JUDGMENT B.P. Jeevan Reddy, C.J.
1. This writ petition is directed against the notice issued under Sections 147 and 148 of the Income-tax Act, 1961, proposing to reopen the assessment of the petitioner for the year 1977-78. The petitioner is a public limited company incorporated on July 4, 1974. The land for the assessee hotel was provided by a Hindu undivided family, Sadiram Ganga Prasad, whereas the building was constructed by D.P. Kanaudia, individual. The said Hindu undivided family and the individual had entered into an agreement to form and promote the petitioner-company. By a resolution of the board of directors of the petitioner-assessee, the board approved the total expenditure incurred by D.P. Kanaudia and directed that the same be incorporated in the books of the assessee for the year ended June 30, 1976, by crediting the account of D.P. Kanaudia. In its return for the assessment year 1977-78, the assessee disclosed the amount spent on the construction of the building.
2. In the assessment proceedings of D.P. Kanaudia for the assessment years 1975-76 to 1977-78, the Income-tax Officer refused to accept the figure disclosed by the said individual as the amount spent on construction. On the basis of the opinion of the Valuation Officer, the Income-tax Officer, was of the opinion that the total amount spent on construction was Rs. 14,11,425 and not Rs. 10,04,292 as claimed by the said individual. He, accordingly, sought to add the difference amount as his income for the said years. The assessee challenged the same by way of appeal and the matter was ultimately carried to the Tribunal. The Tribunal held, for the reasons give by it, that the said additions cannot be made to the income of D.P. Kanaudia and that he cannot be asked to explain the source of the said investment. It was observed that the petitioner is responsible for explaining the source of investment in such construction. Para 9 of the Tribunal's order may be quoted. It reads thus ;
"As laid down in the case of Bijli Cotton Mills Ltd. (supra) if the promoters of a company buy a property on behalf of a company, which they intend to float, on the incorporation of the company, the company has a right to either accept what has been done on its behalf by the promoters or repudiate the same. We have already seen that the agreement dated April 2, 1974, entered into between the assessee and the Hindu undivided family of Sadiram Ganga Prasad was accepted by the company in the meeting of its board of directors held on July 27, 1974. We have already quoted the resolution passed by the company accepting the said agreement. We have also pointed out that in another meeting held on June 30, 1976, the company had directed that the expenditure incurred by the assessee on the construction of the building be incorporated in its books by crediting it to the account of the assessee. It is also clear that this constructed building was contributed as capital to the company by the firm constituted with Sadiram Ganga Prasad. The capital of Sadiram Ganga Prasad was the cost of the plot itself which admittedly belonged to them. In the light of these facts and the legal principle discussed above, there is no escape from the conclusion that it was Hotel Ganges Ltd. which was the owner of the building on the plot belonging to Sadiram Ganga Prasad and, therefore, it was also responsible for explaining the source of investment in such construction. It would have been a different thing if the company had not accepted the action of the assessee. However, that is not the case here. The assessee, therefore, cannot be called upon to explain the source of investment in the building even if the construction was carried on either before the company was incorporated or before it was granted the certificate of commencement of the business. On this finding alone, the addition of Rs. 1,33,941 and Rs. 2,10,935 will stand deleted from the assessment for the assessment years 1976-77 and 1977-78, respectively."
3. On the basis of the aforesaid observations or findings, as it may be called, the impugned notice was given to the petitioner proposing to reopen its assessment. Before issuing notice under Section 147/148 of the Income-tax Act, the assessing authority wrote a letter dated March 15, 1988, to the petitioner calling upon him to explain why his assessment should not be reopened. In this letter, an express reference was made to the aforesaid observation/finding of the Tribunal. To this letter, the petitioner replied on March 21, 1988, stating that he has disclosed full particulars in his return and, therefore, the proposal to reopen its assessment under Section 147(a) of the Act is unwarranted. It is thereafter that a formal notice under Section 147/148 of the Act was issued, After receiving the notice, the petitioner filed objections on July 1, 1988, questioning the validity of the said notice. He approached this court by way of a writ petition questioning the said notice. The writ petition was disposed of by a Bench of this court on September 6, 1988, whereunder the Income-tax Officer was directed to dispose of the objections filed by the petitioner on July 1, 1988, before proceeding with the impugned notice. After receiving the High Court's order, the Income-tax Officer passed orders on September 23, 1988, overruling the objections raised by the petitioner. The petitioner then filed another set of objections on October 3, 1988, to which the assessing authority replied on October 27, 1988, stating that he has already dealt with all the objections raised in the petitioner's objections dated July 1, 1988, in his order dated March 1, 1988, and that no new point has been raised in the petitioner's second set of objections dated October 3, 1988. Accordingly, a notice dated December 7, 1988, was served upon the petitioner to attend the office of the assessing authority on December 15, 1988, in connection with the reassessment. Thereupon, the petitioner again approached this court by way of this writ petition.
