.e.f. 1st April, 1989, unless such retrospective effect can be implied from the language of section or on plain reading. The exception against this rule is where the amendment is explanatory, clarificatory or declaratory in nature. The changes made by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, do not meet these tests. It is also urged that where the amendments cover a substantially different field they cannot be treated as explanatory or clarificatory in nature;
4. The amendments made w.e.f. 1st April, 1989, impose fresh obligations and are materially different from incidence of power and, thereforee, they cannot have retrospective effect in relation to assessment years under consideration. Further, the legislature has clearly indicated that the amendments will take effect w.e.f. 1st April, 1989;
5. The changes brought about by the Direct Tax Laws (Amendment) Act, 1987, in various provisions of the IT Act are part of an integrated scheme of amendments. The learned counsel referred in this behalf to the provisions of ss. 143(5), 153(2), proviso, 154(1)(b), s. 220(2), 2nd proviso, s. 244A(5) and s. 147, Expln. (2) and pointed out that the legislature has clearly mentioned in s. 143(5) that the provisions as they stood immediately before their amendments by the Direct Tax Laws (Amendment) Act, 1987, shall apply to and in relation to any assessment for the assessment years commencing on 1st April, 1988, or any earlier assessment years and reference in the said sections to the other provisions of the Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. He, thereforee, contended that when the assessment is regulated by the provisions as they existed before 1st April, 1989, it will be irrational to conclude that for the purposes of reassessment the provisions of s. 147 as amended w.e.f. 1st April, 1989, will apply. He further, pointed out that the provisions of s. 153(2), proviso, have been given a separate treatment, as it has been provided that where notices under s. 148 was served on or before the 31st March, 1987, such assessment, reassessment or recomputation may be made at any time up to 31st March, 1990. Similarly, he pointed out that the provisions of s. 220(2) 2nd proviso, have been so amended so as to calculate interest at different rates in respect of the periods, before 31st March, 1989, and periods following after that date. He further pointed out that it has been clearly mentioned in s. 244A(4) that the said provisions will apply in respect of assessments for the assessment year. 1st April, 1989 and subsequent assessment years. He, thereforee, emphasised that legislature has indicated separate dates in relation to amendments made by the Direct Tax Laws (Amendment) Act, 1987, and that it will be wrong to construe that the amendments made in s. 147 w.e.f. 1st April, 1989, will have retrospective effect so as to cover the earlier assessment years. In this connection he further submitted that the reassessment proceedings ultimately relate to original assessment, and that in view of the original assessment having been completed, the existing right with reference to finality of the order vested in the assessed is affected and the same cannot be done retrospectively;
6. The retrospective amendment may be unconstitutional if vested right of the assessed is sought to be taken away, unless public good is achieved through such amendments;
7. In case the Tribunal takes a view that provisions of s. 147 are procedural, even then the conditions specified in that section for assuming jurisdiction are mandatory and if the mandatory procedure is amended, no retrospective effect could be implied as the mandatory procedure affects the vested rights of the assessee. He further submitted that if there is any doubt in relation to the date of effect of the amendment, it should always be treated as prospective in nature;
8. The learned counsel further contended that in case the Tribunal holds that the reassessment proceedings were valid, even then the principles of natural justice have been violated in this case as the reasons for reopening of assessments were recorded on 31st March, 1992, whereas the notice is dt. 27th April, 1992, which clearly establishes that the mandatory provisions of s. 147 have not been complied with. Further, the learned CIT(A) has invoked the provisions of s. 292B to hold that the wrong date mentioned in the notice is immaterial and that the defect is covered by the provisions of s. 292B. He submitted that where the rights of the assessed are affected the provisions of s. 292B cannot be invoked. He further submitted that the learned CIT(A) has observed that notice was posted after recording of reasons and that this was clearly an after-thought by the CIT(A) and he has come to such conclusion without affording any opportunity to the assessee. He further submitted that the first notice in this case was issued on 18th March, 1994, fixing the date for 23rd March, 1994. The reply was filed by the assessed on 23rd March, 1994. A further questionnaire was issued on 24th March, 1994, and a reply was filed on 30th March, 1994. He further submitted that the assessment was made on 30th March, 1994. In view of these facts the learned counsel submitted that it will be a travesty of justice if the plea of the AO that no details were filed is accepted. He further submitted that the learned CIT(A) has not said a single word on this issue of filing of details.
