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P. Munirathnam Chetty and P. Satyanarayana Chetty Vs. Income-tax Officer, C-ward and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition No. 786 of 1972
Judge
Reported in[1975]101ITR385(AP)
ActsIncome Tax Act, 1961 - Sections 147,148 and 151(2)
AppellantP. Munirathnam Chetty and P. Satyanarayana Chetty
Respondentincome-tax Officer, C-ward and anr.
Appellant AdvocateS. Dasaratharama Reddy, Adv.
Respondent AdvocateP. Rama Rao, Adv.
Excerpt:
.....he would never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. it cannot be said in the instant case that if the commissioner had read the present report he would not have come to the conclusion that this is a fit case under section 148. it is to be noticed that while the act requires that the commissioner should be satisfied, it does not require he should record his reasons for his sati it is true that if this court comes to the conclusion that the commissioner could not have been satisfied at all having regard to the facts and circumstances of the case, the court would not hesitate to say that the requirements of section 151(2) are not satisfied even though the commissioner might have said against column 8 that he was..........officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. he vaguely referred to certain communications received by him from the commissioner of income-tax, bihar and orissa, without mentioning the facts contained in those communications. all that he has said was that from those communications it appeared that the alleged creditors are name-lenders and the transactions are bogus. the income-tax officer did not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. he appeared to have only a vague feeling that they may be bogus transactions. further, in his report he stated, 'hence proper investigation regarding these loans is necessary'. in those circumstances.....
Judgment:

Alladi Kuppuswami, J.

1. This is an application for the issue of a writ of prohibition or any other appropriate writ restraining the Income-tax Officer, C-Ward, Chittoor, from proceeding further in pursuance of notice dated May 24, 1971. Under that notice, the Income-tax Officer stated that he had reason to believe that the income chargeable to tax for the assessment year 1965-66 has escaped assessment within the meaning of Section 147 and he proposes to reassess the income.

2. It is brought to my notice that subsequently the order of assessment was also passed and the assessee has preferred an appeal against the order of assessment to the Appellate Assistant Commissioner. Therefore, Sri Dasaratharama Reddy states that in the events that have happened the appropriate writ would be a writ in the nature of a writ of certiorari quashing the order of assessment instead of a writ of prohibition.

3. The main contention that has been urged by Sri Dasaratharama Reddy is that the requirements of Section 151(2) have not been satisfied inthis case. Under Section 151(2) no notice shall be issued under Section 148 after the expiry of four years from the end of the relevant assessment year unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. It is submitted, firstly, that the Income-tax Officer did not record any reasons that this is a fit case for the issue of such notice and, secondly, the Commissioner was not satisfied that it is a fit case for issue of such notice.

4. The relevant file has been placed before me by Sri P. Rama Rao, the learned counsel for the income-tax department. I find a report by the Income-tax Officer, Chittoor. In column 7, namely, 'brief reasons for starting proceedings under Section 147', it is stated 'please see separate sheet enclosed'. In that sheet the following reasons are given :

'Original assessment in this case for 1965-66 has been completed on a total income of Rs. 31,477 after adding certain routine inadmissibles to the extent of Rs. 3,513. The book results of the assessee-firm have been practically accepted. The assessee-firm disclosed a turnover of Rs. 9,96,053 and this has been acted upon. Subsequently, it came to light that the sales tax department determined the turnover of the assessee-firm at Rs. 10,34,743 as against the admitted turnover. The Commercial Tax Officer, Chittoor, levied a penalty of Rs. 9,596.50 for the assessee's default of suppression of turnover to the tune of Rs. 38,500.50. It has also been learnt on local enquiries that the assessee-firm is in the habit of suppressing the turnover by not accounting for certain purchases. I am, therefore, of the opinion that on account of the failure to disclose by the assessee-firm fully and truly all the material facts necessary for the purpose of computation of its correct total income, income chargeable to tax has escaped assessment. I shall propose to reopen the assessment under Section 147(a) of the Income-tax Act. I request that the Commissioner of Income-tax be pleased to accord necessary sanction for reopening the assessment for 1965-66.'

5. Column 8 is as follows: 'Whether the Commissioner is satisfied that it is a fit case for issue of notice under Section 148 ?' Against this column it is stated 'Yes'.

