Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Rules Nos. 62 to 65 of 1967

Judges

Hon'ble Mr. Justice Dibyendu Mohan Sen
Hon'ble Mr. Chief Justice Parbati Kumar Goswami

Acts

section 142(3) of the Income-tax Act, 1961.3.
SECTION 147 INCOME TAX ACT 1961
section 23(4) of the old Income-tax Act
SECTION 148 INCOME TAX ACT 1961
section 148(2), the Income-tax
Civil Rule No. 63 of 1967
Civil Rule 184 of 1965
section 149(1)(b)

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Smart Summary

Structured Summary of the Opinion (Goswami, C.J.)

Factual and Procedural Background

This judgment addresses four civil rules raising an identical question of law concerning the Income-tax Officer's jurisdiction to issue notices under section 147 of the Income-tax Act, 1961, for four assessment years against the petitioner-assessee. The only factual difference among the four matters is the quantum of income alleged to have escaped assessment.

The Court set out the facts of Civil Rule No. 63 of 1967 (assessment year 1954-55) which the parties relied upon. There had been an earlier assessment under the old Act (section 23(4)) which was subsequently cancelled under section 27. The assessee submitted a return for 1954-55 on 27 January 1959 and produced accounts for the accounting year 2010 R.N. (ending 10 April 1954). An assessment under section 23(3) fixed total income at Rs. 28,840 inclusive of house property income of Rs. 7,892. On appeal, the Appellate Assistant Commissioner reduced total income by Rs. 7,898 by order dated 28 July 1960.

On 18 March 1963 the assessee received notices under section 148 (Income-tax Act, 1961) (annexure “B”) in respect of assessment year 1954-55 and similar notices for 1955-56, 1956-57 and 1957-58. The assessee filed a return under protest showing the same income and, on 24 January 1967, applied under section 142(3) for the Income-tax Officer to furnish the basis/material before it was utilised against him, asserting that no material facts had been withheld in the original assessment proceedings.

The Income-tax Officer replied (annexure “D”) on 10 February 1967 explaining that while the assessee's balance-sheet showed investment in house properties of Rs. 13,869, subsequent information and local enquiry indicated the investment to be about Rs. 17,000. The letter requested particulars and warned that, absent compliance, the difference would be treated as unexplained investment and assessed accordingly; compliance would be treated as compliance with section 142(3). The recorded reasons for issuing the impugned notice stated that buildings and godowns were constructed at Dibrugarh and that the "full cost of construction was not disclosed in the books of accounts produced," leading the Income-tax Officer to believe particulars were concealed, and thus he proposed to initiate proceedings under section 147.

The Commissioner of Income-tax sanctioned issuance of the notice on 14 March 1963.

Legal Issues Presented

Whether the Income-tax Officer had jurisdiction under section 147 of the Income-tax Act, 1961, to issue the impugned notices (i.e., whether the case fell under clause (a) or clause (b) of section 147).
If the case fell under section 147(a), whether the statutory conditions precedent for invoking clause (a) (in particular that the escaped assessment was by reason of the assessee's omission or failure to disclose fully and truly all material facts necessary for assessment) were satisfied by the recorded reasons.
Whether, on the material before the Court, the reassessment proceedings were time-barred under section 149(1)(b) (i.e., initiated after the expiry of four years from the end of the relevant assessment year) if the case fell under section 147(b).

Arguments of the Parties

Assessee's Arguments

The impugned notice was beyond the jurisdiction of the Income-tax Officer under section 147.
The recorded reasons appear to make out a case under section 147(b) (i.e., the Income-tax Officer's belief arose from subsequent information) and therefore the notice is barred by section 149(b) as it was issued after more than four years from the end of the assessment year.
The assessee asserted that there were no material facts withheld in the original assessment proceedings and that the accounts/balance-sheet had been produced to the officer.

Department's Arguments

The case was covered by section 147(a) (i.e., the Income-tax Officer had reason to believe income had escaped by reason of omission/failure to disclose material facts), and thus not barred by section 149.
The department relied on subsequent enquiries and information showing an apparent understatement of investment in the house properties to justify the reassessment steps.
The department relied on averments in a counter-affidavit (paragraph 4) that the petitioner deliberately did not show certain house properties including extensions and renovations in his return.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Calcutta Discount Company's case [1968] 41 I.T.R 191	Authority that an aggrieved assessee may approach the High Court under Article 226 without waiting for final disposal of reassessment proceedings where conditions precedent for jurisdiction are lacking.	The Court cited this case to confirm that if the conditions under section 147(a) are not fulfilled, the assessee can seek relief under Article 226 and need not await completion of reassessment proceedings.
Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd. (Shah C.J., dissent in Calcutta Discount Company's case)	Principle that where an assessee has disclosed primary facts relevant to assessment, he is under no obligation to indicate the inferences the assessing officer might draw; mere production of books from which facts could be discovered does not necessarily amount to disclosure of the inferences.	The Court quoted this passage to support the view that disclosure of primary facts (production of accounts showing the investment figure) did not obligate the assessee to point out potential inferences, and thus mere discovery of different figures later does not convert the matter into one within section 147(a).
Civil Rule 184 of 1965 (unreported; disposed 22 September 1970)	Held (in that case) there was no disclosure in the accounts submitted by the assessee about remittances disclosed in bank cards.	The Court observed the facts of that unreported decision were different and therefore it was of no assistance to the department in the present matter.

