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Bhimraj Pannalal (In... v. Commissioner Of Inco...
Factual and Procedural Background
The assessee is a Hindu undivided family carrying on cloth and grain business at Ranchi, Bihar. For Assessment Years 1944-45, 1945-46 and 1946-47, regular assessments had already been completed when the Income-tax Officer (ITO) later received definite information that:
- the assessee was dealing with Messrs. Mangalchand Basantlal of Khurja under various names;
- funds were remitted from Ranchi to that firm, including a draft of Rs 2,500 sent to Amritsar on the assessee’s instructions; and
- profits from trading in peas and other commodities were earned but omitted from the assessee’s books.
Armed with copies of the Khurja firm’s accounts, the ITO, with the Commissioner’s previous sanction, reopened the assessments under Section 34 of the Indian Income-tax Act, 1922 and issued fresh notices. The assessee’s returns repeated the original figures, admitting some dealings with the Khurja firm but claiming they were financed out of “zamindari” income. Rejecting this explanation, the ITO added escaped incomes of Rs 40,000, Rs 40,000 and Rs 15,000 for the three years respectively and held that the assessee had concealed income.
On appeal, the Appellate Assistant Commissioner upheld the reopening but reduced the additions to Rs 32,000, Rs 30,000 and Rs 15,000. The Income-tax Appellate Tribunal likewise rejected the challenge to Section 34 proceedings but further reduced the figures to Rs 28,000, Rs 26,000 and Rs 12,000.
The assessee sought a reference. The High Court of Patna framed, inter alia, the following question (illustratively for 1944-45):
“Whether in the circumstances of the case the assessment of a sum of Rs 28,000 to income-tax in the hands of the assessee is legally valid under Section 34 of the Income-tax Act?”
By judgment dated 24 April 1957, the High Court answered the question against the assessee. Certificates under Section 66-A(2) having been granted, the assessee filed the present three appeals before the Supreme Court.
Legal Issues Presented
- Whether the reassessments for AY 1944-45, 1945-46 and 1946-47, initiated on 10-12-1947 under Section 34 of the 1922 Act, were legally valid.
- Whether the quantum of escaped income added in each year lacked evidentiary support and amounted to conjectural assessment.
Arguments of the Parties
Appellant’s Arguments
- Initially maintained that the Section 34 proceedings were ab initio void, but at the hearing before the Supreme Court this point was candidly abandoned.
- Contended that the amounts of escaped income determined for the three years were “pure guess-work” unsupported by any material.
- Urged that there was no scope, on the facts, for invoking Section 23(4) (best-judgment assessment).
Revenue’s Arguments
This information was not available in the provided opinion.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court held that the appellant’s present attack on the quantum of reassessment was barred by its own earlier conduct:
- The question framed by the High Court was wide enough to include challenges to quantum; however, the assessee’s counsel in the High Court had expressly not disputed the figures. The High Court judgment records this concession unequivocally.
- An attempt to resile from that concession at the Supreme Court stage was impermissible. The Court found no statement—either in the application for leave or in the case statement—suggesting that the concession was wrongly recorded.
- Regarding the legality of initiating Section 34 proceedings, the Court affirmed the High Court’s view that the ITO possessed “enough materials” (the Khurja accounts and related facts) to reopen the assessments. No error was demonstrated in that reasoning.
Consequently, both limbs of the appellant’s challenge failed: (i) initiation under Section 34 was valid, and (ii) the quantum challenge had been abandoned and could not be revived.
Holding and Implications
APPEALS DISMISSED WITH COSTS.
The Supreme Court affirmed the High Court’s decision, thereby sustaining the reassessed incomes of Rs 28,000, Rs 26,000 and Rs 12,000 for the respective years. The judgment underscores that a party cannot, at the final appellate stage, reopen issues expressly conceded below and that reassessment under Section 34 is sustainable where the Income-tax Officer possessed specific, tangible information suggesting income had escaped assessment. No new precedent was set beyond reinforcing these procedural principles.