9. Even if the amended law has to be applied, the reasons for reopening of the assessment have to be recorded before the assessment can be so reopened. In this connection the learned counsel submitted that the reasons which are being recorded are also not correct as the photocopies of the books were with the Department. He also submitted that mere lack of verification of certain documents cannot be a basis for formation of belief that income has escaped assessment. He emphasised that in such a situation it will be only a case of suspicion, surmises and conjectures. In this connection he also emphasised that even the amended provisions of s. 147 cannot help the Department in sustaining the reasons recorded for reopening of assessments in the years under consideration. In this connection he also invited our attention to pp. 81-82 of the paper-book where copies of letters dt. 18th July, 1994, and 5th October, 1994, addressed to the CIT(A) are placed. In the first letter the assessed has requested that a copy of the report received from the AO be supplied before the next date of hearing to enable the assessed to make necessary submissions. In the next letter the assessed has agitated that the reasons were recorded on 31st March, 1992, after issuing a notice dt. 27th March, 1992.
2.4 In view of the foregoing the learned counsel submitted that the assessment made on the basis of wrong initiation of proceedings under ss. 147/148 should be quashed. He further submitted that Shri Vaidhyanathan, C.A. of the assessed had made only legal arguments before the CIT(A) and that the matter could not be argued on merits for lack of opportunities. He also invited our attention to p. 92 of the paper-book where a copy of the letter dt. 5th October, 1994, addressed to CIT(A) is placed, wherein the assessed had requested the CIT(A) to call for assessment records, revenue records, dispatch register and the original postal receipts under which the notice in question was posted to the assessed so that the legal arguments taken up before the learned CIT(A) could be properly appreciated. The learned counsel submitted that in case the assessed fails on other arguments then at least the learned CIT(A) should be asked to take into account the said records for which the request had been made. In support of his above propositions the learned counsel relied on the following case laws :
1. Modi Spg. & Wvg. Mills Co. Ltd. vs . ITO : [1970]75ITR367(SC) ;
2. ITO & Ors. vs . Lakshmani Mewal Das : [1976]103ITR437(SC) ;
3. ITO & Ors. vs . Chiranji Lal Ramji Das : [1978]111ITR138(Delhi) ;
4. Calcutta Discount Co. vs . ITO : [1961]41ITR191(SC) ;
5. P. V. Doshi vs. CIT : [1978]113ITR22(Guj) ;
6. Parashuram Pottery Works Co. Ltd. vs. ITO : [1977]106ITR1(SC) ;
7. CIT vs. T. P. Asrani : [1980]122ITR735(Bom) ;
8. CED vs. M. A. Merchant (supra);
9. Krishna Chandra Dutta (Cookme) (P) Ltd. vs. CIT : [1993]204ITR23(Cal) ;
10. CIT vs. Bhagat & Co. : [1990]182ITR212(Delhi) ;
11. CIT vs. Patel Bros. & Co. Ltd. & Ors. : [1995]215ITR165(SC)
12. Peria Karamalai Tea & Produce Co. Ltd. vs. CIT : [1980]124ITR899(Ker) ;
13. ;
14. : [1976]103ITR123(SC) ;
15. Lohia Machines Ltd. & Anr. vs. Union of India & Ors. : [1985]152ITR308(SC) ;
16. : [1968]3SCR623 ;
17. CIT vs. Reliance International Corpn. (P) Ltd. : [1995]211ITR666(Delhi) ;
18. S. S. Gadgil vs. Lal & Co. : [1964]53ITR231(SC) ;
19. CIT vs. Raman Industries ;
20. CIT vs. Dhadi Sahu : [1993]199ITR610(SC) ;
21. J. P. Jani, ITO & Anr. vs. Induprasad Devshankar Bhatt : [1969]72ITR595(SC) ;
22. Hajee K. Assainar vs. CIT : [1971]81ITR423(Ker) ;
23. Sunrolling Mills (P) Ltd. vs. ITO : [1986]160ITR412(Cal) ;
24. P. N. Sasikumar & Ors. vs. CIT : [1988]170ITR80(Ker) ;
25. CWT vs. V. S. Meenakshi Achi : [1994]205ITR260(Mad) ;
26. ITO & Ors. vs. Lakshmani Mewal Das (supra);
27. Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. : [1981]130ITR1(SC) .