Court's Reasoning and Analysis

The Court proceeded by construing section 147 and the statutory prerequisites for invoking clause (a). It reiterated that two distinct conditions precedent are required before jurisdiction under clause (a) can be exercised:

The Income-tax Officer must have reason to believe that income has escaped assessment; and
He must have reason to believe that such escape is by reason of the assessee's omission or failure to disclose fully and truly all material facts necessary for assessment for that year.

The Court emphasized that under section 148(2) the Income-tax Officer must record reasons before issuing a notice and therefore the department must demonstrate from the recorded reasons that the case falls squarely within section 147(a).

On the material before it (the reasons recorded, annexure "D", the assessee's produced accounts and balance-sheet, and the departmental affidavit), the Court found these features significant:

The assessee had submitted a return and accounts and had complied with the section 23(2) notice; the balance-sheet showed investment in house properties (Rs. 13,869) and rental income was disclosed.
The Income-tax Officer's subsequent belief that the correct investment was about Rs. 17,000 arose from "information in my possession and from local enquiry" — that is, from material newly discovered after the original assessment proceedings.
The recorded reasons and annexure D did not demonstrate that the assessee had failed to disclose, in his original accounts or return, the investment in any particular house; the dispute was about the quantum shown in the accounts versus the amount the officer believed to be correct from later enquiries.
The departmental affidavit containing allegations of deliberate nondisclosure was sworn by a successor-in-office and narrated facts on the basis of "information received from record"; the initiating Income-tax Officer did not personally swear an affidavit detailing the informations/facts that led to initiation.

The Court relied on the principle (as stated in the Burlop Dealers / Calcutta Discount authorities) that where primary facts relevant to assessment have been disclosed by the assessee, the assessee is not obliged to point out the inferences that the assessing officer might draw. Mere production of books or evidence, from which material facts could, with due diligence, have been discovered, does not automatically amount to failure to disclose within the meaning of the relevant provision.

Applying these principles, the Court concluded that the Income-tax Officer's "reason to believe" was rooted in subsequent information and local enquiries (i.e., discovery of new facts) rather than in any established omission or failure by the assessee to disclose material facts during the original assessment. Consequently, the matter properly fell under section 147(b) (belief arising from information in possession) and not under section 147(a) (belief grounded on a failure to disclose in the relevant proceedings).

Because the reassessment was initiated after the period of four years from the end of the relevant assessment year, a case falling within section 147(b) would be time-barred by section 149(1)(b). The Court also noted the absence of a sworn affidavit by the ITO who initiated proceedings to establish that the initial belief arose from non-disclosure in the original proceedings.

Holding and Implications

HOLDING: The Court allowed all four applications and quashed the impugned notices.

Direct consequences for the parties:

The reassessment notices under section 148 (issued under the belief stated to be under section 147) were set aside as beyond jurisdiction in the circumstances presented.
The Court made no order as to costs.

Broader implications: The opinion's reasoning emphasizes that where an assessee has produced primary facts (accounts, balance-sheet) and the assessing officer's later belief is founded on information discovered subsequently (and not on a demonstrable omission in the original proceedings), the matter will fall under section 147(b) rather than section 147(a), with attendant time-bar consequences under section 149(1)(b) if outside the four-year period. The opinion itself does not announce any broader novel precedent beyond applying these established principles to the facts before the Court.

Disposition: Applications allowed. (D.M. Sen, J. concurred.)

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Bajranglal Beria v. Income-Tax Officer, B Ward, Companies Circle, Dibrugarh, And Others

Goswami, C.J:— This judgment will govern all the above civil rules as an identical question of law is involved with regard to the jurisdiction of the Income-tax Officer to issue the impugned notices under section 147 of the Income-tax Act, 1961, for four assessment periods against the petitioner-assessee.

