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Arjan Dass Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 12 of 1975
Judge
Reported in[1978]112ITR480(P& H)
ActsIncome Tax Act, 1961 - Sections 144, 246 and 256
AppellantArjan Dass
RespondentCommissioner of Income-tax
Appellant Advocate Bhagirath Dass,; S.K. Hirajee,; N.C. Jain and;
Respondent Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Cases ReferredIn Sundermul & Co. v. Commissioner of Income
Excerpt:
.....under section 146 to reopen the best judgment assessment wasalso rejected by the income-tax officer. munshi ram preferred two appeals to the appellate assistant commissioner, one against the best judgment assessment under section 144 and the other against the order under section 146. in the appeal against the assessment, the appellate assistant commissioner overruled the objection to jurisdiction on the ground that it was not raised within the period of 30 days stipulated in the notice under section 148. however, he allowed the appeal on the merits holding that the amount of rs. the tribunal was clearly wrong in holding that the appellate assistant commissioner had affirmed the decision of the income-tax officer under section 146 refusing to reopen the assessment made under..........dass submitted a return alongwith which he wrote a letter objecting to the jurisdiction of the income-taxofficer, rohtak, on the ground that he, arjan dass, was a resident of delhi.the income-tax officer, instead of referring the question of jurisdiction forthe determination of the commissioner of income-tax under section 124(4),proceeded with the assessment. he gave several opportunities to arjandass to adduce evidence. as arjan dass failed to adduce evidence, hefinally completed the assessment ex parte under section 144. by his assessment order, the income-tax officer overruled the objection regarding jurisdiction. he held that the amount of rs. 4,00,000 deposited on november8, 1947, in dr. munshi ram's name in the jaipur bank was the concealedincome of dr. munshi ram. he made the.....
Judgment:

O. Chinnappa Reddy, J.

1. Late Dr. Munshi Ram Gupta of Rohtak died on May 29, 1954, leaving an estate valued by the Assistant Controller of Estate Duty at Rs. 31,287. The Assistant Controller issued a 'NO DUTY PAYABLE ' certificate on April 29, 1960. In the year 1956, that is, two years after the death of Dr. Munshi Ram, the Income-tax Officer, Rohtak, made some enquiry about a deposit of Rs. 4,00,000 made in the name of Dr. Munshi Ram in the Hindustan Commercial Bank, Jaipur, on November 8, 1947. In that enquiry Arjan Dass, son of Dr. Munshi Ram, produced two letters dated November 8, 1947, and April 2, 1949, said to have been written by one Makhan Lal to Dr. Munshi Ram. These letters suggest that the amount really belonged to Makhan Lal and that Dr. Munshi Ram was no more than a name-lender. The letters were as follows :

Bombay

8-11-47

My dear Munshi Ram,

We arrived here safely and had a pleasant journey.

As mentioned to you at Rohtak, I have since deposited Rs. 4,00,000 (Rupees four lakhs) in the Hindustan Commercial Bank Ltd., Jaipur, in your name.

I am writing this to you for your information so that you may be in a position to furnish the necessary reply to any reference that may hereafter be made to you in this behalf.

We are looking forward to the fulfilment of your promise to visit Bombay this month. Please bring Arjan also with you.

Yours sincerely,

Makhan Lal.

Dr. Munshi Ram Gupta,

Rohtak.

AND

Bombay

2-4-49

My dear Munshi Ram,

Just a line to inform you that Rs. four lakhs which I had deposited in the fixed deposit account with the Hindustan Commercial Bank Ltd., Jaipur, in November, 1947, in your name have been duly received back by me with interest thereon.

Hope you are quite fit.

Yours sincerely,

Makhan Lal.

Dr. Munshi Ram Gupta,

Rohtak.

Makhan Lal, the author of the letters, was the Managing Director of Delhi Land and Finance Housing and Construction Company Private Ltd. It appears that at the relevant time Makhan Lal had extensive speculation business and was known as the ' Silver King ' of Bombay. The revenue started proceedings for reopening the assessments of Makhan Lal as well as Delhi Land and Finance Housing and Construction Company Private Ltd. The proceeding against the company was quashed by the Delhi High Court in a writ application. The fate of the proceedings against Makhan Lal is not known but one may assume that it yielded no fruit to the revenue.

