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Agarwal And Agarwal (Private) Ltd. And Another v. K.J Mukherjee, Income-Tax Officer, And Another.
Structured Summary of the Opinion (Goswami, C.J.)
Factual and Procedural Background
This writ petition under article 226 of the Constitution challenged a notice dated 12 March 1963 issued by the Income-tax Officer (ITO), Dibrugarh, under section 148 of the Income-tax Act, 1961. The notice alleged that income chargeable to tax for the assessment year 1954–55 had escaped assessment within the meaning of section 147. The notice stated that the Commissioner of Income-tax, Assam, Tripura & Manipur had recorded the necessary satisfaction.
Petitioner No. 1 is a private limited company (the assessee) with its principal place of business at Dibrugarh; Petitioner No. 2 is a director of the company. The original assessment for the year 1954–55 had been completed on 23 March 1959. The assessee objected to the section 148 notice on jurisdictional grounds (letters dated 10 and 18 May 1963). The ITO replied on 20 April 1966, declining the objections and on 21 April 1966 sought specified information to be furnished by 19 March 1966. The assessee obtained a rule on 27 June 1966 and the court stayed proceedings.
Legal Issues Presented
- Whether the ITO had jurisdiction to issue the notice under section 148/147 of the Income-tax Act, 1961, given the factual grounds relied upon.
- Whether the grounds stated by the ITO (alleged bogus purchases and loans) legitimately furnished "reason to believe" under section 147(a) that income chargeable to tax had escaped assessment due to failure to disclose fully and truly all material facts.
- Whether the Commissioner's recorded satisfaction (the "yes" endorsement) complied with the duty imposed under section 151(2) of the Act, or was merely a casual/signature without proper application of mind.
Arguments of the Parties
Petitioners' (Assessee / Mr. Chaudhuri) Arguments
- The ITO had no jurisdiction to issue the impugned notice under section 148/147.
- Reliance on precedents to show that the facts amounted to a mere change of opinion by the ITO (citing the Division Bench decision in Bajranglal Beria v. Income-tax Officer) and therefore did not authorise re-opening.
- Reliance on other authorities (including Seth Kirorimal Adwani and decisions of the Supreme Court) to argue the notice was not justified or that the Commissioner had not performed the duty required under section 151(2).
- Specifically submitted that from the ITO's report and the Commissioner's endorsement, the Commissioner had not performed the duty imposed on him under section 151(2) (i.e., the endorsement was inadequate or casual).
Respondent's (Revenue / Income-tax Officer) Position
- The ITO set out grounds in his report (8 March 1963) that purchases of disposal goods amounting to Rs. 74,500 and Rs. 76,825 shown as from Ashoka Trader Co., Dibrugarh, and Ashoka Trader, Moran Depot, were fictitious because enquiries revealed no such firm existed; consequently the accounts contained inaccurate particulars leading to under-assessment.
- In his affidavit the ITO stated that subsequent enquiries during assessments for later years revealed that the alleged purchases of Rs. 1,51,325 (accounting year 1953–54) were bogus and further enquiries suggested alleged loans amounting to Rs. 2,00,000 were bogus — giving rise to reason to believe under section 147(a) that income had escaped assessment through non-disclosure of material facts.
