MANCHAND J. - This a case stated under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The questions referred are :
'(1) Whether, on the facts and in the circumstances of the case, the receipt of notice by Ram Dayal, the munim of the assessee-Hindu undivided family, constituted a proper and valid service on the assessee ?
(2) Whether, on the facts and in the circumstances of the case, action under section 34(1) (a) was legal and valid ?'
The material facts are these : The relevant assessment year is 1945-46, the previous year being the Diwali year ending 16th October, 1944. On the first day of the succeeding accounting year, i.e., on the 17th of October, 1944, relevant for the assessment year 1946-47, there were three credits in the names of three members of the Hindu undivided family totalling Rs. 65,000. These credits were : (1) Rs. 50,000 in the name of Surajmal Surajram, (2) Rs. 10,000 in the name of Krishnadas, and (3) Rs. 5,000 in the name of Dharam Das. The assessee is a Hindu undivided family which carries on business in the trade name of M/s. Mithoo Lal Tek Chand at Orai, District Jalaun. The credit entries came to light in the course of the assessment proceedings for the assessment year 1946-47. The Income-tax Officer called for an explanation. It was explained that the sum of Rs. 65,000 had come from previous withdrawals made during 1936-1940, and which were removed from Orai and kept tucked away in Jaisalmer, Rajasthan, the original home of the assessee. The explanation was disbelieved. The sum of Rs. 65,000 was, therefore, added in the assessment for 1946-47, as income of the assessee from an undisclosed source. When the matter was taken up to the High Court, upon reference, the High Court considered that the entry being on the first day of the year of account, relevant for the assessment year 1946-47, it was not possible to conceive of its being the income of that assessment year (the case is reported as Mithoo Lal Tek Chand v. Commissioner of Income-tax, and it held that it could not be the income of the assessment year 1946-47.
Thereupon, on the 25th March, 1953, a notice under section 34/22(2) of the Act was issued in the trade name of the assessee and addressed to its principal place of business at Orai. On the 14th of November, 1953, notice under section 23(2) was issued. On the 28th of November, 1953, the assessee filed a return, not under protest, showing the income as had been originally shown for the assessment year 1945-46. No objection as to the mode of service was taken at any time before the Income-tax Officer. He, having considered the explanation of the assessee which was the same as had been given earlier, added by an assessment order dated 22nd March, 1954, the said sum of Rs. 65,000 as income from an undisclosed source for the assessment year 1945-46. In the appeal to the Appellate Assistant Commissioner, for the first time, the assessee took an objection to the notice under section 34/22(2) as not having been addressed to the manager or any adult male member of the family as required by section 63, sub-clause (2), of the Act - the notice having been served on the munim of the assessee by name Ram Dayal. The Appellate Assistant Commissioner after enquiries held that the impropriety and irregularity, if any, in the service of the notice must deemed to have been waived because the assessee had filed the return without any protest. As regards the service on the munim, Ram Dayal, he was of the view that it has been 'stage managed' by the karta so as to leave a loophole for raising an objection later on. This conclusion was reached because of the admitted fact that all the members of the assessee-family were present when the postman had brought the notice and there was no good and sufficient reason why the postman should pick upon the munim, leaving out the members of the family, to have the acknowledgment due receipt signed by him. He was also satisfied that section 34(1) (a) was applicable as the assessee has failed to fully and truly disclose in the return filed or during the assessment proceedings for the relevant assessment year 1945-46 the existence of any such amount as capital or otherwise in its possession.
On further appeal, the Appellate Tribunal upheld the finding of the Appellate Assistant Commissioner and found as a fact that Amar Chand had deliberately, for an ulterior purpose, got the munim to sign the acknowledgment due receipt and further that the said munim, Ram Dayal, was an authorised agent to receive notices from the income-tax department. It also agreed with the view of the Appellate Assistant Commissioner that no full and true disclosure had been made in the accounting section 1944-45, relevant for the assessment year 1945-46, of the fact that some money was lying at Jaisalmer representing earlier withdrawals during the assessment years 1936 to 1940, and which had been brought into the books of account on the 17th of October, 1944, which fell within the financial year ending on 31st March, 1945, relevant for the assessment year 1945-46. Hence, this reference at the instance of the assessee.
