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High Court of Calcutta
D.N. Sinha, J.
Narsinghdas Bagree – Appellant
Versus
Income Tax Officer B Ward Dist 11 Calcutta – Respondent
Decided On : Jun 10, 1964
INCOME TAX - Reopening of assessment - Section 34(1)(a) of the Indian Income Tax Act, 1922 - Assessee's duty to disclose primary facts - Assessing authority's duty to draw proper conclusions - No omission or failure on assessee's part to disclose Eastern Bank account - Income Tax Officer had no reason to believe that income escaped assessment - Notices issued under section 34(1)(a) quashed.
Fact of the Case:
The assessee, Narsinghdas Bagree, was assessed to income tax for twenty years in District 1(1), Calcutta. From the assessment year 1954-55, his status was changed from "individual" to "Hindu undivided family" (HUF). The assessee filed returns in both statuses, but regular assessments were made in the HUF status. The assessee had been connected with racing for many years, and the issue of whether he should be allowed the loss in his racing account had been a subject of controversy in past assessments. In 1961, the Income Tax Officer issued a notice under section 34(1)(a) of the Income Tax Act, 1922, alleging that the assessee had not disclosed a bank account with the Eastern Bank Ltd. and that income had escaped assessment for the assessment years 1942-43, 1943-44, and 1944-45. The assessee responded by stating that the deposits in the Eastern Bank account represented the proceeds of stakes or bets in racing, which had been disclosed in his individual assessment and in the assessment of Messrs. Bhicomchand Bagree. The assessee also stated that the racing was done by members of the HUF, although the account was in his name, and that the profits and losses of the "racing hobby" had been decided long ago.
Finding of the Court:
The court found that the Income Tax Officer had no reason to believe that the assessee had failed to disclose the Eastern Bank account for the relevant years. The court noted that the assessee had categorically stated that he had disclosed the account in the balance sheets which were filed, and that the order sheets for the relevant years would show this. The court also noted that the Income Tax Officer had not produced the order sheets, despite being commanded to do so by the court. The court concluded that the Income Tax Officer's belief that income had escaped assessment was based on a mistake, and that the notices issued under section 34(1)(a) were therefore invalid.
Issues: 1. Whether the Income Tax Officer had reason to believe that the assessee had omitted or failed to disclose fully and truly all material facts necessary for his assessment, leading to the escapement of income from assessment.
Ratio Decidendi: The court held that the assessee had the responsibility of disclosing all primary facts, but once he had disclosed all the primary facts, his duty ended and it was for the assessing authority to draw the proper conclusions from it. If the wrong conclusion has been drawn, then it is no ground for reopening an assessment under section 34(1)(a). Because the assessing authority previously held another opinion as to the legal effect of certain primary facts, and the assessing authority later on took a different view, there does not exist any ground for such reopening.
Final Decision: The court quashed the notices issued under section 34(1)(a) dated 22nd March, 1962, and issued a writ of mandamus directing the respondents not to give effect to the same.
1. THE petitioner in this case is Narsinghdas Bagree. It appears that he has been assessed to income tax for a period of twenty years or more in District 1 (1), Calcutta. Since the inception of his file, he was assessed in the status of an "individual" under G. I. R. No. I (1)/n-77/b. From the assessment year 1954-55 his status was changed to that of a "Hindu undivided family." It is stated that from the assessment year 1954-55, the petitioner filed returns in the status of a Hindu undivided family as well as that of an individual. Regular assessments in the status of H. U. F. were made under file No. I (i) 177/b but the returns made in the individual status were merely filed. A file was started, being G. I. R. No. I (1)/n-317/b of the petitioner in his H. U. F. but it was merely noted therein that as the H. U. F. of the petitioner has already been assessed in the other file, no further action was necessary. Returns have been filed up to the assessment year 1961-62. Some complaint has been made in the petition regarding the strange procedure adopted in mixing up the files, but in this application the learned Standing Counsel appearing on behalf of the petitioner has not pressed that point. The only point pressed by learned Counsel is the illegality of certain notices served under section 34 (1) (a) of the Indian Income Tax Act, 1922. In order to appreciate the point, it will be necessary to state certain facts. It appears from the materials placed before me that the assessee had been connected with racing for a large number of years. In fact, during the assessment for past years, a controversy arose as to whether he should be allowed the loss in his racing account. The following extract from the assessment order of the petitioner for the assessment year 1949-50 shows this clearly : -
"in the return filed and P/l Account and Balance Sheet furnished, the loss in respect of the Race A/c. has not been claimed and only the balance amount has been shown in the Balance Sheet treating it as usual as an asset. But; subsequently the assessee came with a statement claiming the loss in the account as a business loss. It is definitely an after thought in order to minimise the tax liability and there is no reason why the whole transaction will not be treated as a hobby as has been done so long and admitted by the assessee himself in the statement furnished. As such even if it is admitted but not accepted to be a loss, it is clearly in the nature of personal expenses and at best a casual loss and far away to have any connection with trading profit. Moreover there were no receipts of payments for the expenses alleged to have been incurred by the assessee. In view of the reasons stated above, the loss claimed by the assessee on this account is not entertained. As such the question of summoning different parties under sec 37 for verification of the expenses incurred, as claimed by the assessee does not arise. "
2. ON 27th February, 1961 Mr. A. K. Banerjee, the Income-tax Officer, "b"' Ward, Dist, II, Calcutta, wrote a letter to the petitioner, a copy whereof is annexure "f" to the petition. This letter was entitled "show Cause for starting 34 proceedings Assessment years." It is stated in the letter that it appeared from the petitioner's bank account with the Eastern Bank Ltd., that he had deposited a sum of Rs.4,98,045/- between the dates 4. 1. 43 and 29. 8. 44 being relevant for the assessment years 1942-43, 1943-44 and 1944-45. Thereafter appears this rather amazing statement:-
"you have stated in your letter dated 6. 11. 57 that the balance sheet of the assessee of the relevant assessment year was there in the Income-tax file but no such balance sheet could be found in the file. Therefore, it appears that you had not disclosed bank account and the deposit therein at the time of assessments for the three years. You, are therefore, requested to explain why proceedings u/s 34 may not be drawn against you in view of unexplained concealed i
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