On March 29, 1965, after obtaining the prior approval of the Central Board of Direct Taxes, the Income-tax Officer, Rohtak, served a notice under Section 148 of the Income-tax Act, 1961, on Arjan Dass, representing late Dr. Munshi Ram, in respect of the assessment relating to the assessment year 1948-49. The return of income was asked to be submitted before April 28, 1965. On April 22, 1965, Arjan Dass submitted an application praying for extension of time by two months. The Income-tax Officer by an endorsement dated April 26, 1965, made on the application itself granted extension of time by one month. The application and order were as follows :

'To

The Income-tax Officer,

A Ward, Rohtak.

Dear Sir,

Re : Sh. Arjan Dass Gupta, Legal heir of late

Dr. Munshi Ram Gupta, Rohtak,

1948-49/147 Assessment.

Under Section 139/148 of the Income-tax Act, 1961, I have to file the return of my income in respect of which I am assessable for the assessment year commencing on the 1st April, 1948, before 28-4-1965. For the reasons given below it is not possible for me to file the return before the said date.

It is, therefore, requested that time for furnishing the return may be extended up to 28-6-1965.

The return pertains to the income of my late father for the period 1947-48, i.e., about seventeen years old. It has not been possible for me to collect such an old data and material. I am doing my best but my continuous ill health is a handicap. Hence, two months' extension is requested. Yours faithfully,Signature (Sd)Allowed one month's time Name in capital (ARJAN DASS)Address : C/o, DLF Housing &(Sd) I.T.O. Const. Pvt. Ltd.26-4-65. F-Connaught Place,Dated 22-4-65. New Delhi.'

2. Thereafter, on May 26, 1965, Arjan Dass submitted a return alongwith which he wrote a letter objecting to the jurisdiction of the Income-taxOfficer, Rohtak, on the ground that he, Arjan Dass, was a resident of Delhi.The Income-tax Officer, instead of referring the question of jurisdiction forthe determination of the Commissioner of Income-tax under Section 124(4),proceeded with the assessment. He gave several opportunities to ArjanDass to adduce evidence. As Arjan Dass failed to adduce evidence, hefinally completed the assessment ex parte under Section 144. By his assessment order, the Income-tax Officer overruled the objection regarding jurisdiction. He held that the amount of Rs. 4,00,000 deposited on November8, 1947, in Dr. Munshi Ram's name in the Jaipur Bank was the concealedincome of Dr. Munshi Ram. He made the assessment on that basis. Anapplication under Section 146 to reopen the best judgment assessment wasalso rejected by the Income-tax Officer.

3. Arjan Dass as the heir of Dr. Munshi Ram preferred two appeals to the Appellate Assistant Commissioner, one against the best judgment assessment under Section 144 and the other against the order under Section 146. In the appeal against the assessment, the Appellate Assistant Commissioner overruled the objection to jurisdiction on the ground that it was not raised within the period of 30 days stipulated in the notice under Section 148. However, he allowed the appeal on the merits holding that the amount of Rs. 4,00,000 belonged to Makhan Lal and that it did not represent the income of Dr. Munshi Ram. In arriving at that conclusion the Appellate Assistant Commissioner also placed reliance on certain documents which were produced before him by the appellant. One was the written opinion of the examiner of questioned documents about the genuineness of the signatures of Makhan Lal in the two letters dated November 8, 1947, and April 2, 1949. Another was an affidavit of Shri Ram Rattan, Manager of the Hindustan Commercial Bank Ltd., New Delhi, to the effect that he gave a letter of introduction to Shri Bhim Sain Jain, brother-in-law of Makhan Lal, in 1947 to enable him to go to Jaipur and open a fixed deposit account in the name of Dr. Munshi Ram Gupta in a sum of Rs. 4,00,000. The third document was the ' NO DUTY PAYABLE ' certificate, issued by the Assistant Controller of Estate Duty in regard to the estate of lateDr. Munshi Ram Gupta. The other documents were affidavits of Dr. Deepak Bhatia, a fellow civil surgeon, and Shri Siri Krishan Dass, President of the Rohtak City Congress Committee, about the financial status of late Dr. Munshi Ram Gupta.

