M.U. Isaac, J.
1. The petitioner is a business man engaged in motor lorry transport. In respect of the assessment year 1958-59, he made a return of his income to the Income-tax Officer, Kottayam who is the respondent in this case. His return showed the income from property as Rs. 465 and the income from business as Rs. 9,302 the total income being Rs. 9,767. The respondent rejected the petitioner's return, and made an assessment to the best of his judgment fixing the income as Rs. 715 from property Rs. 50,579 from business and Rupees 30,000 from other sources. He thus fixed the total income as Rs 81,294. The sum of Rs. 30,000 according to the order of assessment consisted of Rs 8,000 paid for purchase of a parkins Engine, Rs. 15,000 paid for the purchase of a new lorry and Rs. 7,000 invested on building. The petitioner filed an appeal from the order of assessment to the Appellate Assistant Commissioner of Income-tax, TrivRndrum who allowed the appeal in part. The Appellate Assistant Commissioner held that out of the sum of Rs. 30,000 assessed by the respondent as income from other sources Rs. 26,722 alone related to the assessment year 1958-59 and that this amount should be added as undisclosed income from business. Accordingly he deleted the whole sum of Rs 30,000 assessed by the respondent as income from other sources, and determined the total income of the petitioner from business as Rs. 35.947 The petitioner filed an appeal from the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal.
The Tribunal further reduced the assessment and fixed the petitioner's business in-come at Rs. 13,201 by its order dated 2nd April 1962 The result was whereas the petitioner made a return of Rs. 9,302 as income from his business, the Appellate Tribunal finally fixed it at Rs. 13,201 the addition being only Rs. 3,899 The Income-tax Act 1922 (hereinafter referred to as the 1922 Act) was repealed and re-enacted as Income Tax Act 1961 (hereinafter referred to as the 1961 Act) Clause (d) to Section 297(2) of the 1961 Act reads as follows:-
'297(2) Notwithstanding the repeal of the Indian Income-tax Act 1922 (hereinafter referred to as the repealed Act).-
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(d) Where in respect of any assessment year after the year ending on the 31st day of March, 1940,--
(1) a notice under Section 34 of the repealed Act had been Issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed;
(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in Section 147 and no proceedings under Section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 148 may, subject to the provisions contained in Section 149 or Section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly'. By virtue of the above provision, the respondent issued a notice Ext. P-1 dated 21-2-1964 to the petitioner under Section 148 of the 1961 Act, proposing to assess his income believed to have escaped assessment for the year 1957-58. and calling upon him to submit a return in respect of the said income within 30 days of the service of the notice. Ext. P-1 reads as follows:-
'Whereas I have reason to believe that your income chargeable to tax for the assessment year 1957-58 escaped assessment within the meaning of Section 147 of the Income-tax Act. 1961.
I therefore propose to 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 our income assessable for the said assessment year.
2. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax. Kerala. Eranakulam '
On receipt of this notice, the petitioner wrote to the respondent by a letter, Ext. P-2 dated 15th June, 1964, requesting the respondent to let the petitioner know the reasons for coming to the conclusion that his Income had escaped assessment, and to furnish him with the copy of the reasons recorded by the Income-tax Officer and other relevant papers. The respondent replied to this letter by Ext. P-3 dated 15-2-1965. It is clear from Ext. P-3 that Ext. P-1 was Issued proposing to assess a sum of Rupees 22.873, which, according to the respondent, escaped assessment in the assessment year 1957-58. The reasons for his belief are best stated in Ext. P-3 itself. He states in Ext. P-3:-
'In appeal the A. A. C. held that the I. T. O's finding regarding income from undisclosed sources was substantially correct, but reduced the quantum to Rs. 26,772. The A. A. C. also correlated the income of Rupees 26,772 from undisclosed sources in the addition made in the business income. So there was no separate addition under 'other sources'. The total income as fixed by the A. A. C was Rs. 35,947. The A. A. C. also found that the Investment of Rs. 26,772 weremade in the earlier part of the Malayalam year 1132 M. E. i.e. before April 1957. However, he did not give any direction to consider this income for 1957-58 assessment Instead he telescoped this in the business income. The assessee further went in appeal before the Appellate Tribunal which reduced the total income to Rs.13,916. But it did not express any opinion on the A. A. C.'s finding that there was concealment of income to the tune of Rs. 26,772. In view of the Tribunal's decision the net business-income assessed was Rs. 13,201 as against Rs. 9.302 returned by the assessee. So the intangible addition sustained by the Tribunal is only Rs. 3.899. Setting off this much against the quantum of unexplained investment of Rs.22,873 made by the assessee in the financial year 1956-57. This really represents assessee's own income from undisclosed sources and it has escaped assessment '
