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Parimi Venkatasubba Rao Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Referred No. 3 of 1967
Judge
Reported in[1972]85ITR145(AP)
AppellantParimi Venkatasubba Rao
RespondentCommissioner of Income-tax
Appellant AdvocateD. Venkatappayya Sastry, Adv.
Respondent AdvocateT. Anantababu, Adv.
Excerpt:
.....- income tax authorities justified in estimating present capital for investment on basis of past capital, income and expenditure - held, income-tax officer did not indulge in any guess-work while making said estimation. - - the income-tax officer was not satisfied with the correctness of the accounts produced by the assessee. this clearly shows that the cash, if any, with the assessee is kept secretly. he pointed out that during the assessment years 1952-53 and 1953-54 the assessee never produced any cash books and that when in the course of assessment proceedings for 1956-57 the inspector visited the premises of the assessee to verify cash balance the assessee would not allow him to do so on the ground that it would be inauspicious to open the iron safe. it is well settled that..........authorities was based on mere suspicion and surmise and that there was no material relating to the year of assessment of the basis of which the income-tax authorities could estimate the capital at rs. 1,00,000. he submitted that the income-tax authorities were wrong in estimating the capital of money-lending business solely on the basis of the past history of the assessee. in support of his contention the learned counsel relied on raghubar mandal harihar mandal v. state of bihar, : [1958]1scr37 and bansidhar onkarmall v. commissioner of income-tax, [1953] 23 i.t.r. 353, 360, 361 (orissa). in the first case, the sales tax officer rejected the accounts of the assessee and estimated the gross turnover at rs. 3,00,000 for the quarter. the order did not show that the assessment was made with.....
Judgment:

Chinnappa Reddy, J.

1. The assessee won a prize of Rs. 3,40,000 in the Derby Sweep in 1947. The principal question in the reference is whether the income-tax authorities were right in holding that, out of this amount, a sum of Rs. 1,00,000 was available to the assessee for investment in his money-lending business during the assessment years 1956-57, 1957-58 and 1958-59. According to the assessee a sum of Rs. 80,000 alone was available to him for investment in the money-lending business at the commencement of the assessment year 1956-57 and in the next two years it dwindled to Rs. 44,000 and Rs. 30,000 only. The Income-tax Officer was not satisfied with the correctness of the accounts produced by the assessee. He observed :

'It is to be seen that the assessee has not been maintaining the accounts properly showing the opening cash balance and the receipts and the expenditure from day-to-day. The cash book is not balanced to cash and as a matter of fact all the receipts are not noted therein. It shows almost nil cash balance on several days of the year and also negative cash balance. This clearly shows that the cash, if any, with the assessee is kept secretly. For instance there is a deposit of Rs. 2,000 in Andhra Bank on March 7, 1966. The assessee pleads that this was out of the sum of Rs. 4,728-13-1 realised on February 19, 1955. But, it is to be seen that from February 19, 1955, to March 7, 1956, the expenditure was as much as Rs. 6,503 and the assessee had no balance with him practically to make this deposit.'

