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HIGH COURT OF CALCUTTA
K. L. RAY
INDRA CO. LTD. - Appellant
Versus
INCOME-TAX OFFICER - Respondent
Matter 419 Of 1968
Decided On : JANUARY 21, 1970
INCOME TAX - REASSESSMENT - JURISDICTION - INCOME ESCAPED ASSESSMENT - PRIMARY FACTS NECESSARY FOR ASSESSMENT DISCLOSED - NO JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961.
Fact of the Case:
The assessee, a company dealing in shares, claimed a loss of Rs. 2,41,472 in respect of its share dealing business for the assessment year 1959-60. The assessment was made under Section 23 (5) of the repealed Income-tax Act, 1922, disallowing the claim for loss on the ground that it did not arise in the normal course of business. On appeal, the Appellate Assistant Commissioner allowed the entire claim. The Income-tax Officer passed necessary orders giving effect to the appellate order. Subsequently, a notice was issued under Section 154 of the Income-tax Act, 1961, for rectifying the assessment as the profit from the sale of bonus shares to the extent of Rs. 1,39,300 had been under-assessed. The assessee challenged the notice under Article 226 of the Constitution. Thereafter, a notice under Section 148 of the Act was issued proposing to reassess the income for the assessment year 1959-60 as such income had escaped assessment within the meaning of Section 147 of the Act.
Finding of the Court:
The court held that the Income-tax Officer had no jurisdiction to issue the impugned notice under Section 148 of the Income-tax Act, 1961, as all the primary facts necessary for the correct evaluation of the assessee's position in regard to the sale of the bonus shares during the relevant assessment year had been disclosed to the Income-tax Officer before the original assessment was made.
Issues: Whether the Income-tax Officer had jurisdiction to issue the impugned notice under Section 148 of the Income-tax Act, 1961.
Ratio Decidendi: The court held that the Income-tax Officer had no jurisdiction to issue the impugned notice under Section 148 of the Income-tax Act, 1961, as all the primary facts necessary for the correct evaluation of the assessee's position in regard to the sale of the bonus shares during the relevant assessment year had been disclosed to the Income-tax Officer before the original assessment was made. The court relied on the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, where it was laid down that two conditions must be satisfied before jurisdiction could be said to be conferred on the Income-tax Officer under Section 34 to issue notice in respect of an assessment beyond the period of four years, viz.: (1) that he had reason to believe that income, profits or gains chargeable to income-tax had been under-assessed or escaped assessment, and (2) that he must have also reason to believe that such escapement had occurred by reason of either (i) omission or failure on the part of an assessee to make a return, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year.
Final Decision: The court made the rule absolute and quashed the impugned notice and all proceedings taken thereunder.
( 1 ) THIS last desperate attempt of the department to rope in an amount which has apparently escaped assessment must also be held to have failed. The petitioner is an Indian company dealing in shares. In its return for the assessment year 1959-60 it claimed a loss of Rs. 2,41,472 in respect of its share dealing business. The shares, on the sale of which the loss was claimed, included 1,393 bonus shares of Hastings Mills Ltd. which the assessee had valued in its books at the face value of Rs. 100 each. The assessment for that year was made by the first respondent herein under Section 23 (5) of the repealed Income-tax Act, 1922, disallowing the claim for the said loss of Rs. 2,41,472 on the ground that the said loss did not arise in the normal course of the assessee's business. On the assessee's appeal from the said assessment order, by his order dated the 11th December 1964, the Appellate Assistant Commissioner allowed the entire claim for loss of Rs. 2,41,472 on the ground that the said loss arose in the normal course of the assessee's business. On the 28th July, 1965, the respondent-Income-tax Officer passed necessary orders under Section 31/154 of the Income-tax Act, 1961, giving effect to the aforesaid appellate order.
( 2 ) THEREAFTER, by a letter dated the 19th April, 1967, the respondent-Income-tax Officer purporated to give notice to the petitioner under Section 154 of the 1961 Act for rectifying the assessment for 1959-60 as the profit from the sale of the said bonus shares to the extent of the face value thereof, viz. , Rs. 1,39,300, had been under-assessed. Against the aforesaid notice the petitioner moved this court under Article 226 and a rule was obtained on the 16th November, 1967, which was finally made absolute by me on the 20th August, 1969. After the service of the aforesaid rule on the respondents including the respondent No. 1 herein, a notice purporting to be a notice under Section 148 of the 1961 Act dated the 18th January, 1968, was served on the petitioner by the said respondent No. 1 proposing to reasses its income for the assessment year 1959-60 as such income had escaped assessment within the meaning of Section 147 of the Act. The petitioner was further notified that the aforesaid notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Central Circle, Calcutta. Without prejudice to its contentions the petitioner filed its return for the aforesaid year in pursuance of the said notice and on the 24th April, 1968, a notice under Section 143 (3) of the Act was issued on the petitioner calling upon it to produce or cause to be produced the documents, books of account and other evidence on which the petitioner wanted to rely in support of the return filed and the date of hearing under the said notice was fixed on the 10th May, 1968. This application was made and this rule obtained by the petitioner on the 18th June, 1968, requiring the respondents to show cause why the aforesaid notice under Section 148 and/or the proceedings held thereunder should not be quashed.
( 3 ) IN the affidavit-in-opposition affirmed by the present incumbent to the post of the Income-tax Officer, Central Circle, I, Calcutta, the respondent-No. 1, it has been stated in paragraph 10 that the respondent was not bound to disclose its reasons for issuing the said notice to the petitioner as it would be extremely detrimental to the interests of the income-tax department and would completely frustrate the object underlying the initiation of proceedings under the said notice if such reasons were made known to the petitioner at this stage. Reference was made to the departmental records which would be produced before the court. This application came up for hearing on the 16th January, 1970, and was part heared and adjourned to enable the learned counsel appearing for the department to consult the records as the records were not produced in court on that date. Even today when th
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