One writ petition has been filed in respect of the notices under sections 147 and 142 of the Income-tax Act, 1961, in respect of the assessment years 1957-58 and 1958-59. One petition in respect of two such notices for two separate assessment years does not lie and, therefore, Mr. R. K. Gulati, the learned counsel for the petitioners, elected to confine the petition only to the assessment year 1958-59.
The relief sought is for the quashing of the orders, annexures 'F-1' and 'H-1', under sections 147(1) and 142 of the Act for the assessment year 1958-59.
The facts leading up to this petition are these. The petitioner was one of the partners of the firm which carried on business of brick manufacturers in the name and style of Messrs. Krishna Brick Field, Sulem Sarai, Allahabad. The petitioner had an as. 0-7-0 share in the profits of the aforesaid firm in the relevant year of account. Two amounts of Rs. 6,380 and Rs. 5,936 were found credited in the books of the firm in the personal account of the petitioner on the 22nd February, 1957, and on the 1st of November, 1957, respectively. The firm closed its accounts on the 31st October each year and accordingly the two amounts mentioned in the preceding paragraph fell within the previous year relevant to the assessment years 1958-59 and 1959-60, respectively. The petitioner in respect of his personal assessment also adopted the same previous year. In the return for 1958-59, the petitioner showed the amount of Rs. 6,380 in Section D, Part I, of the return and claimed that this sum represented the sale of ornaments and was therefore a capital receipt. The sum of Rs. 5,936, with which the present petitioner is concerned, was not, however, shown in Section D of Part 1 of the return filed for the assessment year 1959-60.
The assessment, however, for both these years was taken up simultaneously and in the course of the assessment proceedings the actual receipts in respect of the alleged sale of ornaments, which took place on the 1st of November, 1957, were also filed along with the receipts for the sale which took place on the 22nd February, 1957. The assessment order dated the 29th March, 1963, for the assessment year 1958-59 clearly mentions :
'No doubt I myself had made similar enquiries during the course of the assessment proceedings for the year 1959-60 in the case of the assessee in respect of the credit of Rs. 5,936 in the books of the firm. The assessees reply dated December 29, 1960 enclosed with the explanation is on the miscellaneous file of the assessee for the assessment year 1959-60. The sale vouchers mentioned by the assessee are in respect of the sale of ornaments for Rs. 5,936 pertaining to 1959-60 assessment and there is no voucher for the sale of ornaments to Shri Jagannath Seth, Allahabad.'
The assessees explanation was disbelieved and the sum of Rs. 6,380 was brought to assessment in the assessment year 1958-59. Before, however, the sum of Rs. 5,936 could similarly be brought to the assessment year 1959-60, the appeal for 1958-59 had been heard by the Appellate Assistant Commissioner who considered that, as this income was treated as income from an undisclosed source, it fell to be assessed on the basis of the financial year and not on the basis of the assessees previous year. A direction was, therefore, given in respect of the sum of Rs. 6,380 that it be assessed for the assessment year 1957-58. In respect of the sum of Rs. 5,936, which was also income from an undisclosed source, the Income-tax Officer, following the Appellate Assistant Commissioners order for the earlier assessment year 1958-59, considered that this amount could not be added as income from an undisclosed source in the assessment year 1959-60, but that it fell to be assessed in the assessment year 1958-59. He, accordingly, left this amount of Rs. 5,936 out of the original assessment made for the assessment year 1959-60. The Income-tax Officer, thereafter, in respect of the sum of Rs. 5,936, which, according to him, had escaped assessment, issued a notice under section 147(1) of the Income-tax Act, 1961, on the 15th of May, 1964, for the assessment year 1958-59.
Prima facie, the notice issued was beyond the period of four years. The Income-tax Officer, therefore, in order to bring the case within the mischief of section 147(1), was obliged to fulfill the condition precedent under that sub-section. That condition was that there should have been a failure on the part of the petitioner to fully and truly disclose all the material facts necessary for his assessment. A notice under section 142 was also issued. It is the validity of these two notices which is the subject-matter of attache in this writ petition.
This case clearly falls within the ratio of the Supreme Court decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, where it was laid down that all that was required of the assessee was that he should disclose the primary facts and the legal inference to be drawn from those facts was a matter for the Income-tax Officer. In that case, the assessee-company had been representing that the sales of shares were causal transactions and were in the nature of a mere change of investment; but the Income-tax Officer had discovered that the company was in fact carrying on a business of selling shares contrary to its earlier representations. It was held that it was the duty of the assessee-company only to disclose all the facts which had a bearing on the question, but whether the assessee had the intention to make a business profit as distinct from the intention to change the form of the investments was really an inference to be drawn from the materials facts taken in conjunction with the surrounding circumstances. The law did not require the assessee to state the conclusion that could reasonably be drawn from the primary facts.
The main effort of Mr. Gopal Behari, learned counsel appearing for the department, has been to distinguish the said Supreme Court decision and to urge that that case would have no application to the facts of the present case where the matter was one of cash credit. The distinction sought to be drawn is a distinction without a difference. The ratio of the decision is one of universal application and not confined to the facts of the particular case. In the case of an investor or dealer in shares the primary facts with required to be disclosed would naturally be different from those required for a cash credit but that would not make the principle applicable any different. The primary fact in the case of a cash credit would be the disclosure of the amount supported by the receipts or documents to support the alleged source. The conclusion whether it in fact represent the sale of those ornaments or is income from an undisclosed source would be an inference to be dawn by the Income-tax Officer. It is idle for the department to contend that the assessee himself should in the case of every cash credit admit, contrary to what he alleges, that the income was from an undisclosed source, otherwise, he would render himself liable to action under section 147(1) of the Act of 1961. In the present case, the petitioner had admittedly, according to the assessment order itself in respect of the original assessment for the assessment year 1958-59, disclosed the existence of the said credit together with the receipts alleged to be from the sale of ornaments and there was nothing else with the petitioner could reasonably have been expected to disclose.
The Income-tax Officer, after drawing the inference that this was income from an undisclosed source, fell into the error of law in thinking that it was assessable in the assessment year reliant to the previous year of the petitioner, whereas according to the settled law, as it then stood, the income from an undisclosed source stood to be assessed on the basis of the fantail year. In the instant case, the impugned sum of Rs. 5,396 was found credited in the book on the 1st November, 1957, and therefore it clearly fell to be assessed in the assessment for the assessment year 1958-59. Unfortunately, however, for the department, the Income-tax Officer allowed the grass to grow under his feet and allowed the statutory period of four years for bringing to assessment income which had escaped, may be because of ignorance, inadvertence or error of law, to lapse. His present attempt to issue a notice under section 147(1) of the Act of 1961, after the lapse of four years, therefore, cannot succeed as the notices issued are clearly without jurisdiction, inasmuch as the condition precedent for the issue of such a notice is not satisfied. In this view of the matter, the other grounds urged need not be dealt with.
For the reasons given above, the notices F-1 dated January 8, 1964, and H-1 dated May 15, 1964, are directed to be quashed by the issue of a writ of certiorari.
Accordingly the petition is allowed with