The first question need not detain us as it is concluded by findings of fact given by the Tribunal that there was in fact service upon the manager and the adult members of the family, though the acknowledgment due receipt was signed by the munim, Ram Dayal, and in any event that Ram Dayal was an authorised agent to receive notices on behalf of the assessee. In this view the matter question No. 1 has to be answered in the affirmative and against the assessee.
As regards question No. 2, the answer will depend on whether the assessee fully and truly disclosed all the primary facts necessary for its assessment for the relevant assessment year 1945-46. The material portion of section 34(1) (a) reads :
'..... the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, to have been under-assessed....'
There are two alternative sets of circumstances in which section 34(1) (a) may be invoked. One is the failure to file a return of income and, secondly, failure to disclose fully and truly all material facts necessary for the assessment of that year. The first circumstance, in the present case, has no application as a return in fact was filed for that year, which is the relevant assessment year 1945-46. Therefore, what has to be seen is whether the requirements of the second limb of section 34(1) (a) were fulfilled before the Income-tax Officer took action. The burden, undoubtedly, was upon the assessee to disclose fully and truly all material facts for that year. It will not avail the assessee to say that he had disclosed the fact fully and truly for some other year. Looking at the original assessment proceedings for 1945-46, there cannot be the slightest doubt that no facts, primary or otherwise, were disclosed in respect of the three cash credits introduced in the financial year 1944-45, relevant to the assessment year 1945-46.
That being the position, the question that would fall to be considered is whether the assessee was obliged to disclose or at least to have drawn the attention of the Income-tax Officer to these entries in the proceedings for the assessment year 1945-46. In other words, were these entries at all relevant for the assessment year 1945-46. The obligation, undoubtedly, to disclose fully and truly all material facts is fairly and squarely cast by the section upon the assessee and if he considers that it was not necessary to disclose any fact for a particular year then he does so at his own risk. Subsequently, if any such fact is brought to the notice of the Income-tax Officer and he comes to the reasonable belief that the cash credits were the income from and undisclosed source for that accounting year, it may have to be held that the requisite condition for invoking section 34 was fulfilled. This may lead to hardship in some cases but not where the assessee, as in the present case, apparently objected in the course of assessment proceedings for 1946-47 that, even if the impugned credits could be held to income for an undisclosed source, they could not be presumed to be necessarily the income relating to the assessment year 1946-47 and of earlier years. The assessee cannot turn round, when proceedings under section 34(1) (a) are taken for 1945-46, and say that there was no obligation cast upon it to disclose the existence of impunged credits as part of its income for the assessment year 1945-46 or any other year. That may be tantamount to be blowing hot and cold in the same breath. On facts, it had already been held earlier that the receipts constituted concealed income, and the only question in any detail as there is already a Bench decision of this court where, more or less in similar circumstances, the court answered the question against the assessee holding that the provisions of section 34(1) (a) were validly applied. That case is Jagdish Prakash Kaushik v. Commissioner of Income-tax. There instead of the inclusion of the cash credit as income from an undisclosed source having been deleted on the ground that they occurred on the 1st day of the accounting year relevant for that assessment year, the amount added was deleted on the ground that for income from an undisclosed source the financial year and not the assessees previous year for income from business was the one in which the income fell to be assessed. As the credits appeared in the assessees books of account for the accounting year relevant to the assessment year 1947-48, the Income-tax Officer had added the income therefrom as income from an undisclosed source. On appeal, the Appellate Assistant Commissioner deleted the additions so made on the ground that the amounts fell to be assessed on the basis of the previous year, being the statutory financial year. Thereupon, the Income-tax Officer had initiated proceedings under section 34 of the act, and added the income for the earlier assessment year 1946-47. Once again the Appellate Assistant Commissioner set aside the reassessment on the ground that section 34(1) (a) was not applicable on the facts of the case. On appeal by the Income-tax Officer to the Tribunal, the latter reverse the order of the Appellate Assistant Commissioner and held : (1) that the assessee had not disclosed fully all material facts necessary for the assessment year 1946-47, and (2) that the mere fact that certain entries regarding cash credits might be found in the books did not amount to disclosure of those entries to the Income-tax Officer. The High Court agreed with the Tribunal. It held that there was a finding of fact recorded by the Tribunal that the assessee had failed to disclose fully and truly all material facts and this finding was binding on the High Court. It also went on endorse the view that mere entries in the account books were not, in themselves, the full and true disclosure required under sub-clause (1) (a) of section 34. The view taken by the aforesaid Division Bench has been followed in several unreported decisions by single judges (see Writ petition No. 2182/1962 decided on the 24th July, 1963, Civil Misc. Writ petition No. 849/1962, decided on September 9, 1963, and Civil Misc. Writ Petition No. 1938/1964 decided on January 21, 1965). It has been laid down by the Supreme Court that a Division Bench, must follow the decision of an earlier Division Bench but if it does not agree with the view that has been taken, then the only course is to make a reference to a larger Bench. On the facts and circumstances of this case, we see no compelling reason to adopt the latter course. Respectfully following the decision in Jagdish Prakash Kaushiks case, we would answer the second question also in the affirmative and against the assessee.