3. The learned Departmental Representative, Shri P. K. Sahu, mainly relied on the orders of the tax authorities. He further submitted that the provisions of s. 147 are procedural in nature and not substantive. He submitted that though the amendments have been made by the Direct Tax Law (Amendment) Act, 1987, w.e.f. 1st April, 1989, the same would apply to the pending cases and thereby will have retrospective effect. With reference to retrospective effect of the amendments in machinery provisions, he relied on the decisions of the Honble Supreme Court in the cases reported in Ahmedabad Mfg. & Calico Printing Co. Ltd. vs. S. G. Mehta, ITO & Ors. : [1963]48ITR154(SC) . He also relied on the decision of the Honble Supreme Court in Mithilesh Kumari & Anr. vs. Prem Behari Khare : [1989]177ITR97(SC) . With reference to the arguments of vested rights as advanced by the learned counsel the learned Departmental Representative submitted that the provisions have to be properly construed and it has to be examined as to whether in the circumstances the provisions could have retrospective effect so as to justify reopening of assessment based on amended law. The learned Departmental Representative relied in this behalf on the decisions reported in and Krishna Devi Dalmia vs. ITO & Anr. : [1981]128ITR210(Delhi) . He further submitted that the provisions of s. 147 find place under Chapter XIV, which carries the heading 'procedure for assessment'. He, thereforee, urged that s. 139 onwards contained in Chapter XIV are procedural in nature whereunder the tax payable by the assessed is to be determined. He submitted that charging sections in the IT Act are different and that the amendments made in the procedural sections would have retrospective effect in the sense that they would apply to cases which are still pending and are within the period of limitation. In this connection the learned Departmental Representative invited our attention to p. 3456 of Vol. 3 of Chaturvedi & Pithisaria, where nature/scope of procedural law has been discussed. The learned Departmental Representative further submitted that s. 143(3) was procedural in nature and that similar interpretation will apply to the provisions of s. 147 which relate to reopening of assessment. In this connection he relied on the decision of the Honble J&K; High Court in Rattan Lal Tiku vs. CIT . He also relied on the decision reported in : [1976]103ITR437(SC) (supra). He further submitted that the answer to the proposition urged by the learned counsel lies in the Honble Supreme Court in the case of CED vs. M. A. Merchant (supra) which related to introduction of a new s. 59 which came into force on 1st July, 1960. In the said case the estate duty assessment had already been completed on the accountable persons on 26th February, 1960, and it was held that reopening of assessment under the provisions of new s. 59 would be bad in law. In the process it was also observed that the power of reassessment conferred by new s. 59 is quite different from the power conferred by the old s. 62 and that there is nothing in the new s. 59 from which an intent to give retrospective effect to it can be concluded.
3.1 To meet the arguments of the learned counsel with reference to integrated scheme of amendments made by Direct Tax Laws (Amendments) Act, 1987, the learned Departmental Representative referred to provisions of s. 143 (1A) whereby provisions were made for levy of additional tax and he submitted that in view of the substantive provisions, the amendment was given prospective effect and the position was clarified by inserting sub-s. (5) in s. 143. He further referred to circulars issued by the CBDT after the said amendments whereby it was clarified that the provisions of ss. 147/148 as amended, will apply to all matters pending, even if they relate to earlier years. The learned Departmental Representative also referred to p. 3539 of Vol. 3 of Chaturvedi & Pithisaria with reference to effect of changes in law in procedural provisions. The learned Departmental Representative also submitted that the ambit of the provisions relating to reopening of assessments was very wide. In this connection he relied on the decision of Honble Supreme Court in Kalyanji Mavji & Co. vs. CIT : [1976]102ITR287(SC) .
3.2 The learned Departmental Representative further argued that the words 'reasons to believe' as introduced in s. 147 w.e.f. 1st April, 1989, control the provisions of that section and the same are not materially different with reference to 'for reasons to be recorded in writing'. He, thereforee, submitted that the legislature intended implied retrospective effect of amendments made in s. 147 in respect of pending matters. He, thereafter referred to various instances of retrospective effect of amendments made in s. 34 of Indian IT Act, 1922. He referred to the decisions of Honble Supreme Court in K. C. Thomas, ITO vs. Vasant Hiralal Shah & Ors. : [1964]52ITR328(SC) and Sidh Gopal Gajanand & Ors. vs. ITO (1969) 73 ITR 227 whereby it was held that the provisions of s. 34(3) amended w.e.f. 1st April, 1952, applied to earlier years.