4. The appeal against the order under Section 146 was dismissed on the ground that the appeal against the assessment had been allowed and it was, therefore, unnecessary to go into the merits of the appeal against the order under Section 146.

5. The revenue preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal took the view that the appeal against the order under Section 146 having been dismissed, the Appellate Assistant Commissioner had no jurisdiction to receive the additional evidence. The Tribunal, therefore, excluded the additional evidence from consideration. In regard to the two letters dated November 8, 1947, and April 2, 1949, the Tribunal expressed the view that they did not conclusively prove that the amount belonged to Makhan Lal and not to Dr. Gupta. On those findings, the appeal by the revenue was allowed and the order of assessment passed by the Income-tax Officer was restored. The objection regarding jurisdiction was considered and disallowed on the ground that the objection was not raised within the period of thirty days mentioned in the notice under Section 148. At the instance of the assessee, the following nine questions have been referred to us for our opinion :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner had overstepped his jurisdiction under Section 250(4) of the Income-tax Act and that, therefore, the Appellate Assistant Commissioner's order was bad in law

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right, in law, in holding that the Appellate Assistant Commissioner had affirmed the Income-tax Officer's order refusing to reopen the best judgment assessment

3. Whether, on the facts and in the circumstances of the case, the finding of the tribunal regarding Shri Arjan Dass, representing the entire estate of the deceased was perverse as being based on no evidence

4. If question No. 3 is answered in favour of Shri Arjan Dass is the back assessment proceeding vitiated in law in view of his objection about the absence of service of Section 148 notice on the other legal representatives

5. Whether, on the facts and in the circumstances of the case, the Tribunal was in error in law in not determining the value of the estate left by the deceased

6. Whether, on the facts and in the circumstances of the case, the Tribunal's finding as to Rs. 4,00,000 being the concealed income of Dr. Munshi Ram was perverse as being based on no evidence

7. Whether, on the facts and in the circumstances of the case, the objection to the jurisdiction of the Income-tax Officer, Rohtak, could in law be raised by Shri Arjan Dass only up to the date of expiry of one month from the date of service of the notice under Section 148 of the Income-tax Act

8. If question No. 7 is answered in favour of Shri Arjan Dass, was the Tribunal in error in law in holding that the objection made by Shri Arjan Dass under Section 124(5) was time-barred

9. Whether, on the facts and in the circumstances of the case, the Tribunal was in error in law in admitting the additional ground of appeal raised by the Income-tax Officer '

6. Question No. 2 may be taken up first. The Tribunal was clearly wrong in holding that the Appellate Assistant Commissioner had affirmed the decision of the Income-tax Officer under Section 146 refusing to reopen the assessment made under Section 144. The appeal against the order under Section 146 was not considered on merits but was dismissed on the ground that it was not necessary to go into the merits since the ' quantum appeal ' had been allowed. This question has, therefore, to be answered in the negative.

7. Question No. 1 concerns the jurisdiction of the Appellate Assistant Commissioner under Section 250(4) of the Income-tax Act. Section 250(4) enables the Appellate Assistant Commissioner, before disposing of any appeal, ' to make such further enquiry as he thinks fit '. The contention of the assessee is that the Appellate Assistant Commissioner has unlimited power to make further enquiry even in an appeal against a best judgment assessment whereas the contention of the revenue is that the Appellate Assistant Commissioner has no power to make any further enquiry in an appeal against a best judgment assessment. Our attention was invited to the following decisions : Brij Mohan Rameshwar Das v. Commissioner of Income-tax , Girdher Javer & Co. v. Commissioner of Income-tax : [1953]24ITR540(Bom) , Muthuwappa v. Commissioner of Income-tax : [1962]46ITR1107(Mad) and Sundermul & Co. v. Commissioner of Income-tax : [1967]66ITR277(AP) .

