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High Court Of Calcutta
SANKAR PRASAD MITRA, SALIL KUMAR DATTA
H.A.NANJI AND CO. - Appellant
Versus
INCOME-TAX OFFICER, a WARD - Respondent
Appeal From Original Order 160 Of 1972
Decided On : 06/27/1979
INCOME TAX - REASSESSMENT - SECTION 147 - JURISDICTION - CONDITIONS PRECEDENT - REASONABLE BELIEF - MATERIALS - DISCLOSURE OF FACTS - PRIMARY FACTS - INFERENTIAL FACTS - DUTY OF ASSESSEE - SCOPE - LIST OF BOGUS CREDITORS - COMPARISON WITH CREDITORS DISCLOSED BY ASSESSEE - NEW PRIMARY FACTS - RATIONAL NEXUS - VALIDITY OF NOTICE.
Fact of the Case:
The assessee, a partnership firm, was assessed for the assessment year 1958-59 on an income of Rs. 32,562. The assessee claimed that at the time of assessment, its representative produced copies of account of each creditor and disclosed fully and truly all transactions with each of the parties on production of all relevant vouchers, discharged hundis, statements of payments of interest with receipts, confirmation letters of creditors with respective income-tax file numbers, as asked for, also balance-sheets, profit and loss accounts and necessary documents. The ITO completed the assessment on his satisfaction with the said materials. On March 27, 1967, the assessee received a notice under Section 148 of the I. T. Act, 1961, whereby the assessee was asked to submit a return of income for the said year. The assessee challenged the notice as illegal, barred by limitation and void ab initio and requested the ITO to drop the proceeding and without prejudice and on protest filed a return for assessment year 1958-59. No reply was given to the said letter. On the contrary, the ITO on July 30, 1970, gave notice fixing hearing of the proceeding on August 5, 1970. The assessee thereafter by letters of August 4 and 10, 1970, demanded justice and called upon the respondents to cancel the said notice and later on also called upon the respondents to furnish him with a copy of the facts and reason on which the sanction of the CIT, West Bengal, was obtained but there was no compliance with the aforesaid requisition. The assessee in this state of affairs, when according to him he had produced all materials necessary for the assessment, apprehending that the ITO might proceed on an apparent change of opinion moved this court on September 14, 1970, by an application under Article 226 of the Constitution, praying, inter alia, for issuance of a writ in the nature of mandamus commanding the ITO and others to cancel, withdraw and rescind the impugned notice and also of a writ in the nature of certiorari quashing the said notice and proceeding initiated thereon.
Finding of the Court:
The court held that there were grounds for the reasonable belief on the part of the ITO to hold that the assessee failed and omitted to disclose fully and truly all material facts necessary for the assessment for the relevant year leading to escapement of income chargeable to tax.
Issues: Whether the ITO had jurisdiction to issue the notice under Section 148 of the I. T. Act, 1961, for the assessment year 1958-59.
Ratio Decidendi: The initiation of proceedings under Section 147, Clause (a), is based on the reasonable belief tentatively formed and during reassessment the question whether the hundi creditors or hundi loans are bogus and fictitious will be adjudicated according to law. Mere initiation of proceeding under Section 147 (a) does not amount to a finding that the loans are fictitious, though, undoubtedly, the bona fide assessee by the reassessment is put to inconvenience which unfortunately cannot be avoided in the context of large scale evasion of income tax in the country and the methods adopted for the purpose.
Final Decision: The appeal was dismissed.
( 1 ) THIS is an appeal from the judgment and order of Sabyasachi Mukharji J. dated April 28, 1972, whereby the rule nisi obtained by the appellant on an application under Article 226 was discharged.
( 2 ) THE appellant is a partnership-firm registered under the Indian Partnership Act, 1932, carrying on the business of manufacture and sale of buckets. For the assessment year 1958-59 (accounting period ending on December 31, 1957j, the appellant was assessed by the respondent No. 1 on an income of Rs 32,562 as computed according to the order of assessment dated January 30, 1959. According to the appellant, at the time of assessment, its representative produced copies of account of each creditor and disclosed fully and truly all transactions with each of the parties on production of all relevant vouchers, discharged hundis, statements of payments of interest with receipts, confirmation letters of creditors with respective income-tax file numbers, as asked for, also balance-sheets, profit and loss accounts and necessary documents. The ITO completed the assessment on his satisfaction with the said materials.
( 3 ) ON March 27, 1967, the appellant received a notice purported to be under Section 148 of the I. T. Act, 1961, whereby the appellant was asked to submit a return of income for the said year, A copy of the notice is set out below :"notice UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961. V (2)/305-H/a Income-tax Officer V (2 ). ' A ' ward. Dated 27-3-67. To M/s. H. A. Nanji and Co. , 46, Ezra Street, Calcutta. Whereas I have reason to believe that your income chargeable to tax for the assessment year 1958-59, has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961. I therefore, propose to reassess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice a return in the prescribed form of your income assessable for the said assessment year. 2. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, W. B. II, Calcutta. (Sd.) Harnam Singh Sarna, Income-tax Officer, 'a' Ward, v (2), Calcutta. "
( 4 ) THE appellant by letter written by its advocate on April 20, 1967, challenged the notice as illegal, barred by limitation and void ab initio and requested the ITO to drop the proceeding and without prejudice and on protest filed a return for assessment year 1958-59. No reply was given to the said letter. On the contrary, the ITO on July 30, 1970, gave notice fixing hearing of the proceeding on August 5, 1970. The appellant thereafter by letters of August 4 and 10, 1970, demanded justice and called upon the respondents to cancel the said notice and later on also called upon the respondents to furnish him with a copy of the facts and reason on which the sanction of the CIT, West Bengal, was obtained but there was no compliance with the aforesaid requisition. The appellant in this state of affairs, when according to him he had produced all materials necessary for the assessment, apprehending that the ITO might proceed on an apparent change of opinion moved this court on September 14, 1970, by an application under Article 226 of the Constitution, praying, inter alia, for issuance of a writ in the nature of mandamus commanding the ITO and others to cancel, withdraw and rescind the impugned notice and also of a writ in the nature of certiorari quashing the said notice and proceeding initiated thereon. It was contended, inter alia, in the petition, after narration of the facts stated above, that the conditions precedent for the assumption of jurisdiction under Section 147 read with Section 148 was absent and as such the notice as also the proceeding commenced thereunder were without jurisdiction.
( 5 ) ON this application, a rule nisi in terms of the prayer was issued by this court on the same date and the respondents contested the rule by filing an affidavit-
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