3.3 The learned Departmental Representative then proceeded to distinguish the case law relied upon by the learned counsel. He submitted that the Honble Supreme Court while interpreting the provisions of Expln. 2 to s. 37(2A) had approved the decision of the Honble Delhi High Court in the case of CIT vs. Rajasthan Mercantile Co. Ltd. : [1995]211ITR400(Delhi) in the decision : [1995]215ITR165(SC) (supra) that if the provisions were clarificatory in nature they would apply to earlier years. He further referred to the decision of the Honble Bombay High Court in the case of CIT vs. Hico Products (P) Ltd. : [1991]187ITR517(Bom) as relied upon by the learned counsel and submitted that the said case covered amendment in s. 35 whereby the assessees were deprived of depreciation on cost of capital goods and the Court had held that the amendment with retrospective effect contravened the provisions of Arts. 14 and 19(1)(g) and that the amendment was not valid in so far as it was retrospective. On a query from the Bench the learned Departmental Representative was fair enough to mention that in case the vested rights of the assessed are affected, then the provisions cannot be construed to have retrospective effect but he hastened to add that if the public purpose is served by such amendment then retrospective effect can be there. He submitted that in the present case the provision related to income which had escaped assessment and that by construing the amendment made w.e.f. 1st April, 1989 as having retrospective effect, public purpose/interest would be served.
3.4 In view of the foregoing the learned Departmental Representative submitted that the amendments made in ss. 147/148 w.e.f. 1st April, 1989, do not cover any new ground and that the area covered by the said amendments remained substantially the same and that the changes made were only incremental in nature and, thereforee, the same applied to assessments made in earlier years. He further submitted that a distinction has to be made between culpable concealment and innocent escapement of income. In this connection he referred to the decision of Honble Kerala High Court in P. A. Abdul Muthalif Rowther vs. ITO : [1976]102ITR694(Ker) .
3.5 The learned Departmental Representative further submitted that the notice was sent by registered post on 31st March, 1992, after recording of reasons on that date and, thereforee, the provisions of s. 148(2) were complied with. In this connection he referred to the decision of Honble Supreme Court in Banarsi Debi & Anr. vs. ITO : [1964]53ITR100(SC) , wherein the meaning of the word 'issued' has been discussed and it has been observed that it had extended meaning. The learned Departmental Representative submitted that the word 'issued' as used in s. 148(2) means sending of the notice. He also submitted that the notice was prepared on 27th March, 1992, which was a Friday, as there were intervening holidays and the AO was under great burden to beat the deadline of 31st March, 1992, when the reasons were recorded. He, thereforee, submitted that the minor defect in drawing notice should be condoned in view of the provisions of s. 292B. In this connection he also relied on the decision of the Honble Supreme Court in Balchand vs. ITO : [1969]72ITR197(SC) . With reference to the plea of the learned counsel that mere non-production of books of accounts was not sufficient reason for reopening of the assessment, the learned Departmental Representative submitted that the AO could not have computed income without co-operation of the assessee. He also referred to the fact that there was search in the case of the assessed and that the documents were returned to the assessed in view of the orders of the High Court for releasing of the documents. With reference to the objection of lack of opportunity and violation of principles of natural justice as raised by the learned counsel, the learned Departmental Representative submitted that hearing took place on two or three occasions and that the assessed did not utilise the opportunity and was only trying to raise legal objections.