- The Commissioner recorded his satisfaction (a "yes" against the appropriate column) on the ITO's report, authorising initiation of proceedings under section 147/148.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bajranglal Beria v. Income-tax Officer [1972] 85 I.T.R. 335 (Assam) | Principle that a mere change of opinion by the assessing officer does not give jurisdiction under section 147; where dispute related to quantum and there was no failure to disclose material facts. | The court found the facts in Bajranglal Beria distinguishable: that case involved change of opinion and no obligation to disclose particulars of house properties. Therefore it did not assist the assessee in the present case. |
| Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 I.T.R. 191; [1961] 2 S.C.R. 241 (S.C.) | Explains the statutory duty of an assessee to "disclose fully and truly all material facts necessary" for assessment and how material facts vary case to case; assessing authority draws inferences from facts. | The court relied on this exposition to conclude that where accounts show false/fictitious purchases, the ITO can legitimately have "reason to believe" under section 147(a) that income has escaped assessment due to non-disclosure. |
| Seth Kirorimal Adwani v. Income-tax Officer (Division Bench decision) | Observation relating to section 147(b): absence of an averment in the officer's affidavit that the petitioner was deliberately dodging tax suggested section 147(b) was not in the officer's mind in that case. | The court treated the decision as inapplicable: in the present case the ITO's reasons showed purchases recorded in account books were found bogus, so Seth Kirorimal Adwani did not aid the assessee. |
| Commissioner of Income Tax, Calcutta v. Burlop Dealers Ltd. (Supreme Court) | Reiterated Calcutta Discount: an assessee who discloses books and evidence from which material facts can be discovered is not obliged to foresee and inform the ITO of possible adverse inferences. | The court observed that the present case was not of the type considered in Burlop Dealers Ltd. and thus the decision did not support the assessee. |
| Chhugamal Rajpal v. S.P. Chaliha (Supreme Court) | Held that where the ITO's report lacked material to satisfy either clause (a) or (b) of section 147, notice under section 148 could not be issued; and the Commissioner's sanction was characterized as casual where he had not applied his mind. | The court distinguished Chhugamal Rajpal: in the present case the ITO's reasons were regarded as legitimately furnishing the basis for an opinion of absence of full and true disclosure, so that Chhugamal Rajpal did not help the assessee. |
Court's Reasoning and Analysis
The court proceeded as follows in its analysis:
- For the purposes of the writ petition the court assumed the ITO's stated grounds to be correct; it noted that this assumption is sufficient to determine jurisdiction at the threshold and that whether the assessee can later rebut those grounds in the substantive proceedings is not material to the jurisdictional question now before the court.
- The court examined the ITO's report and affidavit which stated that enquiries revealed certain suppliers were non-existent and that purchases and alleged loans recorded in the assessee's accounts were bogus; these factual statements, if taken as true for the writ purpose, indicate failure to disclose fully and truly material facts.
- The court applied the Supreme Court's exposition in Calcutta Discount Co. Ltd. emphasising that there is a duty on the assessee to disclose material facts necessary for assessment and that what is material depends on the facts of each case; the assessing authority may draw inferences from primary facts.
- Given the ITO's asserted discovery of fictitious purchases and bogus loans, the court concluded that the case comes squarely within section 147(a) — that is, the ITO had "reason to believe" that income chargeable to tax had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts.
- The court considered the precedents relied upon by the assessee and distinguished them on their facts: Bajranglal Beria involved a change of opinion and did not involve non-disclosure of material facts; Seth Kirorimal Adwani was concerned with the mental application of section 147(b); Burlop Dealers Ltd. and Calcutta Discount were read and found not to support the assessee's position given the present factual assertions; Chhugamal Rajpal was distinguished because the present ITO's report did contain reasons that could legitimately furnish the basis for the requisite opinion, whereas in Chhugamal Rajpal the material was inadequate and the Commissioner's sanction was casual.
- On the question of the Commissioner's satisfaction under section 151(2), the court examined the record and found that the Commissioner had recorded "yes" to the institution of proceedings on the ITO's report; the court considered Chhugamal Rajpal but found the circumstances different and concluded that the sanction here could not be impugned as casual on the material before the Court.
- Having resolved that the ITO had jurisdiction under section 147(a) and that the Commissioner's recorded satisfaction was not vitiated on the material before the court, the court held that the petition failed.
Holding and Implications
Holding: The petition is dismissed.
Direct consequences and orders given by the court:
- Rule nisi is discharged.
- The stay order granted on 27 June 1966 is vacated.
- The court made no order as to costs.