The reference is answered accordingly. The assessee will pay the costs of the Commissioner, which we assess at Rs. 200. Counsels fee is also assessed at Rs. 200.
M. H. BEG J. - I have had the advantage of going through the answers given by my learned brother, Manchanda J., to the two questions referred to us. I respectfully agree with the answers proposed. I have nothing to add to the answer already given to question No. 1. As regards the answer to question No. 2, I would like to state some reasons for coming to the same conclusion from a slightly different angle.
As I understand the second question framed, It think that all that we are called upon to do is to determine whether, on the facts and circumstances of the case, action under section 34(1) (a) of the Indian Income-tax Act was legal and valid. The word 'action presumably refers to the initial action. The question has, however, been argued before us as though we were also required to give our opinion on the question whether the conclusion arrived at by the Tribunal, as a result of the action taken, was also correct. The two questions appear to me to be different. I will, however, give my answer on the assumption that 'action' taken under section 34(1) (a) of the Act could include the conclusion arrived at by the income-tax authorities. Of course, the conclusion can only be held by us to be vitiated if there was an error of law in arriving at that conclusion and not merely because a different conclusion could have been arrived at by us if we were to consider the question as a court of appeal on facts.
The question whether action under section 34(1) (a) of the Act was legally justified in the circumstances similar to those of the case before us came up before this court in Raghubar Dayal Ram Kishan v. Commissioner of Income-tax. That was a case where the assessees explanation about two cash credit entries, one for Rs. 12,745 made on December 12, 1953, and another of Rs. 14,332 made on January 13, 1954, as income from sale of ornaments was disbelieved, and the amounts were assessed and taxed as undisclosed income for the assessment year 1955-56. In second appeal, the Income-tax appellate Tribunal held that the income from an undisclosed source could properly relate to the financial year ending on 31st March, 1954, so that these deposits should not have been assessed to tax in the assessment year 1955-56. After that, the Income-tax Officer took action under section 34 of the Act on the footing that the amounts could be taxed as concealed income for the assessment year 1954-55. The assessees objection that no action could be taken under section 34(1) (a), on the facts of the case, was rejected. When the case went to the Appellate Tribunal again in second appeal, the Appellate Tribunal held that the case would not fall under section 34(1) (a) but would come within the ambit of section 34(1) (b) of the Act, and it converted the proceeding into one, under section 34(1) (b) of the Act. When the matter came before this court, upon a reference, it was held by Desai C.J. and Manchanda J. that the case would fall under section 34(1) (a), although the view taken by my learned brother, Manchanda J., was that the action would also be covered by section 34(1) (b) of the Act which, in his opinion, could be quite appropriately applied to such a situation. There was a difference of opinion between Desai C.J. and my learned brother, Manchanda J., on the question whether the Tribunal could convert the proceedings under section 34(1) (a) of the Act into proceedings under section 34(1) (b) of the Act, but their Lordships agreed that section 34(1) (a) could apply to such a case. Inasmuch as section 34(1) (a) has been applied to the case before us in very similar circumstances, I think we are bound, by the earlier decision mentioned above, to take the view that the case before us would also be covered by section 34(1) (a) of the Act.