The petitioner, by a letter Ext. P-4 dated 28-2-1966, objected to the proposed assessment proceedings. He contended that the assessment for the year 1958-59 had become final by the order of the Appellate Tribunal, that the respondent was trying to assess an income, which the Appellate Tribunal deleted from the assessment by re-opening the assessment for the year 1957-58 and including it as an escaped income of the said year and that the said action was unwarranted. He also contended that, at any rate, the disputed income fell under Clause (b) of Section 147 of the 1961 Act and not under Clause (a) thereof that, under Section 149 of the 1961 Act, no notice under Section 148 can be issued in respect of a case falling under Section 147(b) at any time after the expiry of four years from the end of the relevant assessment year, and that, as Ext. P-1 has been issued after the expiry of the said period, the proceedings sought to be taken against him were without jurisdiction. The petitioner also filed a return of his income under protest. The respondent did not pay heed to Ext. P-4. which was followed by another notice Ext P-5, dated 28-2-1966, issued to the petitioner calling upon him to attend his office on 8-3-1966 with documents accounts and other evidence, on which he may rely in support of the return filed by him The petitioner has, therefore, filed this Original Petition to issue a writ of prohibition restraining the respondent from taking any proceedings pursuant to Exts P-1 and P-5,
2. The respondent has filed a counter-affidavit justifying the action taken by him against the petitioner. According to him, the sum of Rs. 26,772 found by the Appellate Assistant Commissioner to be investments no1 brought into accounts of the petitioner in respect of the assessment year 1958-59 consisted of amounts invested by him during the earlier part of the account year 1132, which falls in the financial year 1956-57 It is not explained in the counter-affidavit that in view of the fact that the accounting year 1132 was the previous year of the petitioner for the assessment year 1958-59, how the amounts said to have been invested by him during the accounting year 1132, could be assessed as escaped income for the year 1957-58. The learned counsel appearing for the respondent has explained the position.
He referred to Section 159 of the 1961 Act, and submitted that this Section deals with unexplained investments which are not recorded in the books of account of an assesses, if any, maintained by him for any source of income, and about the nature and source of which the assessee offers no explanation or the explanation offered by him is not satisfactory, and that it provides that such investments may be deemed to be income of the assessee of the financial year in which such investments were found to have been made. It was, therefore, contended by the learned counsel that the sum of Rs. 26 772 was assessable for the assessment year 1957-58 by virtue of above Section 65.
As explained in Ext. P-3. a sum of Rs. 3,899 out of the aforesaid sum had been included by the Appellate Tribunal in the assessment for 1958-59. and it is the balance of Rs. 22,873 that was proposed to be assessed for the year 1957-58 as income which escaped assessment In other words if an income chargeable to tax under the 1922 Act escaped assessment within the meaning of that expression in Section 147 of the 1961 Act. and the proceedings for the assessment of that income under the 1922 Act are not pending at the commencement of the 1961 Act action can be taken under the 1961 Act for assessment of the said escaped income. And if the escaped income consisted of unexplained investments falling under Section 69 of the 1961 Act such investments may be deemed to be income of the financial year during which the Investments were made, and assessed for the succeeding financial year.
3. The petitioner's learned counsel contended that Section 69 of the 1961 Act had no application to this case and that it ran be applied only for assessment years commencing from the coming into force of the 1961 Act According to the respondent's learned counsel, the case fell under Sub-clause (ii) of Clause (d) of Section 297(2), and this sub-clause attracted the operation of the Sections 147 - 150 of the 1961 Act, and Section 147 attracted the application of Section 69 in respect of unexplained investments. It is not necessary for me to decide this question in view of the decision I take on the applicability of Section 147 of the 1961 Act to this case.