Broader implications: The opinion does not purport to lay down any new legal principle beyond applying established authorities to the facts; it affirms that where an ITO's report, taken at face value for the limited purpose of determining jurisdiction in a writ, discloses alleged bogus transactions amounting to failure to disclose material facts, the officer may legitimately have "reason to believe" under section 147(a) to issue a notice under section 148. The court distinguished precedents relied upon by the assessee on the basis of their factual matrices.
Goswami, C.J:— This application under article 226 of the Constitution is directed against a notice dated 12th March, 1963, issued by the Income-tax Officer, Dibrugarh, under section 148 of the Income-tax Act, 1961 (hereinafter called “the Act”), as it is alleged that the assessee's income chargeable to tax for the assessment year 1954-55 had escaped assessment within the meaning of section 147 of the Act. It is stated in the notice that necessary satisfaction of the Commissioner of Income-tax, Assam, Tripura & Manipur, was obtained.
2. The petitioner No. 1 is a private limited company with its principal place of business at Dibrugarh (hereinafter referred to as “the assessee”) and the petitioner No. 2 is the director of the said company.
3. On 10th May, 1963, and again on 18th May, 1963, the assessee objected to the issue of the notice on various grounds relating to the jurisdiction of the officer. It appears that, the Income-tax Officer answered the above letters of the assessee on 20th April, 1966, declining to accede to the objections. On 21st April, 1966, the petitioner was asked to furnish some information specified therein with regard to the proceedings on or before 19th March, 1966. The assessee obtained the present rule on 27th June, 1966, and the proceedings were stayed by this court.
4. The relevant assessment year in which income is said to have escaped assessment is 1954-55 and the original assessment of that year was completed on March 23, 1959. It is submitted by Mr. Chaudhuri that the Income-tax Officer had no jurisdiction to issue the impugned notice. The grounds which prompted the Income-tax Officer to issue the notice may be given in his own words submitted by the learned Senior Government Advocate during the hearing:
“The assessee-company has shown purchases of disposal goods worth Rs. 74,500 and Rs. 76,825 from Ashoka Trader Co., Dibrugarh, and Ashoka Trader, Moran Depot, respectively. But enquiries reveal that there was no such firm in existence. Assessee-company thus has furnished inaccurate particulars as a result of which there has been under-assessment. I, therefore, propose to initiate proceedings under section 147 in this case.”
5. These grounds appear in the original report of the Income-tax Officer of 8th March, 1963, to the Commissioner, who recorded “yes” to the institution of the proceedings on the same day.
6. For the purpose of this writ application, we will assume the grounds given by the officer as correct. It will not matter now if during the enquiry the assessee can establish that the grounds given by the officer are wrong or incorrect. The Income-tax Officer in his affidavit stated, inter alia, as follows:
“The Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment by reason of the failure of the assessee to disclose fully and truly all the material facts necessary for its assessment for the assessment year 1954-55, as stated below:
(a) After the completion of the regular assessment for the year 1954-55 and in the course of the assessment proceedings for the subsequent years, information came into possession of the Income-tax Officer upon enquiry that the purchases of disposal goods to the extent of Rs. 1,51,325 shown in the accounts of the assessee for the accounting year 1953-54 were bogus as the suppliers from whom the alleged purchases were shown to have been made were fictitious…. Thereafter, further information came into the possession of the Income-tax Officer upon enquiry on the basis of which it was found that the alleged loans amounting to Rs. 2,00,000 were bogus.”
7. In the forefront of his argument, Mr. Chaudhuri relied upon a Division Bench decision of this court in Bajranglal Beria v. Income-tax Officer [1972] 85 I.T.R 335, 339, 340 Assam., to which I was a party. But the facts of that case are clearly distinguishable as will be clear from the following passage at page 339:
“The learned counsel for the department could not show from the records before us that the assessee did not show in his accounts the investment of any particular house. The dispute is with regard to the quantum spent on the house in question. While the assessee gives in his accounts a certain sum, the Income-tax Officer after subsequent enquiry came to the conculsion that the amount shown in the account books is less than what it should be according to his valuation. Besides, there is no obligation on the assessee in submitting his return to furnish the particulars of the house properties, unless there was income from the same. It is not the case of the department that any income from the house properties has not been shown.”
