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Ranbir Engineering Mills Store Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Writ Petition Nos. 3018 and 3132 of 1972
Judge
Reported in[1980]126ITR512(P& H)
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantRanbir Engineering Mills Store
Respondentincome-tax Officer
Appellant Advocate Bhagirath Dass,; S.K. Hirajee and; B.K. Gupta, Advs.
Respondent Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Excerpt:
.....as well as his counsel, sarvshri o. the interest paid to these creditors, as entered in the books of the assessees as well as the creditors, was at a nightly inflated figure whereas in fact only small amounts of commission were paid by the assessee for the accommodation received from these so-called creditors. i have, therefore, reasons to believe that due to the failure on the part of the assessee-firm to disclose fully and truly all material facts necessary for its assessment the income of rs. the evidentiary value to be attached to the material on the basis of which the notices have been issued is a matter for further enquiry and if the assessee is able to show that the material sought to be relied upon is irrelevant or is not reliable, it will be a determination of the merits..........1970-71. 15-9-1971. during the course of raid on 25-9-1970 on the premises shri harbans lal, money-broker, ludhiana, certain secret records were taken into custody by the income-tax department. on the basis of these records the income-tax officer, special circle 'a' ward, ludhiana, sent the information that the assessee-firm had introduced its own black money into the books of account during the financial year 1969-70 in the guise of alleged loan from the following parties : (1) shri om parkash loomba, ludhiana (rupa mistry street) rs. 9,000 on 17-4-1969. (2) parshotam lal rajinder parsad, bhatinda, rs. 15,000 on 14-4-1969. (3) bipan chand pal karam chand, bhatinda, rs. 10,000 on 14-4-1969. (4) guru tagh bahadur trading co. anandpur sahib, rs. 10,000 on 14-4-1969. the amount of interest.....
Judgment:

B.S. Dhillon, J.

1. This judgment will dispose of Civil Writ Petitions Nos. 3018 and 3132 of 1972. The petitioner in both these writ petitions is an assessee under the I.T. Act, 1961 (hereinafter referred to as 'the Act '). The assessment proceedings relate to the assessment year 1970-71 in CWP No. 3018 of 1972, and to the assessment year 1969-70 in CWP No. 3132 of 1972. The petitioner filed the returns for the relevant years along with certain documents supporting the returns. A list of 27 persons to whom interest was paid by the assessee was furnished before the ITO. The assessment proceedings were completed on 3rd January, 1971. Vide the impugned notices issued under Section 147 of the Act in both the writ petitions, the ITO sought to reopen the assessments made, as it was found that the assessee's income escaped assessment within the meaning of Section 147 of the Act.

2. It has been averred in the petitions that the issuance of the notices is without jurisdiction as the ingredients of Section 147 of the Act are not satisfied. In para. 11 of the return, filed in CWP No. 3018 of 1972, it has been averred as follows :

'11. The para. 11 of the petition is admitted. It may be mentioned here that the assessee was only trying to prolong the proceedings after originally promising co-operation on 9th August, 1972. There was hardly any point in asking whether the proceedings were under Section 147 (a) or (b) of the Act because it was clear to the assessee that the proceedings had started because of concealment.'

3. It may be mentioned here that on 25th September, 1970, extensive raids were carried out by the I.T. Dept. under Section 132 of the Act on the permises of various brokers and other parties in the city of Ludhiana. Voluminous documentary material was recovered as a result of the searches that took place and the material was duly examined and processed by various officers of the department. As a result of this examination action was taken against various assessees for concealment of their true income.

4. One of the brokers whose premises were searched was Shri Harbans Lal, who was operating on a large scale. The books seized from his residential premises were maintained in Mahajani script. These books were examined by Shri J. Kathuria who was then the ITO, District I(10), Ludhiana. As a result of his examination, Shri J. Kathuria found that Shri Harbans Lal was acting as the petitioner's broker also in a large number of transactions. On examination of the books of Shri Harbans Lal it was found that many of the transactions recorded in the books of the petitioner were accommodation entries technically called 'C' class hundi loans.

5. This means that no money had actually passed but the so-called creditors were name-lenders only. The interest paid to these creditors, as entered in the books of the assesses as well as the creditors was at a highly inflated figure whereas in fact only small amounts of commission were paid by the assessee for the accommodation received from these so-called creditors. The correct amounts of these commissions were entered in the books of the aforesaid broker which represented the real state of affairs with regard to these transactions. Thus, neither the books of the petitioner nor the books of its so-called creditors carried the true nature of the transactions. The true nature of the transactions was recorded in the books of the broker. These books were kept hidden from the department till they came to surface by the aforesaid successful search and seizure.