4. Section 147 reads as follows:-'147. If-
(a) the Income-tax Officer has reason to believe that, by reason of the omission orfailure 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 Section 148 - 153 assess or re-assess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 - 153 referred to as the relevant assessment year).'
This section has two explanations; and they are omitted here, being not relevant to the controversy. Sub-section (1) of Section 149 of the 1961 Act reads as follows:
'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 '
Admittedly this is not a case falling under Section 149(1)(a)(ii). According to the respondent the case falls under Section 149(1)(a)(i); and according to the petitioner, it falls under Section 149(1)(b). There is no controversy that if the case does not fall under Section 149(1)(a)(i), Ext P-1 the notice issued under Section 148 is time barred, and the first respondent has no jurisdiction to take the proceedings proposed to be taken as per Ext P-1. Section 149(1)(a)(i) deals with cases falling under Sub-section (a) of Section 147: and reading Section 147(a) it is clear that the provision applies only, if the Income-tax Officer has reason to believe that-
(a) income of a person chargeable to tax has escaped assessment for any assessment year, and
(b) it happened by reason of the omission or failure on the part of the assessee to make a return of his income for the said assessment year or to disclose fully and truly all material facts necessary for his assessment for that year.
In Calcutta Discount Co., Ltd. v. Income Tax Officer, : 41ITR191(SC) the Supreme Court said :-
'To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year, two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such 'under-assessment' has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years, but within the period of eight years, from the end of the year in question.' The above observations made with respect to Section 34 of the 1922 Act by the Supreme Court apply equally to the conditions necessary for the issuance of notice under Section 147 of the 1961 Act. The above decision was followed, and the same principles were reiterated by the Supreme Court in Narayanappa v Commissioner of Income Tax, Bangalore, : 63ITR219(SC) . Now on the facts of this case and the finding of the Appellate Assistant Commissioner in respect of the assessment for the year 1958-59, there can be no doubt that the petitioner did not include in his return a sum of Rs. 26,772, and that he did not disclose any material necessary for the assessment of the said income. It is also true that, as mentioned in Ext. P-3 a sum of Rupees 22,873 out of the above amount escaped assessment for the said year. But this alone is not sufficient to attract the application of Section 147(a): it is also necessary as I stated above, that this income must have escaped assessment by reason of the omission or failure on the part of the petitioner to make a return of this income or to disclose fully and truly all material facts necessary for his assessment.
It is clear from the facts of the case that the escape of assessment of this income for the year 1958-59 was not by reason of any such conduct on the part of the petitioner. In spite of the petitioner's failure to disclose this income, the Income-tax Officer discovered it and assessed it. In fact, he assessed a much larger amount. The Appellate Assistant Commissioner also confirmed the assessment. The only reason why this income escaped assessment was that the Appellate Tribunal did not take it into account, when determining the petitioner's total income under business, which it fixedat Rs. 13,201. As pointed out in Rao Thakur Narayan Singh v. Commissioner of Income-tax : 44ITR178(All) the proper coursa for the Department was either to move the Appellate Tribunal for a rectification of the error or to take up the matter to the High Court. Whatever that may be, it is obvious that this income did not escape assessment by reason of the petitioner's omission or failure to disclose fully and truly any material facts.
5. Ext. P-1 has been, however, issued to assess the income, which escaped assessment for the year 1958-59 under the circumstances above stated, as an income which escaped assessment for the year 1957-58, by invoking the application of Section 69, and thereby bringing it under Clause (a) of Section 147 of 1961 Act. Assuming for argument's sake, that Section 69 applies to this case, Section 147(a) will not again be available for the Department Neither when the assessee submitted his return for the year 1957-58, nor when his assessment for the said year was completed, the 1961 Act had been enacted. Admittedly, the income that is now sought to be assessed as income escaped assessment relates to the early part of 1132, which is the accounting period of the petitioner for the assessment year 1958-59. Therefore, if the petitioner did not show the disputed income in his return for the year 1957-58 or did not disclose any materials for the assessment of this income for that year, there can be possibly no failure or omission on his part to do anything for the assessment of that income for that year; because it was not assessable for that year. As the omission or failure on the part of the petitioner to make the return or to disclose the material facts truly or correctly, does not relate to the assessment year 1957-58, Section 147(a) of the 1961 Act is not attracted for the assessment of that income for the said year. The learned counsel for the respondent referred me to the decision in Raghubar Dayal Ram Krishan v Commissioner of Income-tax, U. P. : 63ITR572(All) and contended that income concerned in this case really related to the assessment year 1957-58, and it escaped assessment because of the omission of the petitioner to disclose fully and truly all the material facts. In this case, certain items of income were assessed for the year 1955-56 as income not disclosed by the books of account of the assessee.
