R. N. MISRA J. - This is an application for a writ of certiorari to quash a notice issued under section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), and for a direction prohibiting the revenue from taking any proceeding in terms of the notice.
Petitioner is an assessee under the Act and for the assessment year 1958-59 a regular assessment under section 23(3) of the Indian Income-tax Act, 1922, had been completed for the year as per annexure '10'. By notice dated 16th January, 1974, under section 148 of the Act, the Income-tax Officer, Ward-B (opposite party No. 1), issued a notice to the petitioner to the following effect :
'Whereas I have reason to believe that your income chargeable to tax for the assessment year 1958-59 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.
I, therefore, propose to reassess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income assessable for the said assessment year.
This notice is being issued after obtaining the necessary satisfaction of the Central Board of Direct Taxes.'
On the same day, the opposite party No. 1 wrote the following letter to the assessee-petitioner :
Process server is carrying along with this letter a notice under section 148 for the assessment year 1958-59. The notice is intended for reopening your assessment for the above assessment year for which purpose necessary satisfaction of the Central Board of Direct Taxes has been obtained.
I have tried to contact you a couple of times over telephone regarding this. But on both the occasions you were reported to be taking rest. I, therefore, had to send the notice through the process server. Regarding your assessments of income-tax and wealth-tax for the years which are open for assessment, I am desirous of having a short interview with you for about 10 minutes or so. Kindly let me know the date and time on which it will be convenient for you to spare this 10 minutes at your Ekambra Nivas residence for the proposed interview. I will be obliged if the interview would be held tomorrow or the day-after-tomorrow.'
It is not known as to when and where the interview took place, but on May 24, 1974, the petitioner applied to the Income-tax Officer for copies of a number of documents including records, reports, orders initiating the proceeding under section 147 of the Act, the correspondence between the Income-tax Officer and the superior officers of the revenue in the matter of reopening of the assessment, reasons recorded for the initiation of the proceeding, the sanction by the Central Board of Direct Taxes for the reopening and instructions from the Government of India, if any, in this connection. As it appears, the petitioner's counsel was permitted inspection of certain documents by the Income-tax Officer and the Income-tax Officer thereafter required him to comply with the direction in the notice in the matter of making of a fresh return. Ultimately, the petitioner came before this court asking for quashing of the proceeding and contended, inter alia :
(i) Petitioner had disclosed all material facts and made no omission or failure to disclose fully and truly any of them when he had made the return in due course and after consideration of all primary and material facts, the Income-tax Officer had made the order of assessment under section 23(3) of the old Act. Therefore, there was no justification for initiating the proceeding. At any rate, clause (a) of section 147 of the Act was not applicable.
(ii) If the notice under section 148 was grounded upon the provision in section 147(b) of the Act, the initiation of the proceeding was barred by time in terms of section 149(2) of the Act. There was no valid sanction to the initiation of the proceeding as required under the law.
(iii) The conditions precedent to the initiation of the proceeding, namely, the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax had been under-assessed and he must have reason to believe either of omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the relevant assessment, having not been satisfied, the notice itself is untenable in law.
(iv) All primary facts having already been disclosed and no new material having come to the possession of the Income-tax Officer, merely on a change of opinion of the next assessment officer, the proceeding is unsustainable.
