1. This petition under Article 226 of the Constitution challenges the validity of a notice under Section 148, Income-tax Act, 1961, relating to the assessment year 1955-56. In that year, the petitioner-firm was carrying on business, inter alia, of commission agency on the sale and purchase of silver bars, as a partnership concern. It was duly assessed to income-tax for the assessment year 1955-56. The Income-tax Officer, District III, A-Ward, Kanpur, asked Hotilal, one of the partners of this firm, to produce the account books of the firm for the Samvat years 2010-11 and 2011-12. On being produced, the Income-tax Officer impounded these books of account on 24th September, 1965. On 27th September, 1965, the Income-tax Officer issued a letter to the firm indicating that in the cish book he had found certain transactions on the 28th of June, 1954, relating to the sale of 22 silver bars, but the corresponding credit for the value of the silver bars had not been given to any individual or firm, and hence it seemed that the cash balance had been under-stated by Rs. 97,087-11-0. The firm was required to indicate the name of the parties from whom it had purchased those silver bars. Hotilal, one of the partners of the firm, sent a reply on 19th October, 1965, stating that the firm had since been dissolved and it was not possible to give a proper explanation without examining the books of account in detail. He intimated that Tarachand and Babu Ram, the other two partners of the firm, were in a better know of the state of affairs of the firm, and enquiries might be made from them. The Income-tax Officer, however, by his letter dated 27th July, 1966, reiterated the earlier queries and wanted a satisfactory answer. Nothing seems to have happened thereafter for some time till 15th July, 1969, when the Income-tax Officer, Circle I(7), Kanpur, issued a notice under Section 148, Income-tax Act, 1961, reopening the assessment for the year 1955-56, on the ground that he had reason to believe that the petitioner's income chargeable to tax had escaped assessment, within the meaning of Section 147, and that he proposed to reassess the income for that year. The notice required the petitioner to file a return of the income within 30 days of the receipt of the notice. In compliance, Baburam, one of the partners, filed a return for the year 1955-56 under protest.
2. The petitioner challenges the validity of the notice issued under Section 148, Income-tax Act, 1961, on the following grounds :
(1) That the Income-tax Officer had, in fact, no material to entertain a belief that any part of the income had escaped assessment. He acted merely on suspicion.
(2) That the escapement, if any, was not due to any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year 1955-56.
(3) That the sanction alleged to have been accorded by the Central Board of Revenue was illegal and valueless.
(4) That the Central Board of Revenue did not apply its own mind to the materials and did not record any reasons of its own. The sanction was hence invalid.
(5) The continued retention of the books of account beyond 15 days of their impounding was illegal.
(6) That the Income-tax Officer, Circle 1(7), had no jurisdiction to issue the impugned notice.
3. In his report to the Central Board of Direct Taxes, the Income-tax Officer recorded his reasons for initiating proceedings under Section 147 of the Act. He stated that the firm had been assessed on a total income of Rs. 1,49,218. Consequent upon an external information and the examination of the cash books of the firm, it transpired that the assessee had concealed income in relation to the transaction of the purchase and sale of 22 silver bars, which were sold for Rs. 97,087-11-0, that the assessee had mentioned in his books of account the sale of these silver bars to two firms, namely, Shiv Narain Sarraff & Co., Kanpur, and Hardatt Rai Moti Lal, Calcutta, but it had not entered in the account books the name of the party from whom it had purchased these 22 silver bars. In the next place, the assessee-firm had not entered the transaction of the purchase and sale of these 22 silver bars in the trading account relating to silver. In the third place, there was no entry in the books of account about the commission which the firm might have charged in respect of the sale of these silver bars. It was also stated that the assessee had been called upon to explain the significance of these entries and omission therefrom, but they did not do so in spite of several opportunities. The Income-tax Officer observed that these facts and materials led him to believe that these 22 silver bars actually belonged to the assessee, which it kept outside the books of account and entries had been made by the assessee to introduce its own goods which had been sold to the aforesaid parties. Action was, therefore, necessary to assess the sum of Rs. 97,087-11-0 in the hands of the assessee which represented the cost as well as the profit on the sale of 22 silver bars to the aforesaid parties. Upon this report, the Commissioner of Income-tax, U.P., gave his assent that this was a fit case for the issue of a notice under Section 148 of the Act. The matter was then taken to the Central Board of Direct Taxes. The Board also signified its approval. Thereafter, the impugned notice was issued by the Income-tax Officer.
4. It appears that the Income-tax Officer felt that the assessee had sold his own 22 silver bars, and that the assessee's case was that it had purchased these bars from the market in order to sell them to the two firms. But, it had not mentioned the name of the party from whom it had purchased these bars in its account books. Secondly, the transaction of purchase and sale of these silver bars was not carried through the trading account relating to silver. Thirdly, there was no entry about the charging of any commission on the sale of these silver bars. These were relevant material, on the basis of which the Income-tax Officer could reasonably entertain a belief that income in the shape of introduction of these silver bars and profit on their sale has escaped assessment. It cannot be said that the Income-tax Officer acted merely upon suspicion or conjectures. We are unable to agree that the impugned notice is without jurisdiction for this reason.
5. The second submission was that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year 1955-56. In Commissioner of Income-tax v. Hemchandra Kar, [1970] 77 I.T.R. 1 (S.C.) the Supreme Court emphasised that the true test for determining whether there has been such omission or failure is whether the primary facts relating to a particular transaction were brought to the notice of the Income-tax Officer or it could be said that those primary facts were within the knowledge of the Income-tax Officer when he completed the first assessment. Law casts a duty upon the assessee to disclose all material facts relating to the assessment of his income, because the detailed facts are within the special knowledge of the assessee. In Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmundry, [1967] 63 I.T.R. 638 (S.C.) the Supreme Court observed that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence. He has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment.