In appeal from the said assessment, the Tribunal held that this income related to the assessment year 1954-55 and not to the assessment year 1955-56. Thereupon the Income-tax Officer issued notice under Section 34(1) (a) of the 1922 Act to re-assess the said income. The question arose whether the income thus proposed to be assessed fell under Clause (a) of Section 34 or Clause (b) of the said section. It was held in that cast that the income fell under Clause (a) of Section 34. The learned counsel contended that,in that case as in this case, the income was wrongly assessed for one assessment year, but it was subsequently held that it was assessable for a different year, and that such an amount was held to be an income which escaped assessment within the meaning of Clause (a) of Section 34(1), which corresponds to Section 174(a) of the 1961 Act. But the difference between that case and the case in hand is that it was a case where the Income was not disclosed nor considered in respect of the assessment year in which it should have been assessed.
As I have pointed out earlier, in this case there cannot be any suppression of income as regards the assessment year 1957-58; because, according to the law then in force, this income could not have been returned nor assessed for the year 1957-58. It is only by virtue of Section 69 of the 1961 Act that this income is sought to be assessed for the year 1957-58. The learned counsel also referred to the decision in Mithoo Lal Tek Chand v. Commissioner of Income-tax, U. P. : 64ITR377(All) . This decision is very similar to the one already referred to and cannot, therefore, help the respondent.
6. The respondent's learned counsel finally contended that the question whether the case falls under Clause (a) or (b) of Section 147 of the 1961 Act and whether a notice issued under Section 148 is time-barred is a question to be determined by the respondent, and not one to be examined under Article 226 of the Constitution by this Court. In support I of this contention he relied on the decision of the Supreme Court in Lalji Haridas v. P. H. Bhatt, : 55ITR415(SC) . In this case the Supreme Court said :-
'The jurisdiction conferred on the High Court under Article 226 is not intended to supersede the jurisdiction and authority of the Income-tax Officers to deal with the merits of all the contentions that the as-sessees may raise before them, and so it would be entirely inappropriate to permit an assessee to move the High Court under Article 226 and contend that notice issued against him is barred by time. That is a matter which the income-tax authorities must consider on the merits in the light of the relevant evidence.
Apart from this aspect of the matter, however, the plea of limitation sought to be raised by Mr. Pathak was not even specifically made as it should have been in the writ petition filed before the High Court.' The case in hand is entirely different from the case dealt with by the Supreme Court. In this case, the plea of limitation was specifically raised before the respondent, and has also been raised in this writ petition. There U no question of taking any evidence to determine the question of limitation. The facts are beyond controversy; and it is clear from Ext. P-3 that what the respondent proposes to assess is an Income which escaped assessment during the year 1958-59, as a result of the final decision of the AppellateTribunal, and that he is trying to assess the said income for the year 1957-58, by virtue of Section 69 of the 1961 Act. In : 63ITR219(SC) the Supreme Court dealing with Section 34(1) (a) of the 1922 Act said:--
'It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such nondisclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith; it cannot be merely a pretence. To put it differently it is open to the Court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a Court of law.'
If, on the facts, it is a clear case, to which Section 147(a) is not attracted, as I have already held, the proceedings taken by the respondent is without jurisdiction, and the petitioner is entitled to a writ prohibiting the respondent from pursuing the said proceedings. Therefore, the respondent's contention that this Court is not entitled to interfere with the respondent's action at this stage cannot be accepted.
7. In the result, I allow this Original Petition, and quash Exts. P-1 and P-5 and all the proceedings taken by the respondent pursuant to Ext. P-1. There will be no orderas to costs.