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income-tax Officer, Central Circle Xiv, New Delhi, and Others Vs. Chiranji Lal Ramji Das. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberL.P.A. No. 41 from C.W. No. 782 A-D of 1965
Reported in[1978]111ITR138(Delhi)
Appellantincome-tax Officer, Central Circle Xiv, New Delhi, and Others
RespondentChiranji Lal Ramji Das.
Excerpt:
.....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 assessed, 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 section 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) ' 151. (1) no notice shall be issued under section 148 after..........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 assessed, 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 section 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).explanation 1. - for the purposes of this section, the following.....
Judgment:

PRITAM SINGH SAFEER J. - This Letter Patent Appeal is directed against the judgment of H. R. Khanna J. (as he then was). dated the 24th of March, 1969 (Chiranji Lal Ramji Das v. ITO : [1978]111ITR138(Delhi) . by which Civil Writ No. 782 A/D of 1966 was disposed of.

The writ had been filed by the respondents to this appeal impugning a notice dated 21st March, 1966, issued under section 148 of the Income-tax Act, 1961 (hereafter called 'the Act'), and the prayer was that the notice be quashed and the proceedings being conducted in the consequence thereof be discontinued.

The respondents were a Hindu undivided family-firm carrying on business as commission agents with head office at Bhiwani and branches at Delhi, Hazaribagh, Narnaul, Bikaner and other places. The said status of the firm continued till the 13th of November, 1955, when a partial partition took place. In paragraph 7 of the writ petition it was asserted that the income of the various branches was assessed as described therein and assessment for the year 1949-50 was made by an order dated 31st January, 1952. It was then stated in paragraph 8 of the writ petition that on 21st of March, 1966, a notice had been issued under section 148 of the Act 'on the unfounded allegation that the income chargeable to tax for the assessment year 1949-50 had escaped assessment within the meaning of section 147 of the Act of 1961. 'After receiving the notice the respondents filed a return dated 25th April, 1966, in order to avoid an ex parte assessment. It is stated in paragraph 9 of the writ petition that there were inadvertent omissions of important legal objections and a revised return was filed on the 9th of September, 1966. A copy of the revised return was filed as annexure 'D' with the writ petition. A note was made on the revised return to the effect : 'Under protest. No income has escaped assessment. The notice under section 148 is illegal and barred by time.' The writ petition was later on allowed to be amended so as to contain further facts and grounds.

It is clear that the revised return dated 9th September, 1966, itself contained two objections. The first was that the return was being filed under protest as no income had escaped assessment. That was a challenge to the applicability of section 148 of the Act to the circumstances of the case. The second objection was that the notice under section 148 was illegal and barred by time. As would appear from the judgment of the learned single judge, both the objections were ultimately urged at the hearing of the writ petition and were discussed in detail. Apart from the note made on the revised return, the respondents to this appeal sent objections to the income-tax authorities, a copy whereof was filed as annexure 'F' with the writ petition. It was stated that the proceedings initiated were barred by limitation. In paragraph 15 of the writ petition it was stated :

'The Act empowers an Income-tax Officer to initiate proceedings under section 148 read with section 147 of the Act, 1961, when he has 'reason to believe' and 'not reason to suspect'. Before initiating proceedings he should have in his possession information which led him to the conclusion that income, profits and gains have escaped assessment.'

We have reproduced the above from the writ petition for the reason that the learned single judge dealt with that aspect and one of the contentions raised again before us is that the petitioner, the present respondent before us, had not impugned the notice issued under section 148 on the ground that the Income-tax Officer had no reason to believe that income chargeable to tax had escaped assessment for a particular year. The aforequoted averment apart from repelling the contention goes to the extent of urging that before initiating the proceedings the Income-tax Officer should have had in his possession information which led him to the conclusion that income, profits and gains had escaped assessment.