6. Shri J. Kathuria, ITO, communicated the result of his findings after scrutiny of the aforesaid books of Shri Harbans Lal to Shri T.N. Chopra, ITO, District 1(2), Ludhiana, who then had jurisdiction over the case of the petitioners on 29th July, 1971.

7. As a result of this information the aforesaid Shri T.N. Chopra recorded his reasons as required by law and issued the notice under Section 148 of the Act in respect of the year under consideration.

8. The reasons recorded by Shri T. N. Chopra are reproduced below :

' M/s. Ranbir Engineering and Mills Stores, G. T. Road, Ludhiana.

Assessment year 1970-71.

15-9-1971. During the course of raid on 25-9-1970 on the premises Shri Harbans Lal, money-broker, Ludhiana, certain secret records were taken into custody by the income-tax department. On the basis of these records the Income-tax Officer, Special Circle 'A' Ward, Ludhiana, sent the information that the assessee-firm had introduced its own black money into the books of account during the financial year 1969-70 in the guise of alleged loan from the following parties :

(1) Shri Om Parkash Loomba, Ludhiana (Rupa Mistry Street) Rs. 9,000 on 17-4-1969.

(2) Parshotam Lal Rajinder Parsad, Bhatinda, Rs. 15,000 on 14-4-1969.

(3) Bipan Chand Pal Karam Chand, Bhatinda, Rs. 10,000 on 14-4-1969.

(4) Guru Tagh Bahadur Trading Co. Anandpur Sahib, Rs. 10,000 on 14-4-1969.

The amount of interest actually paid by the assessee in respect of these loans is much less than the amount claimed by the assessee in its books. The interest payment vouchers seized by the department mentioned the amount of interest actually claimed by the assessee in its books, but the amount of interest actually paid which is a smaller amount finds place in the seized diaries of the broker. These loans are obviously havala loans and the lenders are merely name-lenders. I have, therefore, reasons to believe that due to failure on the part of the assessee-firm to disclose fully and truly all material facts necessary for its assessment the income of Rs. 44,000 plus excess interest claimed, by the assessee-firm, has escaped assessment for the assessment year 1970-71.

Issue notice under Section 148.

Sd. (T.N. Chopra)

Income-tax Officer, District 1(2),

Ludhiana.'

9. In the return filed in C.W.P. No. 3132 of 1972, averments made in paras. 11 and 13 thereof, are as follows :

'11. That para. 11 of the petition is admitted. The respondent reiterated his assurance to the assessee that he will get full opportunity to rebut the evidence on the basis of which addition, if any, might be made. He further requested the assessee to extend his full co-operation to the respondent for a proper disposal of the matter.

It may be mentioned here that in response to the respondent's notice under Sections 143(2) and 142(1) of the Act the assessee (partner) appeared before him on 9th August, 1972, along with his counsel and the books of accounts. The books of accounts were partly examined and the assessee was asked to furnish the following information in writing :

'(1) Indicate the broker's name in respect of the following loans raised :

Rs.

(i)

Bimla Rani

7,000

(ii)

Pardeep Kumar, s/o Sohan Lal Singal

11,000

(iii)

Indra Rani

12,500

(iv)

Bipan Chander Pal Karam Chand, Bhatinda

10,000

(v)

Guru Tegh Bahadur Trading Company

10,000

(vi)

Parshotam Lal Rajinder Parkash

15,000

(vii)

Om Parkash Loomba

9,000

(viii)

Gopal

10,000

(ix)

Ram Lal

5,000

(x)

Ram Sarup & Sons

5,000

(xi)

Rattan Devi, wife of Ram Lal

5,000

(xii)

Surinder Singh

4,000

(xiii)

Pooran Singh

5,000

(2) If the abovementioned loans are through the broker, then date-wise details of brokerage paid and mode of payment.

(3) Interest paid in respect of the above 13 loans with effect from 1-4-1968 to the date of squaring up of last account, indicating the date and the mode of payment and whether paid directly or through any broker. If through the broker, then his name also.

(4) When were the 13 loans paid off, with mode of payment ?

(5) Intimate the date on which the loans in the names of Surinder Singh and Pooran Singh originated in the books of the assessee.'

The assessee as well as his counsel, Sarvshri O.P. Bansal and J.P. Kohli, advocates, promised to furnish these particulars by the next date, i.e., 26th August, 1972. Shri O.P. Bansal signed the order sheet. It appears that the assessee had an after-thought as a result of which he issued annex. 'H' to the petition on 19th August, 1972. This letter was duly replied to by the respondent on 26th August, 1972, whereby he requested the assessee to co-operate as already promised by him (the partner). The case was then adjourned at the instance of the assessee. Instead of supplying the necessary information, the present petition was filed in the High Court......