4. The learned counsel in his rejoinder submitted that legal arguments with reference to assumption of jurisdiction by the AO under ss. 147/148 were raised by the assessed at all points of time. He further submitted that the learned CIT(A) had also not provided any opportunity. In this connection he referred to para 3 of the assessment order for asst. yr. 1987-88 (p. 25 of the paper-book). He submitted that the Department was in possession of photocopies which were obtained before releasing documents. He further referred to pp. 39-40 of the paper-book where it is mentioned that the assessed had filed balance sheet, P&L; a/c, auditors report and memo of computation of income, etc., and that the AO has stated that the said documents were not available on the file. He further referred to the last para at p. 5 of the order of the learned CIT(A), where it is mentioned that the AO scrutinised the details of the bank accounts and the total deposits in the bank accounts. In view of the foregoing he submitted that where rules of natural justice are violated, lack of details cannot be the basis of adverse inference by the tax authorities. With reference to the plea of the learned Departmental Representative regarding retrospective effect and the decisions relied upon by the learned Departmental Representative, the learned counsel submitted that retrospective effect cannot be presumed and that it has to be inferred from close scrutiny of the provisions as amended by the legislature. He referred to the decision reported in : AIR1991SC1654 and invited our attention to paras 46 and 47 of the said decision and submitted that in the case of the assessee, it is a statutory right that reasons have to be recorded before issue of notice and that the said decision does not go against the assessee. He further referred to the decision reported in : [1989]177ITR97(SC) (supra) and submitted that the said decision related to benami transaction and dealt with a declaratory law. He further submitted that the title of Chapter XIV 'Procedure for assessment' cannot be decisive in arriving at the decision by the Tribunal. With reference to certain other decisions relied upon by the learned Departmental Representative relating to changes in procedural laws and period of limitation, the learned counsel submitted that though the provisions relating to limitation may be procedural, but sometimes even the limitation period results in vested right of the assessee. He further submitted that the limitation is dealt with by s. 153 and not by s. 147 which has two limbs, namely, assumption of jurisdiction by the AO and how to proceed after assuming jurisdiction. He further submitted that when the limitation period expires vested right is created in favor of the assessee. He also submitted that the notice in the present case was posted in time but the same was served beyond time and, thereforee, the interpretation advanced by the learned Departmental Representative by relying on the decision reported in 153 ITR 100 (sic) will not hold good as the word 'issued' used in s. 148(2) will also cover the stage up to the service of notice. He relied in this connection on the decisions reported in R. K. Upadhyaya vs. Shanabhai Patel : [1987]166ITR163(SC) , CIT vs. Sun Engg. Works (P) Ltd. : [1992]198ITR297(SC) and CIT vs. (Late) Begum Noor Banu Alladin : [1993]204ITR166(AP) . He further submitted that both the old and new provisions of s. 147 require reasons to be recorded and that the said requirement is meant for assumption of jurisdiction by the AO. He further reiterated that reasons should be there when decision is taken for reopening of the assessment. He further emphasised that if reasons are allowed to be recorded till a time of posting of the notice the reasons could be modified, vetted and that the said state of affairs will be contrary to the spirit of the status and safeguards provided therein. He submitted that the plea of the learned Departmental Representative that the notice was drawn on 27th March, 1992, in view of the intervening holidays cannot be a reason to perpetuate injustice in the case of the assessee.
5. We have carefully considered the rival submissions and have also perused various documents to which our attention was invited during the course of hearing. We have also seen the case law relied upon by both the parties. It is observed that the thrust of the arguments of the learned counsel is that the amendments made in s. 147 of the IT Act by the Direct Tax Laws (Amendment) Act, 197, w.e.f. 1st April, 1989, will not apply in the case of the assessed for asst. yrs. 1987-88 and 1988-89 and that the reopening of assessment for these years should be governed by the provisions of ss. 147/148 as they existed prior to the said amendments w.e.f. 1st April, 1989. Keeping in view the past history of these provisions and the case law on the subject, we feel that the provisions of ss. 147 to 153 lay down procedural law and that the amendments w.e.f. 1st April, 1989, will be retrospective in the sense that these will apply to all matters which are pending on 1st April, 1989, and had not become closed or dead on that date. This view is also supported by the decision of the Honble Rajasthan High Court in the case of Chandi Ram vs. ITO & Anr. (1997) 225 ITR 611 , wherein it has been held that the provisions of s. 147 as amended in 1987 by the Direct Tax Laws (Amendment) Act, 1987, would be applicable where limitation under old law had not expired. We, thereforee, feel that once the case for reassessment has been reopened validly under the amended provisions, then the assessment will have to be made under the provisions of s. 143 as they existed prior to 1st April, 1989. Thus, we see no contradiction in the provisions of s. 143(5) and the amendments made in s. 147 w.e.f. 1st April, 1989, which amendments are actually an integrated part of the scheme of amendments made w.e.f. 1st April, 1989. Thus, we feel that the amendments made in s. 147 operate essentially prospectively, though in respect of pending matters they will have implied retrospective effect as the assessments already completed for which the limitation period for reopening has not expired will have to be reopened under the amended provisions of s. 147.