6. In the present case, the Income-tax Officer now found that there had been a transaction of sale of 22 silver bars, about which relevant entries were not made in the trading account and the cash book, and for that reason, at the time of completion of the initial assessment, it could not be determined whether this transaction of sale of 22 silver bars represented introduction of the assessee's own silver bars and earning of any profit therefrom. It was the duty of the assessee to have informed the Income-tax Officer of this particular transaction, or the primary facts relating to it, namely, the person from whom the assessee had purchased these silver bar, the person to whom they were sold and whether any commission was charged on their sale, etc. In the writ petition, it has been stated that during the year 1955-56, the petitioner-firm was doing business of commission agent on the sale and purchase of silver bars on forward transaction. Commission used to be charged on the transactions alone and no commission was charged when the delivery of goods were effected against the forward transactions to the constituents of the petitioner-firm. It has been also stated that the firm did business of ready transactions on a very small scale in order to maintain good relations with its constituents. It is also stated that on 28th June, 1954, the petitioner had received huge amounts of cash from the two firms, namely, M/s. Hardatt Rai Moti Lal and M/s. Shiv Narain Sarraf & Co. to whom the petitioner sold the 22 silver bars. From their money, the petitioner firm had purchased the silver bars from the open market and supplied the same to them. There is nothing to indicate that all these facts or explanations were brought to the notice of the Income-tax Officer at the time of completion of the initial assessment. At that time, the petitioner-firm only furnished a list of its constituents, including the two firms to whom the said silver bars were sold. No indication was given as to the undertaking of this transaction of supplying the silver bars as ready goods to these firms. It is thus clear that, prima facie, there was a failure or omission on the part of the assessee to disclose folly and truly all material facts relating to the assessment of income for that year. It cannot be said that the Income-tax Officer had no reason to believe that there had been such failure or omission on the part of the assessee, and that he has proceeded to issue the notice without there being any ground for entertaining a belief fn this regard. We are unable to hold that the impugned notice suffers from any jurisdictional defect on this ground.
7. In the next place, learned counsel for the petitioner, challenged the validity of the sanction accorded by the Central Board of Direct Taxes. It was urged that the Board did not apply its own mind and did not record its own reasons. We are, however, unable to entertain this point because it raises mixed questions of law and fact. These pleas have not been taken in the writ petition. They were not taken as a ground of attack even after the filing of the counter-affidavit. Further, the Central Board of Direct Taxes has not been impleaded as a party. Surely, the conduct of the Board cannot be investigated behind its back. We, therefore, decline to go into the merits of this point.
8. It was then urged that the impugned notice issued by the Income-tax Officer, Circle I(7), Kanpur, was invalid, because the initial report was made by the Income-tax Officer, C-Ward, Kanpur. and, on the basis of that report, the Central Board of Direct Taxes accorded its sanction. That would go to show that only the Income-tax Officer, C-Ward, Kanpur, was authorised to take action in accordance with the sanction. Unfortunately, this point has also not been taken in the writ petition. If the point had been taken, the respondent would have clarified the position as to the jurisdictions! division of work between these two Income-tax Officers. For all we know, the Income-tax Officer, Circle I(7), was the relevant officer doing the work relating to the petitioner-firm. We, therefore, decline to entertain this point as well.
9. Learned counsel for the petitioner then urged that the Income-tax Officer had impounded the petitioner firm's books of account on 24th September, 1965, He had retained the custody of these books and has not returned them to the petitioner-firm in spite of repeated requests and reminders. Section 131(3) of the Income-tax Act, 1961, authorises the Income-tax Officer to impound any books of account after recording his reasons for so doing. This provision further provides that the Income-tax Officer shall not retain custody of any such books of account for a period exceeding 15 days (exclusive of holidays) without obtaining the approval of the Commissioner therefor. In the petition, it is alleged that the Income-tax Officer did not record any reason for impounding the books of account, nor had any permission been obtained from the Commissioner of Income-tax. So, the action of the Income-tax Officer in impounding the books of account and retaining their custody beyond 15 days was illegal. The respondent has stated that the Income-tax Officer had recorded his reasons for seizing and impounding the books of account. The first part of the argument has, therefore, no force. Mr. Gupta, appearing for the Commissioner, invited our attention to the original record of these proceedings. From it, it appears that the Income-tax Officer had requested the Commissioner to accord the sanction for the continued retention of these books of account beyond the period of 15 days. The Commissioner had accorded his sanction for. retention of these books till 31st March, 1967. Even though the counter-affidavit remains beautifully, vague in this regard (as it controverts the allegations in paragraph 32 of the petition by merely saying that they are not admitted) yet even if the record is taken into consideration it only discloses that the Commissioner had authorised the retention of the books till 31st March, 1967. That date has long expired. There was no justification for the Income-tax Officer to retain the books after 31st March, 1967. He was in duty bound to return the books thereafter. Learned counsel for the department invited our attention to Seth Brothers v. Commissioner of Income-tax, [1971] 80 I.T.R. 693 (All.) for the proposition that the contemplated sanction can be given subsequent to the expiry of 15 days. Assuming that can be done, yet, in the present case, the sanction actually given authorised the retention of the books only upto 31st March, 1967, and not thereafter.
10. In the result, the petition succeeds and is allowed in part. The respondent is directed to return forthwith books of account impounded by him on 24th September, 1965, to Hotilal, the partner of the petitioner firm, who had originally produced the books. The other reliefs prayed for in the writ petition are refused. In view of divided success, the parties may bear their own costs.