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Commissioner of Income-tax, Bangalore Vs. Hajee C.M. Abdul Rahiman Khan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Judge
Reported in[1973]91ITR64(KAR); [1973]91ITR64(Karn); (1972)1MysLJ642
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantCommissioner of Income-tax, Bangalore
RespondentHajee C.M. Abdul Rahiman Khan
Appellant AdvocateS.R. Rajasekhara Murthy, Adv.
Respondent AdvocateK. Srinivasan, Adv.
Excerpt:
.....any ommission or failure on the part of the assessee and he had disclosed fully and truly all the material facts necessary for the assessment for the year under consideration in the original assessment proceedings. 11. on the findings of facts the tribunal came to the conclusion that there being no ommission or failure on the part of the assessee to give full and complete details of the purchase of the gold and the sources of the money for purchase, the department was not justified in adding the sum of rs. to confer jurisdiction under the said provision to reopen an assessment two conditions have to be satisfied. and (ii) he must have reason to believe that such escapement is by reason of omission or failure on the part of the assessee to make a return or to disclose fully and truly all..........any ommission or failure on the part of the assessee and he had disclosed fully and truly all the material facts necessary for the assessment for the year under consideration in the original assessment proceedings. the substance of the finding of fact by the tribunal are : (a) that all materials and full information as to purchase of gold and the source of the money for the said purchase were furnished to the income-tax officer by the assessee ; (b) that there is clear evidence of the income-tax officer having applied his mind to the explanations offered and the statements and other particulars of the borrowings furnished by the assessee; (c) further that the income-tax officer had even doubted in the first instance the genuineness of the explanations offered by the assessee, but had.....
Judgment:

Govinda Bhat, J.

1. This is a reference made at the instance of the Commissioner of Income-tax, Mysore, under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The question of law referred for the opinion of this court is :

'Whether, on the facts and in the circumstances of the case, and on the findings given and referred to above, the Appellate tribunal was justified in holding that the reassessment proceedings under section 147(a) of the Income-tax Act, 1961, were not validly initiated in the case ?'

2. The assessee is an individual and the assessment in question relates to the assessment year 1957-58, the corresponding accounting period being the year ending on March 31, 1957. The assessee derived income under the heads 'salary, property and share income from business'. He filed a return declaring a total income of Rs. 9,518.

3. When the assessment proceedings were pending, the Income-tax Officer came to know of the fact that the assessee was found in possession of 2,000 tolas of gold and that in the month of February, 1957, the Central Excise authorities had seized the gold as contraband. On the basis of the said information the Income-tax Officer examined the assessee on the 3rd of March, 1958, and asked the source of money for the purchase of the said gold. It is relevant to state that the assessee is not a leader in gold. When questioned by the Income-tax Officer, the assessee told that he had purchased the gold for the first time on 2nd or 3rd February, 1957, for Rs. 1,80,000 from a broker in Calicut, that he had borrowed a sum of Rs. 1,75,000 from Bombay Mountains through a broker by name Gangaram. He offered to furnish their addresses. Therefore, the Income-tax Officer called upon the assessee to furnish the details of his borrowings from which he had purchased the gold in question. In answer to that the assessee filed there statements, annexures 'A',. 'B'. and 'C' to the statement of the case, showing the particulars of the amounts borrwoed, the persons from whom they were borrowed through the broker, Gangaram & Co., the dates on which the amounts were received by the assessee and the address of the lenders.

4. The Income-tax Officer, not being satisfied with the explanation of the assessee and the statements furnished by him as referred to above, wrote to the assessee on 21st October, 1959, as follows :

' Sub. - Evasion of tax - regarding.