8. In Brij Mohan Rameshwar Das v. Commissioner of Income-tax , on the failure of the assessee to submit the return and produce his account books, the Income-tax Officer made a best judgment assessment under Section 23(4). of the Indian Income-tax Act, 1922. An application under Section 27 to reopen the assessment was also dismissed by the Income-tax Officer. The Appellate Assistant Commissioner dismissedthe appeal against the order under Section 27. In dealing with the appeal against the assessment, the Appellate Assistant Commissioner took the view that there was no material justifying the best judgment assessment of Rs. 65,000. He, therefore, directed the Income-tax Officer to submit a report after re-computing the income on the basis of further enquiry by examining the assessee's account books. After the receipt of the report of the Income-tax Officer, the successor Appellate Assistant Commissioner refused to look into the report on the ground that the previous order was without jurisdiction. He, therefore, confirmed the order of assessment of Rs. 65,000. The Tribunal which reduced the assessment of Rs. 65,000 to Rs. 50,000 referred the question of the jurisdiction of the Appellate Assistant Commissioner to the High Court for its opinion. The question as reframed by the High Court was :

' Whether, in an order of remand made by an Appellate Assistant Commissioner under Section 31(2) of the Act, it is open to the Appellate Assistant Commissioner to direct or permit the Income-tax Officer to take into consideration account books of the assessee which had not been produced before the Income-tax Officer at the time the first assessment was made '

9. The High Court of Punjab (Western C J. and Harnam Singh J) answered the question in the affirmative observing that there was nothing in Section 31(2) which limited the scope of the further enquiry ordered under Clause (2). It was held that further enquiry by its very nature implied that fresh evidence should be led, and the account books of the assessee undoubtedly were fresh evidence.

10. In Girdher Javer & Co. v. Commissioner of Income-tax : [1953]24ITR540(Bom) , the question was considered by Chagla C.J. and Tendolkar J. The facts were somewhat similar to the facts in Brij Mohan Rameshwar Das v. Commissioner of Income-tax . The learned judges held that, on the facts of the case before them, the order of the Appellate Assistant Commissioner was entirely erroneous. They, however, made some useful general observations about the extent of the power of the Appellate Assistant Commissioner. They said--See : [1953]24ITR540(Bom) :

' It must be borne in mind that when the books of account are produced by the assessees and the assessment is an ordinary normal assessment under Section 23(2), unless the books are rejected under Section 13, the assessment proceeds on the basis of the books produced by the assessees. Under Section 23(4) the assessment is according to the judgment of the Income-tax Officer, and even though books of account may be looked at by him under the direction of the Appellate Assistant Commissioner, they would be looked at for an entirely different purpose from the purpose forwhich he would look at them if he was proceeding to assess the assessees under Section 23(3). Therefore, if the Appellate Assistant Commissioner directed the Income-tax Officer to lock at the books of account, it could only be for the purpose of arriving at his best judgment. It is true that the further inquiry contemplated by Section 31(2) must be an inquiry for the purposes of disposing of the appeal, and the question in appeal before the Appellate Assistant Commissioner must be whether the judgment of the Income-tax Officer was properly exercised under Section 23(4) and whether the guantum arrived at by the Income-tax Officer was properly and fairly arrived at. But can it be said that under no circumstances is the Appellate Assistant Commissioner permitted to direct the Income-tax Officer to look at the books of account, which books have not been and cannot be produced for the purpose of the ordinary assessment We fully appreciate the point of view put forward on behalf of the department that the assessees should not be allowed to sit on the fence, take the chance of a best judgment assessment without producing the books and if they find that the best judgment assessment is not in their favour and the production of the books of account which they have suppressed may result in an assessment more favourable to them, then ask for the examination of their books. We also appreciate the point of view of the department that the weight to be attached to the books of account which have not been produced at the proper time must always be very slight. But what we are considering in this reference is not the right of the assessees to produce their books, but it is the power and the jurisdiction of the Appellate Assistant Commissioner to direct the Income-tax Officer to look into these books of account. The right that the assessees had to produce their books of account was taken away when their appeal under Section 27 was dismissed. They could not insist on the assessment being made on the basis of their books of account. But the question of the jurisdiction and the power of the Appellate Assissant Commissioner is entirely a different one. Even though in practice it may be in extremely rare cases that the Appellate Assistant Commissioner would direct the Income-tax Officer to look into the books of account of the assessee which the assessee has ailed to produce, however rare the cases may be, we have got to answer the question of law on the provisions of the statute and not from the point of view of its practical application.'