The judgment under appeal discloses that two principal contentions were raised before the court. The first was that the issuance of the notice under section 148 was barred by time. The provisions contained in the old Act of 1922 were brought to the notice of the court and it was urged that section 297 of the Act of 1961 could not be construed as reviving the rights of the Income-tax Officer to re-open assessment where the rights stood extinguished and barred under the old Act. After considering the cases relied upon by the respondent to the appeal the learned single judge came to the conclusion that no assistance could be derived from the authorities cited before him because, according to the affidavit filed on behalf of the present appellants (respondents to the writ petition), the escaped income in the case was more than Rs. 1 lakh for the assessment year 1949-50. It was noticed that in respect of the escaped income of over a lakh of rupees the Act of 1922 did not prescribe any period of limitation. It was held that the Income-tax Officer by issuing the notice under section 148 of the Act was not trying to re-open an assessment in a case where the right to re-open it had become barred under the old Act.

The finding on the first contention raised before the learned single judge has not been questioned before us. Even otherwise, we are in agreement with the same.

The main contention raised before us is that the learned single judge should not have held that the appellants had failed to substantiate the validity of the notice issued under section 148 of the Act because the Income-tax Officer, while issuing it has sufficient material before him on the basis of which he had reason to believe that by reason of omission or failure on the part of the assessed to make the return under section 139 of the Act or to disclose fully and truly all material facts necessary for his assessment the income chargeable to tax had escaped assessment. The argument is that the Income-tax Officer had complied with the requirements of all the relevant provisions and the notice had been validly issued. This argument can best be appreciated in the light of the provisions concerned. Sections 147, 148, 149 and 151 in the Act are :

'147. If -

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessed 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 assessed, 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 section 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).

Explanation 1. - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :

(a) where income chargeable to tax has been under-assessed; or

(b) where such income has been assessed at too low a rate; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or

(d) When excessive loss or depreciation allowance has been computed.

Explanation 2. - Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.'

'148. (1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessed a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 and the provisions of this Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

'149. (1) No notice under section 148 shall be issued, -

(a) in cases falling under clause (a) of section 147 -

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii);

(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year :

(b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.

(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.'

'151. (1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

(2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.'

The provisions, quoted above, on close scrutiny reveal that there are imperative obligations imposed by the statute and the prescribed conditions ought to pre-exist in order to justify the issuance of the notice under section 148 of the Act. Section 149 prescribes the periods of limitation. Section 151 provides that no notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for issuing such a notice. It is imperative in terms of section 151(1) of the Act that the Income-tax Officer must state the reasons to the Board in order to obtain a prior sanction for issuing the notice under section 148 where eight years have expired as from the end of the relevant assessment year. In the present case, section 151 was attracted and the notice issued stated that it had been issued after obtaining the satisfaction from the Board. It must, however, be appreciated that the satisfaction of the Board was a matter as between the Income-tax Officer and the Board. It was an inter-departmental and inter-statutory action preceding the issuance of the notice under section 148 of the Act.

Section 148 in sub-section (2) contains an imperative obligation that the Income-tax Officer must, before issuing the notice under the said provision, record his reasons for doing so. That is a condition precedent. After receiving the satisfaction of the Board, as required by section 151, before issuing the notice under section 148, the Income-tax Officer has to record his reasons for issuing the notice. The satisfaction accorded by the Board under section 151 does not provide any substitute and the Income-tax Officer is not relieved of the obligation imposed by section 148(2) which becomes imperatively necessary in order to establish on the record the reasons for which the Income-tax Officer may be issuing the notice under section 148 of the Act.

It must be appreciated that where an assessment is sought to be reopened in terms of section 147 of the Act, the assessed would be in the position as if no assessment has been made for the relevant year. The provisions, quoted above, contain in them the legislative care and anxiety that assessment, reassessment or recomputation under section 147 may be made only after the requirements imposed by the statute as pre-requisites have been complied with. An examination of section 147 itself leads to the conclusion that :

(a) Before acting under it the Income-tax Officer should have reason to believe that action is to be taken.

(b) The Income-tax Officer's 'reason to believe' must be based on the conclusion that the income chargeable to tax has escaped assessment for a particular year on account of the omission or failure on the part of an assessed to make a return under section 139 or to disclose fully and truly all material facts necessary for his assessment.