It is seen that in your statement regarding the sources for the purchase of gold for Rs. 1,80,000 you have stated that the amount was taken as loan from for Rs. 1,80,000 you have stated that the amount was taken as loan from one, M/s. Gangaram & Co., No. 7, Dhanji Street, Bombay. A letter was sent to the party in the address furnished by you. There has been no reponse. Enquiries were made through the Income-tax Officer, Bombay. It is seen that there is no party by the above name in Bombay. In the circumstances, I have to hold that the explanation given by you is incorrect, and, therefore, I will have to treat the entire amount as your suppressed income. You may prove by evidence, if any, that it is a genuine transaction.

The case is posted to October 29, 1959.'

5. When the case came up for further enquiry before the Income-tax Officer, the assessee gave particulars as to his wealth from March 1, 1949, to March 31, 1957. The said wealth statement is annexure 'D' to the statement of the case; the gold purchased for Rs. 1,80,000 and liabilities for Rs. 1,80,000 are shown in the said statement. After making the investigation and enquiry referred to above and after hearing the assessee, the Income-tax Officer concluded his assessment order dated November 24, 1959, accepting the return of income of Rs. 9,518. However, no reference was made to the alleged borrowings for purchase of gold in the month of February, 1957.

6. Subsequently, the Income-tax Officer sought permission of the Commissioner of Income-tax for initiating proceedings for reassessment under section 147(a) of the Act.

7. The permission sought was accorded and the notice under section 148 of the Act was served on the assessee on April 27, 1963. The assessee filed a return under various heads as originally assessed. He also raised objections to the reassessment questioning the validity of action taken under section 147(a) and also on the merits.

8. The Income-tax Officer rejected the legal contention of the assessee concerning jurisdiction, and on merits he held that the assesse had purchased the gold with his own money from undisclosed sources and consequently added a sum of Rs. 1,80,000 as income from undisclosed sources.

9. The assessee then preferred an appeal to the Appellate Assistant Commissioner. He rejected the assessee's contention that the proceedings do not fall within the purview of section 147(a) of the ACt. However, he set aside the assessment and remitted the case back to the Income-tax Officer to make a fresh assessment in accordance with law after placing before the assessee all the materials which had been gathered or which may be gathered and allow a reasonable opportunity of rebutting the case against him. The assessee not being satisfied with the said order preferred I. T. A. No. 32/12 of 1966-67 before the Income-tax Appellate Tribunal, Madras Bench A.

10. The Tribunal on examination of all materials of the came to the conclusion that they do not find any ommission or failure on the part of the assessee and he had disclosed fully and truly all the material facts necessary for the assessment for the year under consideration in the original assessment proceedings. The substance of the finding of fact by the Tribunal are : (a) that all materials and full information as to purchase of gold and the source of the money for the said purchase were furnished to the Income-tax Officer by the assessee ; (b) that there is clear evidence of the Income-tax Officer having applied his mind to the explanations offered and the statements and other particulars of the borrowings furnished by the assessee; (c) further that the Income-tax Officer had even doubted in the first instance the genuineness of the explanations offered by the assessee, but had later decided not to add any amount as income from undisclosed sources.

11. On the findings of facts the Tribunal came to the conclusion that there being no ommission or failure on the part of the assessee to give full and complete details of the purchase of the gold and the sources of the money for purchase, the department was not justified in adding the sum of Rs. 1,80,000 after re-opening the assessment. In that view the Tribunal considered it unnecessary to go into other aspects of the case.

12. The department aggrieved by the order of the Tribunal sought the above reference.

13. The question is whether the view taken by the Tribunal is right. The reassessment proceedings in the instant case were taken under section 147(a) of the Act. To confer jurisdiction under the said provision to reopen an assessment two conditions have to be satisfied.

(i) The Income-tax Officer must have reason to believe that income has escaped assessment; and

(ii) he must have reason to believe that such escapement is by reason of omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year.

14. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer issues a notice for assessment or reassessment of escaped income beyond a period of four years.