4. Learned counsel for the petitioner raised the following three contentions :
(1) That the impugned notice does not satisfy the requirements of Section 151 of the Act ;
(2) That Section 147(b) of the Act is not attracted in the present case and, therefore, it cannot be invoked by the assessing authority against the petitioner ;
(3) That the jurisdictional facts necessary to invoke the power under Section 147(a) of the Act are not present in this case and hence the impugned notice is invalid.
5. It may be noticed that the impugned notice is dated May 30, 1988, and it relates to the assessment year 1977-78. Though the notice does not say so expressly, it is undoubtedly one issued under Clause (a) of Section 147 of the Act as it then stood, Indeed, the prior notice dated March 15, 1988, expressly stated that the petitioner's assessment was proposed to be reopened under Section 147(a) of the Act. Since the income alleged to have escaped assessment was more than rupees fifty thousand, it could be reopened at any time within sixteen years. Thus, the reopening of the assessment under Clause (a) of Section 147 of the Act is perfectly within time. Now, admittedly, the approval of the Board was obtained as required by Sub-section (1) of Section 151 of the Act (as it then stood) before issuing the impugned notice. It is equally beyond dispute that the basis for issuance of the notice is the aforesaid observation/finding of the Tribunal in the appeal of D.P. Kanaudia, The contention of learned counsel for the petitioner is that Section 151 of the Act requires not only the approval of the Board but also the approval of the Commissioner where a notice under Section 147/148 is issued after the expiry of eight years. I am not prepared to agree. Section 151 of the Act at the relevant time read as follows :
"(1) No notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.
(2) No notice shall be issued under Section 148 after the expiry of four years from the end of the relevant assessment year, unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice."
6. A reading of Section 151 shows that in case the assessment is sought to be reopened after the expiry of four years but before the expiry of eight years, prior approval of the Chief Commissioner or Commissioner has to be obtained and where it is sought to be reopened after eight years, the approval of the Board has to be obtained. It does not say that where assessment is sought to be reopened after eight years, approval of both the Board and the Chief Commissioner or Commissioner should be obtained. The Board is an authority higher than the Chief Commissioner or Commissioner, Once the approval of the Board is obtained, there is no question of obtaining the approval of the Chief Commissioner or Commissioner over again ; Sub-sections (1) and (2) of Section 151 are two independent provisions. The interpretation sought to be placed upon the said section by the learned counsel for the petitioner really means reading words into Sub-section (1) which are not there. We cannot, therefore, accept the said contention. The first contention of learned counsel for the petitioner is, accordingly, rejected,
7. We agree with learned counsel for the petitioner that the impugned notice would be time-barred if it is treated to be one under Clause (b) of Section 147. The limitation for issuing a notice under Section 147(b) is four years from the end of the relevant assessment year. In this case, the impugned notice is beyond eight years (but within sixteen years) of the relevant assessment year. A notice under Section 147(b) can be held to be within limitation only if Section 150(1) read with Explanation 3 to Section 153 can come to the aid of the Revenue. The said provisions read as follows :
"150. (1) Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law."
"153. Explanation 3.--Where, by an order referred to in Clause (ii) of Sub-section (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed."
8. It is relevant to notice the proviso in Explanation 3. It says that notice to such affected third party must be given before recording any finding or direction against him. In this case, admittedly, no such notice was given to the petitioner before recording the finding (if it can be called one) contained in para 9 of the Tribunal's order quoted hereinabove. If so, the aforesaid provisions cannot serve to save the limitation. The result of this discussion is that the impugned notice, if it is construed as one under Clause (b) of Section 147, is barred by limitation. The impugned notice shall, therefore, be deemed to be one issued under Clause (a) of Section 147 only.
