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PATNA HIGH COURT
Uday Sinha and Nazir Ahmad JJ.
Chunnilal Surajmal
Versus
Commissioner Of Income Tax
Taxation Case No. 19 of 1975 ;
Decided On : AUGUST 01, 1985
INCOME TAX - Reassessment - Validity - Initiation of reassessment proceeding - Failure to disclose income - Admission of assessee before Tribunal - Investigation of source of repayment of loan.
Fact of the Case:
The assessee, a Hindu undivided family, was reassessed for the assessment year 1949-50 under Section 147(a) of the Income-tax Act, 1961, on the ground that it had failed to disclose fully and truly all material facts necessary for its assessment. The reassessment was initiated after the Income-tax Officer obtained the approval of the Central Board of Direct Taxes, based on the belief that the assessee had constructed a house and that the investment in the house had escaped assessment. The assessee challenged the reassessment, contending that there was no failure on its part to disclose its income fully and truly, and that the reassessment proceeding was initiated only to consider the unexplained investment in the house and not in regard to a sum of Rs. 1,52,500 mentioned in the pass book of Lakshmi Devi, the wife of the karta of the Hindu undivided family. The Appellate Assistant Commissioner held that there was no failure on the part of the assessee to disclose its income fully and truly, and that the reassessment proceeding was invalid. The Tribunal upheld the reopening of the assessment, finding that the assessee had admitted before it that the sum of Rs. 1,52,500 belonged to the Hindu undivided family and, therefore, constituted income that had escaped assessment. The assessee filed a reference to the High Court on the questions of whether the Tribunal was justified in upholding the reopening of the assessment and in directing the Appellate Assistant Commissioner to reconsider the sources of the repayment of the loan.
Finding of the Court:
The High Court held that the initiation of the reassessment proceeding was invalid and without jurisdiction, as there was no material before the Revenue to come to the conclusion that the income of the assessee had escaped assessment. The Court found that the assessee was not obligated to include in its return the sum of Rs. 1,52,500 standing in the name of Lakshmi Devi, as it was incumbent upon the Income-tax Officer to call upon Lakshmi Devi to explain the source of her income before treating it as income of the assessee. The Court also held that the Tribunal's finding that the assessee had admitted that the sum of Rs. 1,52,500 belonged to the Hindu undivided family was not supported by the evidence, and that even if such an admission had been made, it would not have validated the initiation of the reassessment proceeding, which was otherwise invalid. The Court further held that the Tribunal's direction to the Appellate Assistant Commissioner to reconsider the sources of the repayment of the loan was also invalid, as the investigation was futile since Lakshmi Devi, the person who could have explained the source of the repayment, was deceased.
Issues: 1. Whether the Tribunal was justified in upholding the reopening of the assessment for the assessment year 1949-50 under Section 147(a) of the Income-tax Act, 1961? 2. Whether the Tribunal was justified in setting aside the order of the Appellate Assistant Commissioner and directing him to reconsider the sources of the repayment of the loan to the extent of Rs. 1,52,500?
Ratio Decidendi: 1. The initiation of the reassessment proceeding was invalid and without jurisdiction, as there was no material before the Revenue to come to the conclusion that the income of the assessee had escaped assessment. 2. The assessee was not obligated to include in its return the sum of Rs. 1,52,500 standing in the name of Lakshmi Devi, as it was incumbent upon the Income-tax Officer to call upon Lakshmi Devi to explain the source of her income before treating it as income of the assessee. 3. The Tribunal's finding that the assessee had admitted that the sum of Rs. 1,52,500 belonged to the Hindu undivided family was not supported by the evidence, and even if such an admission had been made, it would not have validated the initiation of the reassessment proceeding, which was otherwise invalid. 4. The Tribunal's direction to the Appellate Assistant Commissioner to reconsider the sources of the repayment of the loan was also invalid, as the investigation was futile since Lakshmi Devi, the person who could have explained the source of the repayment, was deceased.
Final Decision: The reference was answered in favor of the assessee with costs. Hearing fee Rs. 500.
Uday Sinha, J.
1. In this reference under Sec.256(1) of the Income-tax Act, 1961, we are concerned only with the assessment year 1949-50. The accounting period of the assessee was from Diwali to Diwali, i.e., year commencing from October, 1947. The assessee is a Hindu undivided family. The questions referred to us for our opinion are:
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that reopening of the assessment for the assessment year 1949-50 under Sec.147(a) was valid in law ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of the Appellate Assistant Commissioner and directing him to reconsider the sources of the repayment of loan to the extent of Rs. 1,52,500 ?"
2. The assessee was assessed for the assessment years 1948-49, 1949-50 and 1950-51. Assessment orders were passed on December 25, 1948, October 31, 1951, and October 31, 1951, respectively. Several years later on February 21, 1965, the Income-tax Officer sent a proposal to the Central Board of Direct Taxes seeking their approval to reopen the assessment for the aforesaid three years. In the view of the Income-tax Officer, the assessee was possessed of a house at Deoghar which ostensibly stood in the name of Lakshmi Devi, wife of Hanuman Prasad Sharaf. The income represented by the unexplained investment in the house property had escaped assessment. The unexplained investment, according to the Income-tax Officer, was to the tune of Rs. 1,45,600. With the approval of the Central Board, the assessments were reopened. In answer to the notice under Sec.148 of the Income-tax Act, the assessee filed a return declaring "Nil" income. After hearing the assessees representative, the Income-tax Officer allocated the unexplained investment over the house as follows:
Rs.
1948-49 60,000
1949-50 25,000
1950-51 60,000
3. On scrutiny of the accounts, the Income-tax Officer found that in the pass book of Lakshmi Devi, there was a deposit of Rs. 1,52,500 on December 11, 1948. The Income-tax Officer called upon the assessee but not Lakshmi Devi to explain the source of this deposit in the account of Lakhmi Devi. The explanation of the assessee was that this sum of Rs. 1,52,500 was not the asset of the Hindu undivided family and that it had been taxed earlier in 1946-47 in the hands of Lakshmi Devi and, therefore, it could not be taxed again. The Income-tax Officer formed the opinion that the said sum was really the income of the Hindu undivided family which had been entered in the bank account of Lakshmi Devi. The Income-tax Officer observed as follows :
"Thus, a sum of Rs. 1,52,500 could not be satisfactorily explained either by Lakshmi Devi or by Sri Hanuman Prasad Shroff, the karta of the Hindu undivided family."
He, therefore, treated this deposit as concealed income of the assessee and added it to its income.
4 The assessee appealed against the order of the Income-tax Officer against the assessments for all the three years. The submissions urged before the Appellate Assistant Commissioner, on behalf of the assessee, leaving aside the submissions not relevant to the present case were : firstly, that the initiation of the reassessment proceeding was invalid, as there had been no failure on the part of the assessee to disclose fully and truly all material facts for the original assessment; and, secondly, that the reassessment proceeding having been initiated only to consider the unexplained investment in the house property at Deoghar, the Income-tax Officer had no jurisdiction to hold that Rs. 1,52,500 appearing in the pass book of Lakshmi Devi was the property of the Hindu undivided family and reassess accordingly.
5. In regard to the first contention, the Appellate Assistant Commissioner held that there was evidence to show that the assessee had disclose
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