The Income-tax Officer made a return to the rule nisi behalf of all the opposite parties and appended to the affidavit the reasonings recorded by the then Income-tax Officer for initiation of the proceeding, the report made in this matter to the Central Board of Direct Taxes and the sanction accorded by the Board. In the return to the rule, reference was made to the correspondence between the Income-tax Officer and the assessee when the regular assessment for the year was taken up by the assessing officer. It may now be stated that the assessee is an ex-Chief Minister of the State. The State Government of Orissa in the year 1968 had appointed Sri Justice Mudholkar, a retired judge of the Supreme Court, to make preliminary enquiries against some political figures of the State including the assessee and subsequently there was a regular commission of inquiry headed by Shri Justice Sarjoo Prasad. Before the inquiry commission, evidence was led by one Babubhai Patel in support of the story that 2 1/2 lakhs of rupees had been paid to the assessee in respect of kendu leaf deals. According to the Income-tax Officer, the following materials had not been placed before the assessing officer when assessment was completed under section 23(3) of the Indian Income-tax Act, 1922, namely :
(i) The evidence of Babubhai Patel as stated above;
(ii) The evidence of the tahsildars and other public officers regarding the extent of land of the assessee and his brother;
(iii) Dates of receipt of compensation by the assessee and his brother from Government on account of abolition of estate;
(iv) An affidavit of the assessee's brother, Sri Gopinath Das;
(v) Information regarding purchase of land by the assessee's brother;
(vi) The basis of calculation of agricultural income of the assessee and his brother; and
(vii) A letter of the assessee to the then Congress President regarding his assets.
The Income-tax Officer averred in his counter-affidavit that the aforesaid fresh evidence was prima facie material in his possession which led him to hold that there had been under-assessment.
With regard to the accord of sanction by the Central Board of Direct Taxes, it has been pleaded in paragraph 19 of the counter-affidavit :
'The sanction order of the Central Board of Direct Taxes has not been correctly quoted by the petitioner at page 25 of the writ petition and the approval order has been given after due consideration of the materials on the records and is in accordance with the requirements of the law and is within the jurisdiction and it has not been given mechanically without application of mind as asserted in the writ petition, but was given with due application of the mind and there is material to show that income chargeable to tax which has escaped assessment is likely to exceed Rs. 50,000 or more for the year and, accordingly, sanction has been obtained and proceedings have been started under section 147(a) of the Act. The Board has considered the amount of alleged escaped income and the sanction is in accordance with law. The sanction order is an order by the Central Board of Direct Taxes and is not an opinion of the Under-Secretary to the Board, i.e., opposite party No. 4..........'
In a part of the report made by the Income-tax Officer in the matter of obtaining sanction, it was stated :
'The assessment has already been made on salary income of Rs. 12,635 for the assessment year in question. The income which has escaped assessment, viz., Rs. 2,04,128, requires to be assessed for which action under section 147 is proposed.'
In the counter-affidavit itself, there is an admission that when the normal assessment was completed, detailed enquiries had been made; the Income-tax Officer had obtained information on all the aspects which are now made the basis for reopening of the proceeding. We may now refer to the report of the Income-tax Officer appended to the recording of reasons by him which is a part of the counter-affidavit. According to the Income-tax Officer, a sum of Rs. 2,04,128 has escaped assessment and he has proceeded to determine the same as would appear from paragraph 8 of his aforesaid report in the following way :
'Computation of escaped income for the assessment year 1958-59-Income from undisclosed sources :
(i) Deposits -
The deposits have been stated in detail in para. 3 above.
The deposits in banks by cheque may be treated as monies belonging to the Congress party, Prajatantra Prachar Samity and other organisations since the source can be traced and since bank account reflects debit towards these organisations.
The entire cash deposit has, however, to be considered as his own money. This comes to
(ii) Investments by way of additions and alternations of the building 'Usha Villa' at Bhubaneswar60,000
(iii) Post Office savings bank deposit 15,000
Less : Receipts and income available to the assessee from property and zamindary as discussed at para. 7 above. 1,34,688
Rs. 2,63,815.87 which was rounded and treated as Rs. 2,63,816 was made up of five deposits in the following way :
Assessee has placed before us a letter dated 24th of December, 1962 (annexure '4'), which had been written by the Income-tax Officer of the Salary circle to the then Inspecting Assistant Commissioner. Therein, categorical reference has been made to this amount of Rs. 2,63,815.87. The relevant reference is thus :
'I then next questioned him as to why he made cash deposits to the extent of Rs. 2,63,815.87 out of his agricultural income when according to his earlier statement he was not in the practice of keeping money in bank accounts. To this he replied that these deposits were made to enable purchase of National Plan Certificates, Treasury Savings Certificates and Annuity Certificates through bank transfers. I suggested to him that these certificates could be directly purchased with the cash in hand instead of going through a circuitous route of making purchases through the bank. In reply, he stated that obviously with the position held by him he could not go personally for the purchase of those certificates and it was also not safe to entrust any of his employees with such heavy sums in cash for the purchase of these certificates lest they decamped with the money. He, therefore, preferred to keep the cash in bank and send somebody with a cheque for the purchase of these certificates. The transfers from the bank for investment in the said securities lend support to his version.'