2. The only poi???t of difference in the four cases is the quantum of income that is alleged to have escaped assessment. It is therefore sufficient to state the facts of Civil Rule No. 63 of 1967 which were relied upon by the counsel for both parties during the course of the hearing. The assessment year in this case is 1954-55. In this case there was an earlier assessment under section 23(4) of the old Income-tax Act which was later cancelled under section 27 and the assessee submitted his return for the assessment year 1954-55 on 27th January, 1959. Notices under section 23(2) were served and complied with by the assessee who produced his accounts for the year 2010 R.N ending 10th of April, 1954, and the assessment order was duly passed under section 23(3) on an income of Rs. 28,840 inclusive of income from the house property determined at Rs. 7,892. On appeal, the Appellate Assistant Commissioner reduced the total income by Rs. 7,898 by his order dated 28th July, 1960. On 18th March, 1963, the assessee received a notice (annexure “B”) under section 148 of the Income-tax Act, 1961, from the Income-tax Officer (respondent No. 1) in respect of the assessment year 1954-55 along with similar notices for the assessment years 1955-56, 1956-57 and 1957-58, the last three notices being the subject-matters of three other civil rules. The assessee submitted a return under protest showing the same income as was shown in his original return and submitted an application on 24th January, 1967 (annexure “C”), to the Income-tax Officer to furnish the basis or material under section 142(3) before the same is utilised against him. The assessee submitted to the officer “that there were no material facts which the assessee did not disclose in the course of the original assessment proceedings”. The Income-tax Officer replied to this petition on 10th February, 1967, by annexure “D” as follows:

“Please refer to your letter dated 24-1-67.

It appears from the records that you showed a sum of Rs. 13,869 in your balance-sheet being the investment in the house properties during the year 2010 R.N Subsequently on the basis of information in my possession and from local enquiry it was found that the investment in the said house properties comes to Rs. 17,000, approximately. In the course of hearing you were requested to furnish full and true particulars of the said properties, investment therein and sources of the investment. But the particulars required are not furnished by you.

Notice under section 142(1) was served on you asking to produce all sorts of pucca and katcha books of all sources of business, bank pass book, bill register, etc., for the accounting years 2009 and 2010 R.N In response to which only rokar khata (ledger and nakal of Beria Brothers) for the accounting year 2010 R.N were produced on the ground that vouchers, and bills of Beria Bros. had already been destroyed and books of accounts of Annapurna Rice and Flour Mills were not traceable. It was also submitted that time is required to trace the other books of accounts and to produce the same before me.

Under the circumstances, I would request you once again to furnish full and true particulars regarding the house properties and investment therein together with sources of the said investment on or before 23-3-67, in the absence of which I will have no other alternative but to treat the difference of (Rs. 17,000—Rs. 13,869)=Rs. 3,113 or say Rs. 3,000 in round figures, as unexplained investment in the house properties and assess it in your hands accordingly.

Compliance of this letter will be treated as compliance of provisions under section 142(3) of the Income-tax Act, 1961.”

3. Since a copy of the reasons given by the Income-tax Officer at the time of issuing of the impugned notice was not given along with the counter-affidavit of the department, the learned counsel produced the same during the hearing. The reasons may be quoted below:

“Assessee constructed buildings and godowns at Dibrugarh. Full cost of construction was not disclosed in the books of accounts produced: I have therefore reasons to believe that the assessee has concealed particulars resulting in under-assessment. I, therefore, propose to initiate proceedings under section 147 of the Income-tax Act, 1961.”

4. The Commissioner of Income-tax sanctioned the issue of this notice as will appear from the recording of his assent to the order of the Income-tax Officer on 14th March, 1963.

5. The assessee contends that the impugned notice is beyond the juris-diction of the Income-tax Officer under section 147. He further contends that the reasons disclosed may make out a case under section 147(b) and is, therefore, clearly barred under section 149(b) as the notice has been given after the expiry of more than four years from the end of the assessment year. The learned Senior Government Advocate for the department submits that this case is clearly covered by section 147(a) and is, therefore, not barred under section 149 of the Act. We will, therefore, turn to section 147 of the Act:

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

he may, subject to the provisions of sections 148 to 153, assess or reassess such income….”

6. As the law is well-settled, two distinct conditions precedent are required to be fulfilled by the Income-tax Officer before he can exercise jurisdiction under clause (a): (1) The Income-tax Officer must have reason to believe that income has escaped assessment; and (2) he must have reason to believe that such escaped assessment is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year. If any of the conditions precedent is lacking, the aggrieved assessee may approach the High Court under article 226 of the Constitution and need not wait for the final disposal of the reassessment proceedings to prefer appeal against any orders passed therein against him Calcutta Discount Company's case [1968] 41 I.T.R 191.