2. The Income-tax Officer then proceeded to estimate the income of the assessee. Taking into account the amount of prize won by him in 1947 the income received by him in the previous seven years from the money-lending business, the income from other property, the expenditure incurred by the assessee towards his investments and household expenditure, etc., the Income-tax Officer concluded that the assessee must have in his possession capital of Rs. 1,70,000. He treated Rs. 1,50,000 as capital of the money-lending business and estimated the income thereon at 10 per cent., i.e., at Rs. 15,000. The assessee appealed to the Appellate Assistant Commissioner of Income-tax. Before the Appellate Assistant Commissioner the assessee filed a statement of receipts and expenditure from January 1, 1947, to March 31, 1957. According to this statement the capital left with the assessee at the end of the period was a sum of Rs. 35,745. The Assistant Commissioner directed the Income-tax Officer to examine the statement with reference to the entries in the cash books, etc., and submit a report. The Income-tax Officer accordingly examined the matter afresh in the light of the assessee's statement. He pointed out that during the assessment years 1952-53 and 1953-54 the assessee never produced any cash books and that when in the course of assessment proceedings for 1956-57 the inspector visited the premises of the assessee to verify cash balance the assessee would not allow him to do so on the ground that it would be inauspicious to open the iron safe. The Income-tax Officer further pointed out that though the assessee claimed that a sum of Rs. 37,000 had been expended towards construction of house for his daughter the same house was valued at Rs. 22,000 when a suit was filed to recover possession of the house. The Income-tax Officer also thought that two amounts of Rs. 5,200 and Rs. 7,000 said to have been expenses incurred on the daughter and on litigation could not be accepted. He also stated that no vouchers were produced for several other expenses mentioned in the statement of the assessee. The Income-tax Officer found that the assessee had grossly under-estimated his agricultural income. Taking into account all these circumstances the Income-tax Officer held that the estimate of the money-lending capital at Rs. 1,50.000 was correct. The Appellate Assistant Commissioner agreed with the Income-tax Officer that it was a clear case for the application of the proviso to Section 13 of the Indian Income-tax Act, 1922. He, however, thought that the estimate of capital may be reduced to Rs. 1,00,000. On further appeal by the assessee the Income-tax Appellate Tribunal upheld the estimate of the Appellate Assistant Commissioner observing, however, that the estimate erred on the side of being very lenient. The Tribunal reduced the rate of interest to 7 per cent. and thus the estimate of income was reduced to Rs. 7,500. On the application of the assessee the Tribunal has referred to us the following question :

'Whether, on the facts and circumstances of the case, the Tribunal is justified in sustaining the estimate of one lakh of rupees as the capital invested in money-lending business ?'

3. Sri Venkatappayya Sastry, learned counsel for the assessee, contended before us that the estimate of the income-tax authorities was based on mere suspicion and surmise and that there was no material relating to the year of assessment of the basis of which the income-tax authorities could estimate the capital at Rs. 1,00,000. He submitted that the income-tax authorities were wrong in estimating the capital of money-lending business solely on the basis of the past history of the assessee. In support of his contention the learned counsel relied on Raghubar Mandal Harihar Mandal v. State of Bihar, : [1958]1SCR37 and Bansidhar Onkarmall v. Commissioner of Income-tax, [1953] 23 I.T.R. 353, 360, 361 (Orissa). In the first case, the Sales Tax Officer rejected the accounts of the assessee and estimated the gross turnover at Rs. 3,00,000 for the quarter. The order did not show that the assessment was made with reference to any evidence or material, but on the other hand showed that he indulged in pure guess and made an assessment without reference to any evidence or any material at all. Their Lordships of the Supreme Court observed :

'No doubt it is true that when the returns and the books of account arc rejected, the assessing officer must make an estimate, and to that extent he must make a guess ; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russell of Killowen again, 'he must make what he honestly believes to be a fair estimate of the proper figure of assessment' and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. In the case under our consideration, the assessing officer did not do so, and that is where the grievance of the assessee arises.'

4. This case cannot be of any assistance to the assessee. In the present case it cannot be said that the estimate is not based on any material. The income-tax authorities estimated the capital of the money-lending business after taking into account the original capital available with the assessee, the income received and the expenditure incurred in the past years.

5. In the second case, the assessment proceeded entirely on the basis of the 'past history' of the assessee. The authorities held that the source from which the assessee derived income in the past had not been shown to have ceased to exist, that the burden of proving that the source had disappeared in any manner was on the assessee and that since the assessee did not discharge the burden the authorities were entitled to assume that the source was still available to the assessee. The Orissa High Court held that the view taken by the income-tax authorities was wrong. Jaganna-dhadas C.J. observed :