S.K Das, J.— These three appeals have been brought to this Court on certificates of fitness granted by the High Court of Patna under the provisions of Section 66-A(2) of the Indian Income Tax Act, 1922. The assessee, appellant before us, is a Hindu undivided family carrying on business in cloth and grains at Ranchi in the State of Bihar. It was assessed to income tax in Assessment Years 1944-45, 1945-46 and 1946-47. Subsequent to the original assessments made for those years, the Income Tax Officer received definite information that the appellant was carrying on business with Messrs Mangalchand Basantlal of Khurja in the district of Aligarh in the State of Uttar Pradesh under different names; that it had remitted certain amounts from Ranchi to Messrs. Mangalchand Basantlal; that Messrs Mangalchand Basantlal had sent a draft of Rs 2500 to Amritsar on behalf of and under the instruction of the appellant; and that the appellant had also earned profits by business dealings in peas etc. none of which business transactions were shown in the account books of the appellant. When the original assessments were made, the profits made from the aforesaid business transactions were not taken into account. Thereafter, on receiving copies of the accounts of Messrs Mangalchand Basantlal from Aligarh, the Income Tax Officer started proceedings under Section 34 of the Act with the previous sanction of the Commissioner of Income Tax and issued notices to the appellant. In the returns which the appellant submitted in answer to the said notices, it showed the same income as in the original returns; it admitted some of the transactions with Messrs. Mangalchand Basantlal but contended that those transactions were financed out of its “zamindari” income, and were, therefore, not entered in the account books. The Income Tax Officer found that explanation to be incorrect, and held that the appellant had concealed its income and on the materials further held that the escaped income for the three years in question amounted to Rs 40,000, Rs 40,000 and Rs 15,000 respectively. The appellant then preferred appeals to the Appellate Assistant Commissioner and contended that the proceedings under Section 34 were ab initio void. The Appellate Assistant Commissioner rejected that contention, but held the amounts of escaped income to be Rs 32,000, Rs 30,000 and Rs 15,000 respectively. Then, there was another appeal to the Income Tax Appellate Tribunal and the same contention was again urged on behalf of the appellant, namely, that the proceedings under Section 34 of the Act were not legally valid. The Tribunal rejected that contention, but reduced the amounts to Rs 28,000, Rs 26,000 and Rs 12,000 respectively. Thereafter, the appellant moved the Tribunal for referring a certain question of law which, according to the appellant, arose out of the order of the Tribunal. The Tribunal originally framed the question in the following terms:
“Whether in the facts and circumstances of these cases the proceedings started on 10-12-1947 under Section 34 of the Income Tax Act, as amended by Act 48 of 1948, for reopening the assessments of the years 1944-45, 1945-46 and 1946-47 were valid?”
2. But this reference was not pressed. The appellant then moved the High Court under Section 66(2) of the Indian Income Tax Act, 1922 and the High Court framed the question in each of the three cases and called for a statement. We need read only one of the questions viz. that relating to Assessment Year 1944-45. That question read:
“Whether in the circumstances of the case the assessment of a sum of Rs 28,000 to income tax in the hands of the assessee is legally valid under Section 34 of the Income Tax Act?”
An identical question was framed in the other two cases, except for the difference in the amount of escaped income for the years 1945-46 and 1946-47.
3. The High Court answered the question against the assessee in its judgment and order dated April 24, 1957. The answer was the same in all the three cases relating to the three assessment years. The three appeals have been preferred from the said judgment and order of the High Court of Patna.
4. Learned counsel for the appellant has frankly stated that he is not in a position to contend that the proceedings under Section 34 were ab initio void. Indeed, as the High Court has rightly pointed out, there were enough materials on which the Income Tax Officer could initiate proceedings under Section 34 for the three assessment years in question. Learned counsel for the appellant has, however, sought to argue that the amount of escaped income found for each of the three assessment years was based on no materials and was pure guesswork; he has contended that there was no scope in cases of this nature for making an assessment under Section 23(4) of the Act.
5. We consider that this contention is not now open to the appellant. The question as framed by the High Court was indeed wide enough to entitle the appellant to raise the point that the quantum of the assessment for each assessment year was not legally sustainable as there were no materials in support thereof. But the appellant did not raise any such point in the High Court. On the contrary, the judgment of the High Court records that “Mr S.N Dutt who appeared for the assessee in each case, has not disputed the quantum of assessment.” The twofold argument advanced in the High Court was — first, that the assessed income could not be said to be “escaped income” within the meaning of Section 34, and secondly, that there was no material to support the assessment under Section 34. Both these arguments were fully dealt with by the High Court, and learned counsel for the appellant has not been able to show that there is any error in the reasoning of the High Court with regard to them. The quantum of assessment was not questioned in the High Court, and the appellant cannot now be allowed to raise a contention which counsel for the appellant had specifically given up in the High Court.
6. Learned counsel for the appellant has made a futile attempt to show that the appellant contested the quantum of assessment also and in the High Court the validity of assessment even with regard to its quantum was challenged. The record of the High Court settles the question conclusively; and neither in the application for leave to appeal to this Court, nor in the statement of the case filed here on behalf of the appellant, was it stated that learned counsel did not make the concession as recorded in the judgment of the High Court or that he disputed the quantum of assessment for any of the three years in question.
7. For these reasons, we hold that there is no merit in these appeals, which are accordingly dismissed with costs. One hearing fee.
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