8. It was further observed as follows:
“From the new discovery of facts in the course of subsequent enquiry, there is an inferential non-disclosure in the assessee's accounts in the opinion of the Income-tax Officer.”
9. This was, therefore, a case of change of opinion of the officer concerned which does not give the officer the necessary jurisdiction to initiate proceedings under section 147 of the Act. This case is of no assistance to the learned counsel.
10. We are satisfied in this case that from the grounds furnished by the department in initiation of proceedings, it is clear that it is a case which comes under section 147(a) of the Act, viz., that according to the opinion of the officer, there is reason to believe that income had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
11. As observed by the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 I.T.R 191, 200; [1961] 2 S.C.R 241 S.C.:
“The words used are ‘omission or failure to disclose fully and truly all material facts necessary for his assessment for that year’. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable.”
12. From the reasons disclosed, it is clear that the assessee showed in his accounts false and fictitious purchases and if this is assumed to be true, there is no lack of jurisdiction in the officer having reason to believe that income has escaped assessment by reason of the assessee not fully and truly disclosing all material facts necessary for his assessment.
13. Mr. Chaudhuri also relied upon another Division Bench decision of this court in Seth Kirorimal Adwani v. Income-tax Officer. Even this case is of no assistance to Mr. Chaudhuri as we find a very significant observation in that decision to the following effect:
“Without much repetition we may say that the Income-tax Officer had in his mind the provisions of section 147(b), as otherwise he would have specifically stated in his affidavit-in-opposition that the petitioner was out to dodge the tax authorities by making false and frivolous statements in the matter of interest which he had deposited with the hundi bankers. Such a statement is absolutely absent in the affidavit-in-opposition of the Income-tax Officer……….”
14. In the present case, even the reasons given by the Income-tax Officer clearly show that the purchases recorded in the account books which were relied upon for the purpose of computing the income were found to be bogus. The above decision, therefore, does not come to the aid of the learned counsel.
15. Mr. Chaudhuri relied upon another decision of the Supreme Court in Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† . This decision reiterated the earlier decision of the Supreme Court in Calcutta Discount Company's case [1961] 41 I.T.R 191; [1961] 2 S.C.R 241 S.C.. The following observations in the decision would clearly show that this decision does not support the assessee's case:
“The assessee had disclosed his books of account and evidence from which material facts could be discovered: it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him.”
16. The present case is not one of that type which the Supreme Court had to deal with in the aforesaid decision.
17. Mr. Chaudhuri lastly submitted that from the report of the Income-tax Officer and the satisfaction recorded by the Commissioner therein by putting his signature below the remark “yes” against the appropriate column, the Commissioner has not performed the duty imposed on him under section 151(2) of the Act. He strenuously relied upon a decision of the Supreme Court in Chhugamal Rajpal v. S.P Chaliha. Their Lordships found in that case that:
“From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year;……. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148.”
18. This is not the same position in the present case where we clearly find the reasons given in the report and which according to us can legitimately furnish the basis for an opinion that there was absence of disclosure of true and full material facts. Their Lordships referred to the sanctioning order of the Commissioner as casual because if he had applied his mind to the reasons given by the Income-tax Officer in his report, he could never have come to the conclusion on the material before him that that was a fit case to issue notice under section 148. This decision, therefore, is of no help to the assessee.
19. All the submissions of the learned counsel fail. The petition is, therefore, dismissed. Rule nisi is discharged. The stay order of 27th June, 1966, stands vacated. We will, however, make no order as to costs.
Baharul Islam, J.:— I agree.
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