7. Under section 148(2), the Income-tax Officer is required to record his reasons before issuing any notice under that section. The department must, therefore, establish in this case from the reason recorded by the Income-tax Officer that the case comes under section 147(a). Annexure “D”, which we have quoted above,” was sent to the assessee after several dates of hearing during the reassessment proceeding. The hearing referred to in that letter (annexure “D”) refers to the reassessment proceeding and not to the original proceeding. This point is not controverted by the learned counsel for the department before us. Both annexure “D” as well as the earlier reasons recorded by the Income-tax Officer before issuing of the notice, clearly show that the investment in the house properties was undervalued by the assessee in his accounts produced before the officer and the Income-tax Officer came to know about this subsequently on the basis of information in his possession and from local enquiry. This is a case where the assessee has submitted his return as well as his accounts and complied with the terms of the notice under section 23(2). The reasons do not disclose that the assessee has not shown in his account books the investment on a particular house completely. When we pointed out this feature to the learned counsel for the department, he drew our attention to paragraph 4 of the counter-affidavit to the effect that “the petitioner deliberately did not show certain house properties (including extensions and renovation) and he did not furnish the particulars of those in his return “. The affidavit has not been filed by the Income-tax Officer who had recorded the reasons but by the successor-in-office, who has sworn to averments in paragraphs 2 to 7 as true to his “information received from record”. 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 conclusion 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 has not been shown:

The short point that arises for consideration, therefore, is whether the Income-tax Officer, when he found from subsequent enquiry and materials in his possession that the assessee constructed buildings and godowns at Dibrugarh, full cost of construction of which was not disclosed in the books of accounts produced, it could be a case under section 147(a) in that the assessee did not disclose fully and truly all material facts necessary for his assessment for the year in question. The stage relates to the initiation of the proceedings under section 147 for the reason disclosed. In Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† , Shah C.J, who was then the dissenting judge in Calcutta Discount Company's case [1961] 41 I.T.R 191, held as follows:

“As observed by this court in Calcutta Discount Go. Ltd. v. Income-tax Officer, Companies District I, Calcutta:

‘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.’

We are of the view that under section 34(1)(a) if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts. The terms of the Explanation to section 34(1) also do not impose a more onerous obligation. Mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1), but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous.

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. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under section 34(1)(a).”

8. In the instant case, the return was submitted by the assessee accompanied by balance-sheet supported by his books of accounts. The investment in the house property was shown in his books of accounts. Rental from house property was also disclosed in the account, and there is no dispute under this head. Because of non-belief in the genuineness of the accounts shown by the assessee disclosing a sum of Rs. 13,869 as investment in house property for the relevant assessment year as against the Income-tax Officer's estimate of Rs. 17,000 based on the basis of information and local enquiry, the Income-tax Officer concluded that income had been under-assessed, that is to say, escaped assessment. The Income-tax Officer's prima facie justification for the reason to believe is, therefore, based upon his subsequent information and not upon anything already found on the records. 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. It is not, therefore, a case where the. Income-tax Officer had reason to believe that income had escaped assessment by reason of non-disclosure of material facts. Reasonable belief in this case has nexus with the discovery of new facts and informations and not with non-disclosure of material facts in the proceedings for the relevant assessment year. The ground for the belief in this case is the immediate subsequent discovery of information leading to the Income-tax Officer's inference, on the existence of these subsequent informations, that the assessee had not disclosed fully and truly all material facts. Hence, the initiation of the proceedings in this case can have no primary connection with non-disclosure by the assessee of material facts but had to wait till the discovery of new facts to justify the action under section 147. This is not a case of adequacy or otherwise of the grounds but absolute nonexistence of grounds for initiation of proceedings under section 147(a).

9. The Income-tax Officer, who initiated the proceedings in this case, has not personally sworn an affidavit detailing the informations, the facts and circumstances leading to the order for reassessment. From the reasons given to the Commissioner and from the letter sent to the assessee in reply to his query (annexure “D”) taken with the affidavit filed here by the department, subject to our observations already made, we are unable to hold that the Income-tax Officer who initiated the proceedings in this case had reason to believe that the income of the assessee has escaped assessment during the relevant assessment year on account of non-disclosure of material facts by the assessee. This is a clear case where the Income-tax Officer had reason to believe that income had escaped assessment by reason of subsequent informations and it, therefore, falls under section 147(b) and not under section 147(a) and is also barred under section 149(1)(b) being beyond the period of four years from the end of the relevant assessment year.

10. The learned Senior Government Advocate drew our attention to an unreported decision of this Bench in Civil Rule 184 of 1965 disposed of on 22nd September, 1970, wherein, it appears, the facts are different. In that case, it was said there was no disclosure in the accounts submitted by the assessee about the remittances disclosed in the bank cards. That decision is, therefore, of no aid to the learned counsel.

11. In the result, all the four applications are allowed and the impugned notices are quashed. We will, however, make no order as to costs.

D.M Sen, J.:— I agree.

13. Applications allowed.

Bajranglal Beria v. Income-Tax Officer, B Ward, Companies Circle, Dibrugarh, And Others

Structured Summary of the Opinion (Goswami, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Department's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Bajranglal Beria v. Income-Tax Officer, B Ward, Companies Circle, Dibrugarh, And Others

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