5.1 The next contention of the learned counsel is with reference to finality of assessment and the vested rights of the assessed in such finality. It may be mentioned that the essential principle as to the rule of finality of assessment is that the AO cannot change his mood and try to reopen a closed state of affairs, but if it is a case where the reopening is sought to be in consequence of information in his possession or even otherwise which leads to a reasonable belief that there has been an escapement and if that information is not the product of a change in his mood but is attributable to concrete material noticed by him, then the above principle may not apply. T. S. Santhanam vs. Expenditure Tax Officer : [1973]87ITR582(Mad) affirmed by Honble Madras High Court in : [1976]104ITR355(Mad) . The learned counsel has relied on the decision of the Honble Supreme Court in the case of CED vs. M. A. Merchant (supra). It is observed that in the said case new provisions for reopening of assessments were introduced in the ED Act by s. 59 and that there was no such power available in that Act and the only power available with the authorities was under s. 62 for rectification of mistakes. The Honble Supreme Court had held that there is a well settled principle against interference with vested rights with subsequent legislation unless legislation had been made retrospective expressly or by necessary implication. The facts of the said case are, thereforee, distinguishable as compared with the facts in the present case. Here the amendments have been made in s. 147, which is a procedural section and already empowers the IT authorities to reopen the assessments. The question raised by the learned counsel is that the amendments made w.e.f. 1st April, 1989, are so substantial that they affect the vested rights of the assessed and the same cannot be given retrospective effect. As we have already held that the amendments are essentially prospective in nature and they have only implied retrospective effect in the sense that they will apply for reopening of assessments in cases which are still within the period of limitation and can be validly reopened. Thus, this plea of the assessed also does not carry much weight.
5.2 The next plea of the learned counsel is that even if the provisions of s. 147 are held to be procedural in nature, the conditions specified for assuming jurisdiction are mandatory. In this connection it is observed from the reasons recorded on 31st March, 1992, that certain papers and documents seized during the search under s. 132(1) related to asst. yrs. 1987-88 and 1988-89. The AO has mentioned that 'with a view to do the necessary verification the assessed was asked to produce the relevant books of account and other documents. However, books of account were not produced for no valid reasons. Issue notice under s. 148 for asst. yrs. 1987-88 and 1988-89'. The learned counsel has agitated the reopening of assessments on this basis and has submitted that mere lack of verification of certain documents cannot be the basis for formation of belief that income has escaped assessment. He has emphasised that it is a case of only suspicion, surmises and conjectures. It may be mentioned that in this case the AO has himself mentioned in the assessment order that photocopies of the seized documents were available with the Department. It is further observed from the statement of facts placed before the learned CIT(A) that the AO had in his custody all the seized materials/photocopies from 14th March, 1990, and that till 23rd March, 1994, he did not fix up the hearing. It is also observed that the assessed had filed the balance sheet, P&L; a/c, auditors report and report of the tax auditors memo of computation of income, tax deduction certificates. Further, financial statements like statement of affairs were also available in the wealth-tax folder. The said facts have not been controverter by the Department before us. In view of the foregoing the reopening of the assessments on the plea of verification of certain documents is difficult to appreciate. We feel that reassessment proceedings under s. 147 could not have been initiated for the purpose of verification of information available with the authorities and thus the same are not valid in law. This view is supported by the decisions in the case of CST vs. Modi Industries Ltd. , General Electric Co. of India vs. STO .
6. The learned counsel has taken another plea that in the present case whereas the notice has been issued on 27th March, 1992 (the date of the notice), the reasons for reopening of assessments were recorded on 31st March, 1992, and, thereforee, the mandatory provisions of s. 148 have not been complied with. He has also submitted that the provisions of s. 292B cannot be invoked so as to cover the defect in issue of the notice. He has also submitted that the learned CIT(A) has observed that notice was posted after recording of reasons and that this was clearly an afterthought by the learned CIT(A) and he came to the said conclusion without affording any opportunity to the assessee. As against this plea of the learned counsel, the learned Departmental Representative has relied on the orders of the learned CIT(A). Since we have already held that the initiation of reassessment proceedings in this case are not valid in law, we feel that it is not necessary to go into the controversy as to when the notice dt. 27th March, 1992, was actually issued, i.e., on 27th March, 1992 or on 31st March, 1992, after recording the reasons, as both the parties have not adduced any cogent evidence in this behalf.