15. In the instant case the first condition has been satisfied. It is not the case of the department that the Income-tax Officer had reason to believe that the escapement of income is by reason of the omission or failure on the part of the assessee to make a return. Their case was that the escapement is by reason of the omission or failure to disclose fully and trully all material facts necessary for his assessment for the relevant year. What constitutes ' omissions or failure to disclose fully and truly all material facts necessary for his assessment for the relevant year' has been laid down by the dictum of the Supreme Court in the leading case of Calcutta Discount Co. Ltd. v. Income-tax Officer : [1961]41ITR191(SC) . The Supreme Court has not in any subsequent case departed from the law as laid down in the Calcutta Discount Company's case : [1961]41ITR191(SC) . The principles laid down therein were applied to the facts and circumstances of each case as they arose and the cases were decided.

16. In the Calcutta Discount Company's case : [1961]41ITR191(SC) , that is what the Supreme Court has stated :

' The words used are 'ommission or failure to disclose fully and trully all material facts necessary for his assessment for that year'. It postulates a duty on every assesses 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 assesee, require to know all the facts which help him in comment 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.'

17. In Commissioner of Income-tax v. Bhanji Lavji : [1971]79ITR582(SC) , the principles laid down in Calcutta Discount Company's case, : [1961]41ITR191(SC) , were applied to the facts of the case under appeal. In the course of the judgment this is what Shah C.J. has stated :

'The Income-tax Officer may, if he is satisfied that on account of failure on the part of the assessee to disclosed fully and truly all material facts necessary for the purpose of assessment, income has escaped assessment, he may assess or reassess the income. But when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for reassessment.'

18. In Commissioner of Income-tax v. Burlop Dealers Ltd., : [1971]79ITR609(SC) , which was a case under section 34 (1) (a) of the Indian Income-tax Act, 1922, this is what Shah C.J. stated :

' 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 arise 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 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.'

19. In Commissioner of Income-tax v. T. S. P. L. P. Chidambaram Chettiar : [1971]80ITR467(SC) the facts were these :

'For the assessment year 1944-45, the assessee, Chidambaram Chettiar, as karta of his undivided Hindu family was assessed under section 23 (3) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as 'the Act'), on February 12, 1946, on a total income of Rs. 78,556 which, on appeal, was reduced to Rs. 53,153. When the assessment proceedings of the assessee were pending before the Income-tax Officer, Trichy, that Income-tax Officer received information from the Income-tax Officer, Erode, that the mortgagor had paid secretly to the mortgagee a sum of Rs. 1,50,000 during the year ended on April 1, 1944, and that the same was not included in the compromise decree. When the Income-tax Officer asked the assessee about the same, he denied having received any amount secretly. Apart from the information conveyed by the Income-tax Officer, Erode, the assessing officer had no other material before him to show that any amount had been paid secretly by the mortgagor to the mortgagee. Hence, on May 27, 1945, the Income-tax Officer made the following note in the order sheet :

'It is denied that there was any secret understanding not to show the payment of Rs. 1,50,000. The receipt of this amount is entirely denied.... The Income-tax Officer, Erode, should be asked to give further details and to ask the pattayagar to produce evidence of the payment. In any event this should come up for consideration only in the assessment year 1945-46, as only the excess over Rs. 2,76,000 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation'. After some time the assessing officer made further enquiry into the information given by the Income-tax Officer, Erode, and thereafter, he came to believe that a sum of Rs. 1,50,000 had escaped assessment by reason of the ommission of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1944-45.'

20. It was contended before the Supreme Court that there was no omission or failure on the part of the assessee to disclose material facts, and, therefore, section 34 (1) (a) of the 1922 Act was not attracted. That contention of the assessee was rejected by the Supreme Court. In rejecting the said contention this is what Hegde j. has stated : : [1971]80ITR467(SC) .