11. In Muthuwappa v. Commissioner of Income-tax : [1962]46ITR1107(Mad) , the Madras High Court expressed its agreement with the above extracted observations of Chagla C.J. and Tendolkar J. We also express our respectful agreement with those observations.

12. In Sundermul & Co. v. Commissioner of Income-tax : [1967]66ITR277(AP) , the Andhra Pradesh High Court (Jaganmohan Reddy C.J. and Venkatesam J.) accepted the observations of Chagla C.J. and Tendolkar J. as laying downthe correct law in regard to the scope of the power of the Appellate Assistant Commissioner. The learned judges further noticed that whereas prior to 1939 the only manner in which the best judgment assessment under Section 23(4) could be questioned was by filing an application under Section 21, after the amendments of the Income-tax Act in 1939, a best judgment assessment could also be questioned by preferring an appeal against it under Section 30. They further observed that the rejection of the appeal against the order refusing to reopen the best judgment assessment was ' far from saying that the Appellate Assistant Commissioner cannot thereafter consider the merits of the assessment on appeal, which is a distinct and concurrent remedy provided to the assessee under the Act '. The learned judges went on to say at page 280 :

' In that appeal, it is open to the Appellate Assistant Commissioner to say that the Income-tax Officer acted without material, of acted arbitrarily or capriciously. In such a case the Appellate Assistant Commissioner can, under Sub-section (2) of Section 31, before disposing of any appeal, make such further enquiry as he thinks fit, or cause further enquiry to be made by the Income-tax Officer. This provision vests ample -power in the Appellate Assistant Commissioner to remand the case to the Income-tax Officer for fresh disposal if he comes to the conclusion that the basis of the assessment is not valid or the assessment itself is not sustainable. In our view, if the Appellate Assistant Commissioner can remand the case or call for a finding, he can also call for evidence and receive it or hold an enquiry which would place materials before him to make a valid best judgment assessment, subject, however, only to this limitation, that neither the remand order nor the acceptance or receipt of additional evidence should be designed to achieve the object for which an appeal against an order under Section 27 was provided for, as otherwise it would amount to holding that the legislature has provided two remedies in respect of the same subject-matter.'

13. While expressing our respectful agreement with the observations of Jaganmohan Reddy C.J., we wish to point out that the observations are not to be understood, as it was suggested by the learned counsel for the revenue at one stage that they should be, as confining the Appellate Assistant Commissioner's power of interference only to cases where he finds that the Income-tax Omcer has acted without material or arbitrarily or capriciously. In the very observations extracted by us, the learned judges have made it clear that the Appellate Assistant Commissioner can act if he finds that ' the basis of the assessment is not valid or the assessment itself is not sustainable ', The only limitation, according to the learned judges, is that the appellate power against a best judgment assessment should not be soexercised as to render meaningless the appellate power against an order refusing to reopen a best judgment assessment.

14. In our opinion, both the extreme views advanced before us that the Appellate Assistant Commissioner, in dealing with an appeal against an assessment under Section 144, has no power or has unlimited power to receive additional evidence are untenable. The assessee, no doubt, cannot insist upon the adduction of additional evidence but there is no bar on the reception of additional evidence by the Appellate Assistant Commissioner if he considers such evidence necessary for disposing of the appeal before him. He may do so if he thinks that the Income-tax Officer had acted without material or that he had acted arbitrarily or capriciously. He may do so if he concludes that the judgment of the Income-tax Officer was not properly exercised or that the quantum was not properly and fairly arrived at. He may do so for the purpose of clarification of points arising out of the very order of assessment made by the Income-tax Officer. He may do so for a variety of reasons depending upon the facts and circumstances of different cases. But this he must find : he must consider it necessary for disposing of the appeal And, this he must not do I he should not reopen the assessment, as it were. That is a power he can exercise in an appeal against an order under Section 146 and not in an appeal against an assessment under Section 144. The power to further enquire should be exercised so as to make a proper and fair best judgment assessment and not so as to nullify the provisions of Section 146 and the appeal provided under Section 246(1)(d). That is the extent and that is the limitation.