6.1 Another plea of the learned counsel is that the notice for reopening of assessment was served on the assessed on 2nd April, 1992, i.e., beyond the period of limitation. The learned counsel stressed that the entire process of sending the notice as well as the service thereof is covered and that wider meaning has to be given to the expression 'issue'. In this connection he referred to the decision of the Honble Supreme Court in the case of Banarsi Devi & Anr. vs. ITO : [1964]53ITR100(SC) . The learned Departmental Representative, however, relied on the same decision and submitted that the expressions 'issue' and 'served' are interchangeable and sometimes used to convey the same idea. He submitted that the notice was issued on 31st March, 1992. We have carefully considered the pleas of both the parties. It is observed that though the provisions of s. 148(1) stipulate that the AO shall serve on the assessed a notice requiring him to furnish within such period as may be specified in the notice, a return of income in the prescribed form and verified in the prescribed manner, etc., the provisions of s. 149 deal with the time-limit for issuing notice under s. 148. Earlier there was a controversy between various High Courts as to whether the issue of notice would also cover the service of notice within the limitation period. The controversy has now been settled by the decision of the Honble Supreme Court in the case of R. K. Upadhyaya vs. Shanabhai (P) Patel (supra) wherein it has been observed that 'once a notice is issued within the period of limitation, jurisdiction becomes vested in the ITO to proceed to reassess. Sec. 148(1) provides for service of notice as a condition precedent to making the order of assessment. Service, under the new Act, is not a condition precedent to conferment of jurisdiction on the ITO; it is a condition precedent only to the making of the order of assessment'. The plea of the learned counsel in this behalf has no force as the notice has been issued within the limitation period.
6.2 In view of the reasons given in paras 5.2, 6 and 6.1 we hold that the reopening of assessments in the case of the assessed for asst. yrs. 1987-88 and 1988-89 is not in accordance with the provisions of ss. 147 and 148. Accordingly, the orders of the learned CIT(A) are set aside.
ITA No. 7412 & 7413/Del/1994 :
7. The Department is aggrieved with reference to reduction of addition of Rs. 3 lakhs out of the addition of Rs. 15 lakhs made by the AO in relation to asst. yr. 1987-88 on account of closing stock and details remaining unverified in the absence of non-production of books of accounts and vouchers. Similarly, the Department is aggrieved with reference to reduction of addition of Rs. 2 lakhs out of addition of Rs. 12 lakhs made by the AO in relation to asst. yr. 1988-89 on similar grounds.
7.1 The learned CIT(A) allowed partial relief to the assessed out of the income estimated by the AO by making the following observations, namely :
'I have examined the contentions of the assessees authorised representative. During the course of search certain documents and books of accounts were seized by the Department. The assessed got the seized documents released by the order of Honble Delhi High Court. However, the Department had taken photocopies of relevant documents. The assessed was asked to explain entries in those documents. The assessed could not explain the entries in the documents. The assessed did not file balance sheet for asst. yrs. 1987-88 and 1988-89. Copy of P&L; a/c was not filed for asst. yr. 1988-89. The details of expenses were not furnished. Details of opening and closing stock were not submitted. Under the circumstances, the AO was justified in estimating the income of the assessed from share trading. However, the addition made by the AO appears to be excessive. It is, thereforee, reduced to Rs. 12 lakhs and Rs. 10 lakhs for asst. yrs. 1987-88 and 1988-89 (relief Rs. 15,00,000 - 12,00,000 = 3,00,000 & 12,00,000 - 10,00,000 = Rs. 2,00,000).'
7.2 The learned Departmental Representative, Shri P. K. Sahu, relied heavily on the orders of the AO and submitted that the learned CIT(A) has not given any cogent reason for reducing the addition in both the assessment years.
7.3 The learned counsel urged that the assumption of jurisdiction for reopening of assessment is itself under challenge and that the whole addition is without any basis. He, however, relied on the orders of the learned CIT(A) in case the orders are otherwise upheld.
8. We have carefully considered the rival submissions and in view of our orders in para 6.2, whereby the orders of the learned CIT(A) have been set aside on the basis that the reopening of assessment is not in accordance with the provisions of ss. 147 and 148, we reject the Departmental appeals in relation to both the assessment years.
9. In the result, while the appeals filed by the assessed in ITA Nos. 7028 & 7029/Del/1994 are allowed, the Departmental appeals in ITA Nos. 7412 & 7413/Del/1994 are dismissed.