The case of the assessee before us, arising out of three cash credit entries, totalling up to Rs. 65,000, appearing suddenly on 17th October, 1944, came up on an earlier occasion too before this court through a reference arising out of the proceedings for the assessment year 1946-47. It was held then that this huge amount appearing suddenly on 17th October, 1944, the first day of the relevant accounting year, could not be attributable to profits during the accounting year beginning from 17th October, 1944, as so much profit could not be made on a single day. The presumption that it was made during the assessment year 1946-47 was, therefore, held to be unreasonable, although this court came to the conclusion that the burden was upon the assessee to show the true nature of the receipts and why he claimed that these were not taxable income at all. The assessees explanation was, as the Appellate Tribunal has pointed out, then held by this court to have been correctly rejected by the Tribunal (see Mithoo Lal Tek Chand v. Commissioner of Income-tax). On that earlier occasion, this court had only held that it would be unreasonable to presume that the whole amount could be profits of the assessment year 1946-47. It mentioned that it was not called upon to decide whether these were profits made in the previous accounting year. It is as a result of the view taken by this court on the earlier occasion that proceedings under section 34(1) (a) of the Act were instituted against the assessee, and the matter has consequently now come up for consideration before us whether these proceedings were valid and legal. In view of the decision mentioned above in Raghubar Dayal Ram Kishan v. Commissioner of Income-tax (I. T. R. No. 88 of 1963, finally disposed of by this court on August 22, 1966), I think, it is not open to us now hold in this case that the proceedings under section 34(1) (a) were invalid.
On the other part of the question, whether the inference drawn by the income-tax authorities that the amount of Rs. 65,000 was made during the assessment year 1945-46, our attention was invited to the reasons given by the Tribunal for arriving at a finding of fact. The contention on behalf of the assessee before the Tribunal that this amount may relate to any period between 1935 and 1940, noted by the Tribunal, was repeated before us. The assessee, without disclosing where the income from, was trying to play hide and seek. It had not disclosed the source of the cash receipts even after its explanation had been definitely rejected as untrue. It had not explained how such a huge amount could be retained for a long period by a set of persons engaged in business without employing it for the purpose of earning a profit as they could very well have done. The presumption is that the assessee acts with common prudence in carrying on business. Therefore, it could be presumed that it had not kept these sums of money 'unemployed' so to speak, or idle, and locked up without earning any income at all. It could be certainly presumed that some income for the assessment year 1945-46 was concealed. The question whether the whole amount of Rs. 65,000 could relate to the income for the assessment year 1945-46 was undoubtedly a difficult question to decide, but, where an assessee deliberately fails to disclose the correct source of the receipts of money, it can reasonably be presumed to be the income of the preceding year unless the contrary is shown. No facts were shown by the assessee to indicate that it was not possible for him to earn this income during the preceding year. The view taken by this court on the earlier occasion in favour of the assessee was based upon the patent impossibility of making such a large sum of money in one day. There is no such inherent unreasonableness in the assumption that the amount must have been earned by the assessee during one whole preceding year. It does not appear that the Tribunal took any irrelevant facts and circumstances into account in arriving at the inference that Rs. 65,000 was the income of the assessment year 1945-46. The extent to which presumptions could be made by the income-tax authorities in such cases has been considered repeatedly by the Supreme court. I may only mention the following cases : A. Govindarajulu Mudaliar v. Commissioner of Income-tax, Laxmichand Baijnath v. Commissioner of Income-tax, Mansfield & Sons v. Commissioner of Income-tax and S. Hastimal v. Commissioner of Income-tax. These presumptions are of the nature dealt with in section 114 of the Evidence Act. They are presumptions of fact. Presumptions, when they arise at all, fill up gaps in evidence. They can be employed when absolutely clinching evidence may be lacking. Unless it could be shown that the income-tax authorities acted unreasonably in raising a presumption in such a case, we cannot hold that they erred in law in arriving at a findings of fact by employing the presumption. It has not been shown to us, as already indicated, that the income-tax authorities acted unreasonably in the present case. I am, therefore, in complete agreement with the answer given by my brother to the second question and concur in the order as to costs also.