13. That para. No. 13 of the petition is admitted. It may be mentioned here that the assessee was only trying to prolong the proceedings after originally promising co-operation on 9th August, 1972. There was hardly any point in asking whether the proceedings were under Section 147 (a) or (b) of the Act because it was clear to the assessee that the proceedings had started because of concealment.'

10. It may be mentioned here that on 25th September, 1970, extensive raids were carried out by the income-tax department under Section 132 of the Act on the premises of various brokers and other parties in the city of Ludhiana. Voluminous documentary material was recovered as a result of the searches that took place and the material was duly examined and processed by various officers of the department. As a result of this examination action was taken against various assessees for concealment of their true income.

11. One of the brokers whose premises were searched was Shri Harbans Lal who was operating on a large scale. The books seized from his residential premises were maintained in Mahajni script. These books were examined by Shri J. Kathuria who was then the ITO, District 1(10), Ludhiana. As a result of his examination Shri J. Kathuria found that Shri Harbans Lal was acting as the petitioner's broker also in a large number of transactions. On examination of the books of Shri Harbans Lal it was found that many of the transactions recorded in the books of the petitioner were accommodation entries technically called 'C' class hundi loans. This means that no money had actually passed but the so-called creditors were name-lenders only. The interest paid to these creditors, as entered in the books of the assessees as well as the creditors, was at a nightly inflated figure whereas in fact only small amounts of commission were paid by the assessee for the accommodation received from these so-called creditors. The correct amounts of these commission were entered in the books of the aforesaid broker which represented the real state of affairs with regard to these transactions. Thus, neither the books of the petitioners nor the books of their so-called creditors carried the true nature of, the transactions. The true nature of the transactions was recorded in the books of the broker. These books were kept hidden from the department till they came to surface by the aforesaid successful search and seizure.

12. Shri J. Kathuria, ITO, communicated the result of his findings after scrutiny of the aforesaid books of Shri Harbans Lal to Shri T. N. Chopra, ITO, District I(2), Ludhiana, who then had jurisdiction over the case of the petitioners on 29th July, 1971.

13. As a result of this information the aforesaid Shri T.N. Chopra recorded his reasons as required by law and issued the notice under Section 148 of the Act in respect of the year under consideration.

14. The reasons recorded by Shri T.N. Chopra are reproduced below :

'M/s. Ranbir Engineering and Mills Store, G. T. Road, Ludhiana.

Assessment year -1969-70.

15-9-1971. During the course of raid on 25-9-70 on the premises of Shri Harbans Lal, money-broker, Ludhiana, certain secret records were taken into custody by the income-tax department. On the basis of these records the Income-tax Officer, Special Circle, 'A' Ward, Ludhiana, sent the information that the assessee-firm had introduced its own black money into the books of account during the financial year 1968-69 in the guise of alleged loans from the following parties :

(1) Shrimati Ratan Devi, wife of Shri Ram Lal, c/o. Rajasthan Textile Supply Co., Poorani Kotwali, Ludhiana, Rs. 5,000 on 31-3-1969.

The amount of interest actually paid by the assessee in respect of these loans is much less than the amount claimed by the assessee in its books. The interest payment vouchers seized by the department mention the amount of interest actually claimed by the assessee in its books, but the amount of interest actually paid which is a smaller amount finds place in the seized diaries of the broker. These loans are obviously havala loans and the lenders are merely name-lenders. I have, therefore, reasons to believe that due to the failure on the part of the assessee-firm to disclose fully and truly all material facts necessary for its assessment the income of Rs. 5,000 plus excess interest claimed by the assessee-firm has escaped assessment for the assessment year 1969-70.

Issue notice under Section 148.

Sd. (T. N. Chopra),

Income-tax Officer, District 1(2),

Ludhiana.'

15. After hearing the learned counsel for the parties and taking into consideration the averments made in the petitions and in the returns especially the portions of the returns, which have been reproduced above, we are of the opinion that no fault can be found with the issuance of notices which are sought to be impugned. In view of the averments made in the returns it is difficult for us to hold that there was no material before the ITO to connect the case of the petitioner so as to have reason to believe that the income chargeable to tax has escaped assessment. As is clear from the averments made in the returns, the books of account which were recovered from the custody of Shri Harbans Lal did reveal the relevant material to enable the ITO to form the requisite opinion. The evidentiary value to be attached to the material on the basis of which the notices have been issued is a matter for further enquiry and if the assessee is able to show that the material sought to be relied upon is irrelevant or is not reliable, it will be a determination of the merits of the case, but keeping in view the averments made, it is difficult for us to hold that the notices which are sought to be impugned in these petitions, are without jurisdiction.

16. For the reasons recorded above, there is no merit in both these writ petitions and the same are hereby dismissed. However, there will be no order as to costs.


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