6. Having gone through the reasons given by the Income-tax Officer for starting the proceedings under Section 147, I am unable to agree with the contention of the petitioner that reasons have not been recorded. In this connection, the learned advocate drew my attention to Chhugamal Rajpal v. S.P. Chaliha : [1971]79ITR603(SC) . In that case the Supreme Court held that the report of the Income-tax Officer did not fulfil the requirements of Section 151(2). But, on a perusal of the facts of the case, it is found that they bear no resemblance to the facts of the present case. In that case, the SupremeCourt observed, the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. He vaguely referred to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa, without mentioning the facts contained in those communications. All that he has said was that from those communications it appeared that the alleged creditors are name-lenders and the transactions are bogus. The Income-tax Officer did not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appeared to have only a vague feeling that they may be bogus transactions. Further, in his report he stated, 'hence proper investigation regarding these loans is necessary'. In those circumstances the Supreme Court pointed out that the conclusion of the Income-tax Officer was that there was a case for investigation as to the truth of the alleged transactions which is not the same thing as saying that there are reasons to issue notice under Section 148. In this case, however, the Income-tax Officer refers to the order of the sales tax authority determining a turnover at a higher figure and levying penalty for the suppression of turnover. On the basis that the turnover has been suppressed he was prima facie entitled to assume on the strength of the order of the sales tax authorities, the Income-tax Officer had reasonable grounds to say that there was omission or failure on the part of the assessee to disclose fully and truly the material facts necessary for the purpose of computation of the correct income. This is not a case where the Income-tax Officer merely thought that it is a case only for investigation as was the case before the Supreme Court nor is there any vagueness about his report.

7. It is then contended that the Commissioner ought to have exercised his mind and he must have been satisfied independently that this was a fit case for initiating proceedings under Section 148 of the Act. By merely saying 'Yes' against the column No. 8, Sri Dasaratharama Reddy argues that the Commissioner acted only as a rubber stamp and did not exercise his mind. He referred again to the same decision of the Supreme Court in which this aspect also is considered. In that case also under column 8 the Commissioner had merely marked 'Yes'. The Supreme Court observed that the Commissioner as well as the Income-tax Officer appeared to have taken the duty imposed on them under the provisions of Sections 147 and 148 and 151 as of little importance and they had substituted the form for the substance. These observations of the Supreme Court will have to be considered in the context of the particular case with which they were dealing. As observed already they first came to the conclusion that the Income-tax Officer had no material before him which would satisfy the requirements of either Section 147(a) or Section 147(b) and the report submitted by him to the Commissioner did not mention any reason for comingto the conclusion that it is a fit case for the issue of a notice under Section 148. When in those circumstances the Commissioner merely put the word 'Yes' against the column 8, the Supreme Court observed that if only the Commissioner had read the report carefully he would never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148. It cannot be said in the instant case that if the Commissioner had read the present report he would not have come to the conclusion that this is a fit case under Section 148. It is to be noticed that while the Act requires that the Commissioner should be satisfied, it does not require he should record his reasons for his satisfaction. It is true that if this court comes to the conclusion that the Commissioner could not have been satisfied at all having regard to the facts and circumstances of the case, the court would not hesitate to say that the requirements of Section 151(2) are not satisfied even though the Commissioner might have said against column 8 that he was so satisfied. But, in this case, I am unable to say that the Commissioner could not have applied his mind or could not have been satisfied. The form like the one which is being used containing an endorsement merely saying 'Yes' would justifiably cause apprehension that the act of the Commissioner is a mechanical act. In order to obviate this impression and to infuse more confidence in the assessee, it would be proper if the Commissioner also briefly states why he has given his sanction to the proceedings under Section 147, thus avoiding all arguments in courts of law whether he applied his mind or he would have been satisfied in the circumstances of the case or not.

8. The writ petition is dismissed but in the circumstances without costs.

9. Mr. Dasaratharama Reddi very properly refrained from referring to the merits of the final order as that is the subject matter of an appeal before the Appellate Assistant Commissioner and confined himself only to the jurisdiction of the officer to reopen the proceedings under the impugned notice. This order will not preclude the petitioner from agitating every possible question which arises on the merits in the appeal before the Appellate Assistant Commissioner.


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