Reference to this amount had also been made by the Income-tax Officer in his letter to the Commissioner of Income-tax dated 4th September, 1962 (annexure '5'). Therein, it had been stated :
'It will thus be seen that in the accounting period 1957-58 relevant to the assessment year 1958-59 which is pending, Dr. Mahatab made a deposit of Rs. 2,63,315.65 in cash and Rs. 28,579.31 by cheques, making a total deposit of Rs. 2,92,594.18 against his returned income of Rs. 12,655.48. ........
Presently we are concerned with the assessment for the year 1958-59, which gets barred this year and subject to Commissioner's approval, I now intend to fix a date of hearing under section 23(2) with a forwarding letter along with a notice under section 22(4) also requesting Dr. Mahatab to meet me with his bank pass book in my office at Puri. In case, the Commissioner so directs, I shall take up this case at Bhubaneswar camp and ask him to explain the source of heavy cash deposits as also explain the discrepancies in the figures if investment as apparent from his bank accounts and those owned by him. On hearing from him and obtaining his explanation in the matter I shall submit a draft assessment order for the Commissioner's and/or I.A.C.'s approval as may be directed.........'
The Income-tax Officer of the Salary Circle then wrote a letter on 22nd November, 1962, to the assessee (annexure '7'). Therein it was stated :
'After looking into your accounts with the above banks, I find that in the financial year 1957-58 you made a deposit of Rs. 2,92,394.18 (Rs. 2,63,815.87 in cash and Rs. 28,578.31 by cheques) against your returned total income of Rs. 12,635.48 during the said year.'
On 22nd December, 1962, the assessee wrote to the Income-tax Officer, vide annexure '9', giving all particulars of the deposits amounting to Rs. 2,63,815.87 and on February 15, 1963, the order of assessment was passed by the Income-tax Officer.
In the aforesaid setting, there can be no scope for doubt in our mind that the Income-tax Officer had before him the particulars relating to the bank deposits and as has been stated in the letter of the Income-tax Officer to the Inspecting Assistant Commissioner, vide annexure '4', the Income-tax Officer was prepared to accept the assessee's explanation.
Next comes the question of Rs. 60,000 by way of investment in alteration of the building. Usha Villa is the same as Ekambra Nivas. This fact has been admitted at page 12 of the counter-affidavit (running page 94 of the paper book). This aspect was very much before the assessing officer at the time when the regular assessment was being considered. In annexure '4' it has been stated :
'I also questioned him about some of the cheques issued by him for purchase of building materials and he stated that they were for Prajatantra Prachar Samity, Swaraj Ashram Library and for Congress party meetings. He further added that the department was wrong in suspecting that the materials were purchased for reconstruction or remodelling of his brother's house known as Ekambra Nivas in Bhubaneswar town which according to a complaint was purchased by him in the name of his natural brother, Sir Gopinath Das. My notes against these individual cheques may be seen on the overleaf of sl. 15 in the miscellaneous file for 1958-59. At this stage Dr. Mahatab told me that he was fully aware that one complaint had been sent against him to Sri Gopal Reddy, Minister of State in the Finance Ministry, New Delhi, in the fictitious name of one R. C. Das, and it was a result of the said complaint that the department had been making this searching inquiry. He instantly showed me the original complaint petition (copy of which is with us) forwarded to him by the hon'ble Minister, Shri Reddy, with his D. O. letter dated 10-10-1960. In the said D. O. to Dr. Mahatab the hon'ble Minister has amongst others said in the following words :
'It seems somebody has started an invidious campaign against you.' From the facts stated above, I am inclined to accept the explanation dated 22-12-1962 of Dr. Mahatab........'