15. In the light of these principles, we find it difficult to say that in the present case the Appellate Assistant Commissioner went beyond the limits of his authority in receiving the additional evidence. The Income-tax Officer had before him the two letters of Makhan Lal which had been produced before the authorities way back in 1956. There was no material before him to doubt the genuineness of the two letters. There was no material to suggest that Makhan Lal had been brought into the picture to camouflage the financial dealings of Dr. Munshi Ram. Yet the Income-tax Officer doubted the genuineness of the letters and thought that Makhan Lal had been introduced into the picture to serve as a stooge for Munshi Ram. The Appellate Assistant Commissioner apparently thought that the inference drawn by the Income-tax Officer was not fair, that there was no material to justify the findings and that the conclusion was not one which could be properly arrived at. He thought that it was unfair to the assessee to throw out of hand the two letters of Makhan Lal produced way back in 1956 without even an attempt to verify whether they were genuine or not. Therefore, he sought additional evidence to clarify points arising out of the very order of assessment and, so, to enable him to justly and effectivelydeal with the appeal. The Appellate Assistant Commissioner might not have expressed himself in these very terms but that is what appears to us was in the mind of the Appellate Assistant Commissioner, on a full and fair reading of his order. We, therefore, answer the first question in the negative, that is, in favour of the assessee and against the revenue.

16. We now take up question No. 6. We do think that the Tribunal's finding was perverse. We have earlier extracted the two letters of Makhan Lal. In regard to these two letters, the Tribunal said :

' Shri Makhan Lal's letters by themselves neither amount to adverse admission against his own interest nor do they conclusively prove that the money belonged to him. He could even say of the money belonging to Dr. Gupta and being handled, operated or used by him for the time being that ' as mentioned to you at Rohtak, I have since deposited Rs. 4 lakhs in the Hindustan Commercial Bank Ltd., Jaipur, in your name ' and later ' that Rs. 4 lakhs which I have deposited in the fixed deposit account with the Hindustan Commercial Bank Ltd., Jaipur, in November, 1947, in your name have been duly received back by me with interest thereon '. Moreover, these letters are not in the nature of written statements made in the ordinary course of business for, if that were so, where was the need of making the deposit in a benami name. No books of account, etc., have been produced to show that this was otherwise a transaction in the ordinary course of business.'

17. Now, in the first letter Makhan Lal said, ' As mentioned......I have sincedeposited Rs. 4,00,000 in the......bank in your name.' This sentence doesnot help either the revenue or the assessee since it does not suggest whose money it was. The next sentence, however, is vital. It is ' I am writing this to you for your information so that you may be in a position to furnish the necessary reply to any reference that may hereafter be made to you in that behalf.' This significant sentence can only lead to one conclusion, namely, that Makhan Lal had deposited a sum of Rs. 4,00,000 belonging to himself in Munshi Ram's name and was informing Munshi Ram about it so that the latter might be in a position to, suitably, answer, queries that might be raised about it. The next letter clinches the question. Makhan Lal said in it, ' Rs. 4 lakhs which I had deposited in your name have been duly received back by me with interest thereon '. The words ' duly received back by me ' can only mean that Makhan Lal had taken back his own money. In the face of these letters, we are unable to say that it is possible to draw any conclusion other than that the money belonged to Makhan Lal. Our answer to question No. 6, therefore, is in the affirmative.

18. In view of our answers to questions Nos. 1, 2 and 6, we do not propose to answer the rest of the questions. There is no order as to costs.


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