What does the legislature really require The requirement is that the Income-tax Officer must have the material with him which should furnish the basis for his reason to believe that income chargeable to tax has escaped assessment on account of the omission or failure on the part of the assessed to make a true return under section 139. He must have the material which should convince him that the assessed had not disclosed fully and truly and the material facts necessary for an accurate assessment. Unless the requisite materials is there with the Income-tax Officer, he will not be having any judicial reason to believe that income chargeable to tax has escaped assessment for the precise year in respect of which he may issue notice under section 148 of the Act. These provisions including section 147 contain the conditions which must exist in order to give jurisdiction under section 148 of the Act. Explanationn 1 in section 147 enumerates in clauses (a) to (d) the cases in which it may be deemed that income chargeable to tax has escaped assessment. If the provisions in clauses (a) to (d) in Explanationn 1 in section 147 are kept in view then it becomes clear that the Income-tax Officer will conclude that he has reason to believe within the scope of clause (a) of section 147, after taking into consideration the provisions in clauses (a) to (d) along with other circumstances. The judgment under appeal dealt with the affidavit filed on behalf of the respondents to the writ petition and found it unsatisfactory. The counsel appearing on behalf of the respondents to the writ petition urged :

'Mr. Kirpal, on behalf of the respondent Nos. 1 to 3, has urged that it was not necessary for the Income-tax Officer to refer to the material in his affidavit because such material is indicated by notices dated July 15, 1966, August 3/4, 1966, and August 22/27, 1966, which were issued by the Income-tax Officer to the petitioner.'

The attitude adopted was that respondents Nos. 1 to 3 to the writ petition were not prepared to show to the learned single judge the material on the basis of which the Income-tax Officer had the reason to believe that he should act in terms of section 147 for issuing the notice under section 148 and the counsel urged that although the notice under section 148 had been issued on 21st March, 1966, the income-tax department was not prepared to show the material which existed before that date with the Income-tax Office and that the learned judge was to confine himself to the averments in the notices subsequently issued to the respondents to this appeal. In that particular situation referring to those notices, the learned single judge observed (See page 147 supra) :

'The last two of them purported to be under section 143(3) of the Act of 1961. The provision under which notice dated July 15, 1966, was issued has not been specified but it is stated by Mr. Kirpal that that notice too was under section 143(3) of the above-mentioned Act. In these notices the Income-tax Officer called upon the petitioner to furnish information and Explanationn in respect of a number of matters. Although there are indications in these notices that certain income had escaped assessment, there is nothing in these notices to show that the income had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment of the assessment year 1949-50. The mere fact that income had escaped assessment would not also lead to the conclusion that this was due to omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment.'

We are of the view that the relevant materials should have been placed before the learned single judge on the basis of which the Income-tax Officer had acted under sections 147 and 148 of the Act. the respondents to the writ petition could have only then shown justification for the issuance of the notice under section 148 of the Act.

We are in agreement with the following observations made by the learned single judge in the judgment under appeal (See page 148 supra) :

'The respondents had to show that there was materials with the Income-tax Officer at the time he issued notice dated March 21, 1948, (sic) under section 148 of the Act of 1961, on the basis of which he could have reasonably formed the belief that the income in the assessment year 1949-50 had escaped assessment by reason of omission or failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment.'

The learned single judge after hearing the parties rightly came to the conclusion that the revenue had failed to show any material on the basis of which the Income-tax Officer could form the belief that it was due to omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment of the income for the period concerned that any taxable income had escaped assessment.

No case had been made out before us justifying the stand of the department taken up before the learned single judge. If the Income-tax Officer had with him the requisite material for acting under sections 147 and 148 of the Act there should have been no hesitation in disclosing the material to the learned single judge. The conclusion in the judgment under appeal was inevitable that the department has not been able to show any material on the basis of which the impugned notice had been competently issued under section 148 of the Act. We do not find any justification for interfering with the judgment under appeal and dismiss the appeal without there being any order as to costs.

Appeal dismissed.


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