In his explanation referred to above, the assessee had stated :
'A new house has been constructed by me in the new capital at a cost of Rs. 50,000 approximately. The investment in the building has been made partly by loan of about of Rs. 20,000 from the Government of Orissa and partly from my income from agricultural land and also I have not yet been able to clear some of the private loans on account of the construction of this house.'
It cannot thus be said that the matter of investment and the renovation of the building was not known to the Income-tax Officer.
So far as the deposit of Rs. 15,000 in the postal savings bank is concerned, reference to it has been made in the assessee's explanation dated 22nd December, 1962, as also in the various correspondence referred to above. It is thus clear that all the three amounts referred to in the reasonings noted by the Income-tax Officer on the basis of which sanction of Board of Direct Taxes had been asked for were within the knowledge of the Income-tax Officer when the regular proceeding had been taken up and the assessee's explanations had been obtained and obviously accepted when the order of assessment had been made.
One of the new materials to which the Income-tax Officer referred is the statement of Babubhai Patel before the Sarjoo Prasad Commission. Assessee has contended that steps had been taken to malign him for other collateral purposes by appointing a Commission and evidence had been procured to support the charges against him. It is not for us in the present proceeding to deal with this submission, but one pertinent aspect for consideration is the stand of the assessee that even accepting the statement of Babubhai Patel nothing was paid to the petitioner during the year. In the rejoinder dated 12th May, 1975, the assessee has extracted the evidence of Babubhai Patel. In runs thus :
'This meeting with the Secretaries of Finance and Development took place in the month of October, 1959. In November, 1959, Mr. Sodha appeared on behalf of the kendu leaf traders before the Cabinet Sub-Committee and argued their case. I was waiting outside when Mr. Sodha was arguing before the Cabinet Sub-Committee. It was decided that 2% of the lease amount for the year 1959, an amount of Rs. 2,50,000, was collected from all the kendu leaf traders by T. R. & Co., Ramji Purushottam and Shivji Nathubhai, and this amount was paid to Dr. H. K. Mahatab at his Ekambra Nivas residence. Shivji Nathubhai, the president of our Association, handed over the amount of Rs. 2,50,000 to Dr. Mahatab in my presence. Mr. Ramji Purushottam was also present at that time. This payment was made to Dr. Mahatab a few days after the order for remission was passed.'
This evidence would indeed go to show that in October-November, 1959, the payment was made. We are concerned with the assessment year 1958-59, corresponding to the accounting period ending with the financial year 1958. Even if this payment was made and this could legitimately be relied upon by the Income-tax Officer as a fresh material, it does not pertain to the year in question and, therefore, this could not be material for the conclusion that the assessment required reopening.
Section 147 of the Act provides :
(a) the Income-tax Officer has reason to believe that, by reason of omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,
he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).........'
As we have already indicated, it is the definite stand of the revenue that the notice under section 148 of the Act has been issued with reference to clause (a) of section 147. Admittedly, the assessee had made a return for the year. Therefore, the only question for consideration is whether there has been escapement of assessment on account of the fact that the assessee had omitted or failed to disclose fully and truly all material facts necessary for his assessment. As we find, all the three items which have been referred to by the Income-tax Officer in his report for the purpose of obtaining sanction were very much before the Income-tax Officer when the normal assessment was completed on February 15, 1963, by the Income-tax Officer of the Salary Circle. With reference to these amounts, the assessee had been asked to explain and the assessee offered explanation. The Income-tax Officer, as would appear from his letter (annexure '4'), addressed to the Inspecting Assistant Commissioner, indicated that he had applied his mind and was prepared to accept the explanation of the assessee. It is true, as learned standing counsel for the revenue has argues, and rather curious that the assessee has been able to produce papers which were inter-departmental communications. The opposite parties have, however, not questioned the genuineness of these documents. We are, therefore, inclined to agree with the petitioner's counsel that the facts stated in these documents reflect the true state of affairs. It would thus not be correct to say that the assessee had either omitted or failed to make a full and true disclosure of material facts.