9. Strong reliance is placed upon the decision of this court in Rani Rajendra Kumari Ba v. ITO [1981] 130 ITR 708. In this case, certain income was added to the total income of the husband under Section 64 of the Act. On the husband's appeal, the Appellate Assistant Commissioner held that such inclusion was bad. The Tribunal affirmed the finding. Thereafter, a notice under Section 147 was given to the wife and her assessment was sought to be reopened. The basis for reopening was the observation made in the husband's appeal. The wife challenged the initiation of reassessment proceedings. Her writ petition was allowed holding that inasmuch as no notice was given to her and she was not heard before making those observations, as required by Explanation 3 to Section 153 read with Section 150, the initiation of reassessment proceedings was barred by time. A perusal of the decision shows that the Bench proceeded on the footing that unless Explanation 3 to Section 153 read with Section 150 comes to the rescue of the Revenue, reassessment proceedings are barred. The different periods of limitation contained in Clauses (a) and (b) of Section 147 were not brought to the notice of the court, nor is there any discussion about the same. It appears probable that the reopening there must have been proposed under Clause (b) of Section 147. It is evident that where the notice under Section 147(a) is issued within the period of limitation prescribed by Section 149, there is no occasion or necessity for the Revenue to rely upon Explanation 3 to Section, 153 read with Section 150. The said decision, therefore, in my opinion, does not help the petitioner herein. I may also mention in this behalf that the observations made in a judgment, though not complying with Explanation 3 to Section 153 read with Section 150, may yet constitute material which may lead the Income-tax Officer to believe that there has been omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment and that, on that account, income chargeable to tax has escaped assessment within the meaning of Clause (a) of Section 147. Whether indeed such omission or failure to disclose exists is a matter to be determined in the reassessment proceedings and does not arise at this stage.
10. Now, coming to the third contention urged by learned counsel for the petitioner, I am not satisfied that the jurisdictional facts requisite for the issuance of the said notice are not present in this case. The jurisdictional facts are (1) by reason of the omission or failure on the part of the asses-see to disclose fully and truly all material facts necessary for his assessment for that year ; (2) any income chargeable to tax has escaped assessment. The aforesaid order of the Tribunal in D.P. Kanaudia's appeal, in particular, para 9 quoted hereinabove, in my opinion, constitutes relevant and adequate material for the Assessing Officer to believe that the aforesaid two requirements are satisfied in this case. Therefore, the initiation of the proceedings is good and proper. Whether indeed there has been such omission or failure and whether it has led to income escaping assessment are matters to be finally decided in proceedings yet to be taken in pursuance of the impugned notice. That stage has not yet arrived and we need not express any opinion on the merits of the case. It may be open to the petitioner to contend that no amount in excess of what has been disclosed has been spent upon the construction of the hotel building. It may be equally open to the petitioner to show that the petitioner cannot be called upon to explain the source of additional expenditure, if any, incurred. All this depends upon the nature and contents of the explanation or objections that may be filed by the petitioner in reassessment proceedings. Suffice it to say that we see no illegality in the initiation of proceedings under Section 147/148 in this case.
11. Learned counsel for the petitioner brought to our notice the decision of the Supreme Court in Indian Oil Corporation v. CIT [1986] 159 ITR 956 to emphasise that unless the two requirements mentioned in Clause (a) to Section 147 are satisfied, a notice thereunder, cannot be issued. There can be no quarrel with the above proposition. Indeed, the law under Section 147 is well settled by various decisions of the Supreme Court. We have already expressed our opinion that the order of the Tribunal in D.P. Kanaudia's appeal does indeed constitute relevant and adequate material for the Assessing Officer to believe that by reason of omission or failure on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for the assessment year 1977-78, income chargeable to tax has escaped assessment for that year within the meaning of Clause (a) of Section 147.
12. For the above reasons, the writ petition fails and is, accordingly, dismissed. No costs.
13. It may be stated that this writ petition was filed in January, 1989, and the respondents were called upon to file counter-affidavit. The respondents have filed a counter-affidavit and the petitioner has filed a rejoinder affidavit. Both the parties have placed all the relevant materials before us and, therefore, though the matter is formally posted for admission, we have chosen to dispose of the writ petition itself finally.