'In our opinion, the requirements of section 34 (1) (a) are fully satisfied. The fact that there was some vague information before the Income-tax Officer that the assessee's father had secretly received a sum of Rs. 1,50,000 from th mortgagor was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessee had stoutly denied that fact and the court records did not support that information. It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of section 34 (1) (a) particularly when the assessee had failed to place truly and fully all the material facts this (the receipt of Rs. 1,50,000) should come up for consideration only in the assessment year 1944-45, as only the excess over Rs. 2,76,000 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation' in the order sheet does not about to a decision taken by him. It may be noted that those remarks were not made in the order assessing the income of the assessee. It must also be remembered that the Income-tax Officer, at the time he made those remarks, was not satisfied about the correctness of the information given by the Income-tax Officer, Erode. Hence, these remarks must be treated as casual observations and not a decision taken on the basis of facts found.'

21. Shri S. R. Rajasekhara Murthy, learned counsel for the department, placed strong reliance on the above passage in support of his contention that the fact that the Income-tax Officer in the original assessment proceedings could have made further enquiry into the question of the genuineness of the borrowings for the gold purchase, but that fact did not take the case out of section 147(a) of the Act.

22. In our opinion, on the facts found by the Tribunal, the instant case is clearly distinguishable from Chidambaram Chettiar's case : [1971]80ITR467(SC) . It has to be noted that the Supreme Court came to the conclusion that no decision was taken on the basis of facts found in the original assessment proceeding regarding the receipt of Rs. 1,50,00. The observations in Chidambaram Chettiar's case : [1971]80ITR467(SC) have to be understood in the light of the clear principles enunciated by Chief Justice Shah in Commissioner of Income-tax v. Bulop Dealers Ltd. : [1971]79ITR609(SC) :

' Mere production of company's account books 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 147(a), 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 147(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he could later regard as erroneous.'

23. In the instant case the clear findings of the Tribunal are that all materials and full information as to the purchase of gold and the source of money for the said purchase were before the Income-tax Officer, who made the original assessment; the Income-tax Officer was not initially satisfied with the explanation offered by the assessee and the statements furnished by him; he even doubted the genuineness of the explanations and in fact proposed to assess the amount of Rs. 1,75,000 as suppressed income. After the hearing of the case posted to October 29, 1959, the Income-tax Officer was apparently satisfied with the evidence furnished by the assessee, and, therefore, decided not to add any amount to the returned. Although the original assessment order does not expressly refer to the alleged borrowings for purchase of gold, the Income-tax Officer should be deemed to have decided that there was no suppressed income of the assessee.

24. Shri. S. R. Rajasekhara Murthy, learned counsel for the department, sought to persuade us to accept the statement of law in Anne Nagendram and Bomma Reddy Venkayya and Co. v. Commissioner of Income-tax [1967] 66 I. T. R. 46 (A. P.). In the said decision there are statements which fully support the contention of the learned counsel, but we are told by Sri K. Srinivasan, learned counsel for the assessee, that the subject-matter of the said decision is pending in appeal before the Supreme Court. In our opinion, the matter is covered by the clear enunciation of th principles laid down by the Supreme Court in the decisions referred to above, and we are not persuaded to accept some of the observations made by the Andhra Pradesh High Court in the decision relied on by Sri S. R. Rajasekhara Murthy.

25. All the primary facts necessary for making the assessment were before the a Income-tax Officer. It is settled law that an assessee is bound to be quite candid in the matter of placing all material facts before the department without in any way trying to hoodwink the authorities and to escape taxation. Equally, the department is bound to discharge its statutory duty of making assessment by examining with care and caution all the materials that have been made available. If the assessee has done all that he could or need do in the matter, the assessing authority cannot quite perfunctorily act as he did in the instant case with the hope of expectation that any error which he might commit, by not making a proper assessment, could subsequently be rectified by resorting to the machinery of section 147 of the Act. The Income-tax Officer cannot certainly fall back on the said section to make good his own deficiencies in the first completed assessment.

26. For the reasons stated above, our answer to the question referred is in the affirmative and against the department. Reference ordered accordingly. The assessee is entitled to his costs. Advocate's fee Rs. 250.


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