'We have no doubt that this view taken by the income-tax authorities based on the alleged presumption is erroneous in law. 'Past history' may be legitimate material, but that is not sufficient by itself, without more, to justify assessment in a particular year. There must be some material relatable to the accounting year which taken with the 'past history' may reasonably entitle the income-tax authorities to hold that there must in fact have been some concealed income during the accounting year and which is liable to assessment .... To base an assessment barely on a presumption relating to capital found to exist in some previous year appears to us to be unwarranted. The income-tax authorities have proceeded on the view that the burden of proof is on the assessee to show that the 'past capital' has disappeared, for which we can find no justification, and we have been shown no authority. It is well settled that the assessment of any particular year must be based not on mere suspicion or bare guess, but on legitimate material from which a reasonable inference of income having been earned during the accounting year in question can be drawn, and that the initial burden of finding such material, however slight, is on the income-tax authorities and not on the assessee. In the present case all the materials before the income-tax authorities are, (i) the existence of 'past capital' and (ii) the fact that the assessee had not filed a wealth statement for the accounting year though called upon to do so. We do not think that these facts are sufficient to shift the burden of proof on to the assessee. The facts do not necessarily justify any prima facie inference that the past capital produced income during the accounting year.'

6. With great respect to Jagannadhadas C.J., while we agree that an assessment cannot be based on mere suspicion or bare guess we are not prepared to agree that past history must invariably be supported by other material to justify assessment in a particular year. The past history may be so complete in itself as to lead to one and only one legitimate inference. If in the past the assessee had a source from which he had a large income but came forward with the plea that in the assessment year the source had dried up it would be open to the income-tax authorities to reject the plea having regard to the 'common course of natural events, human conduct and public and private business'. Any man of ordinary prudence would be entitled to draw such a presumption. In the present case, having regard to the capital originally available with the assessee, the income and expenditure in the past, the income-tax authorities estimated the capital available for the money-lending business during the assessment year at Rs. 1,00,000. We cannot say that the income-tax authorities indulged in any guess-work or that the estimate is based on any irrelevant consideration.

7. The next submission of Sri Sastry was that the Income-tax Officer himself had accepted the claim of the assessee that a sum of Rs. 80,000 alone was available as capital of the money-lending business during the assessment proceedings of the assessment year 1955-56, and it was, therefore, incompetent for the Income-tax Officer to go back upon his previous finding and make a higher estimate during the years in question. We are not prepared to agree with the learned counsel. It is now well-settled that the principle of res judicata is not applicable to decisions of the income-tax authorities. 'The assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all the years' : Per Hanworth M.R , in Commissioners of Inland Revenue v. Sneath, [193(sic) 17 T.C. 149(C.A.). We do not expect the income-tax authorities to arbitrarily and capriciously depart from the findings arrived at in past years. If they do so we will certainly interfere in appropriate cases when the matters come to us. But that is not to say that the income-tax authorities can never depart from their previous findings. If new facts come to light or if an Income-tax Officer finds that his predecessor failed to take into consideration some material facts though available he would certainly be entitled to arrive at his own decision unhampered by the decision of his predecessor, of course, after giving due weight to what was said by him. The learned counsel for the assessee relied upon a judgment of Chagla C.J. in H.A. Shah & Co. v. Commissioner of Income-tax, [1956] 30 I.T.R. 618, 625 (Bom.). The observations of Chagia C.J. in this case appear to support the view just expressed by us. He observed :

'Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second Tribunal and the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration. It may be said that even though the first Tribunal might take into consideration all the facts, still its decision may be so erroneous as to justify the subsequent Tribunal in not adhering to that decision. In a case like this, which indeed must be an extreme case, it could be said that the decision of the first Tribunal was a perverse decision, and if the decision of the first Tribunal was either arbitrary or perverse it would justify the second Tribunal in departing from the decision arrived at by the first Tribunal. Therefore, in our opinion an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence.'

8. It is not suggested that in the assessment proceedings for the assessment year 1955-56 the Income-tax Officer had taken into consideration the material which the Income-tax Officer took into consideration in the later years. We find no substance in the contentions advanced on behalf of the assessee. We, therefore, answer the question referred to us in favour of the department. The assessee will pay the costs of the reference.


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