In the case of Calcutta Discount Co. Ltd. v. Income-tax Officer : 41ITR191(SC) , it has been observed :
'........ The words used are 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year'. It postulates a duty on every assessee 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 assessee, require to know all the facts which help him in coming 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 inference 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 inference, and ascertain on a correct inter-pretation of the taxing enactment, the proper tax leviable.'
The case before us is one where the facts are slightly different from the leading cases on this topic. Here, all the materials were before the revenue authorities and with reference to them investigation had once been made and on the assessee's explanation being accepted, assessment was completed. This seems to be a case where, on change of opinion, the Income-tax Officer has tried to reopen the assessment. It is not a case of any new material which was not before the Income-tax Officer on the earlier occasion.
In the case of Gemini Leather Stores v. Income-tax Officer : 100ITR1(SC) , where while making a best judgment assessment, the Income-tax Officer had discovered certain transactions evidenced by the drafts which the assessee had not disclosed. In spite of this discovery and the knowledge of all the material facts, the Income-tax Officer did not make necessary enquiries and draw proper inferences as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. The court came to hold that it was plainly a case of oversight and the Income-tax Officer could not take recourse to section 147(a) to remedy the error resulting from his own oversight and that, therefore, the notice under section 148 should be quashed.
In the case of Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur : 97ITR239(SC) , the court did not permit second thoughts on the same material for initiation of an action under section 147 of the Act. The later decision of the Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. Income-tax Officer : 106ITR1(SC) also supports the same view.
In the case of Income-tax Officer v. Ramnarayan Bhojnagarwala : 103ITR797(SC) , the court indicated that the jurisdiction of the Income-tax Officer to initiate a proceeding under section 147 of the Act is on the basis of reasonable belief and that is the sine qua non for initiation of the proceeding. As we have indicated, there indeed cannot be any reasonable belief on the Income-tax Officer for initiation of the proceeding when all the matters on which move for the re-opening is grounded were already before the revenue when the normal assessment was completed. It must, therefore, follow that the notice under section 148 of the Act is bad.
Learned counsel for the petitioner has argued against the proceeding on the basis that there is no valid sanction. Facts asserted in support of the objection have been refuted. The original order of sanction had not been produced. In the circumstances, we do not think it appropriate to enter into an examination of that aspect.
Learned standing counsel has contended when the hearing began that this application must abate under the provisions of article 226(3) of the Constitution. He does not dispute that several writ applications have been entertained for quashing the notice under section 148 of the Act. In fact, there are direct authorities of the Supreme Court as indicated by this court in the case Govinda Choudhury & Sons v. Income-tax Officer : 109ITR370(Orissa) in support of this position. It is, however, claimed by learned standing counsel that as appeals and references are provided under the statute when assessments are completed, there is alternative remedy available and this application, therefore, must be declared to have abated. Such a contention does not impress us at all. The question of alternative remedy has to be examined with reference to the present dispute. If there is any remedy provided under the Income-tax Act where the assessee can have the notice under section 148 vacated, that alone would constitute alternative remedy. Learned standing counsel had not been able to satisfy us that there is any alternative forum for the relief claimed before us. The objection must, therefore fail.
We allow the writ application, quash the notice under section 148 of the Act and the direct that a writ of prohibition be issued to the opposite parties from acting in furtherance of the notice. This application is allowed with costs. Hearing fee is assessed at rupees two hundred.
DAS J. - I agree.