JAGADISAN J. - Sankaralinga Nadar and his two sons, Muthumaniratnam and Nagarajan, together constituted members of a Hindu undivided family. The family was carrying on business by trading in arecanuts imported from Ceylon. The business was done under the three vilasams, (1) V.A.M. Sankaralinga Nadar, (2) V.A.M.S. Muthumaniratna Nadar, and (3) V.A.M.S. Nagarajan. The family became divided on April 13, 1940, and each of the three coparceners got the business in their respective names by allotment under the partition. In respect of the year of assessment 1950-51 relating to the previous year 'ending with April 12, 1950' the business income of the family was assessed in the following sums :
V.A.M. Sankaralinga Nadar .
V.A.M.S. Muthumaniratna Nadar .
V.A.M.S. Nagarajan .
The order of assessment of the Income-tax Officer on the Hindu undivided family was passed on September 4, 1950.
In the course of the assessment for the year 1951-52 of the business income of Muthumaniratna Nadar, a quondam member of the family, who carried on business as the manager for his undivided family consisting of himself and his sons, the Income-tax Officer found that he had business in Colombo exporting arecanuts to India. The officer got information presumably from the books of account produced by Muthumaniratna and possibly from other sources as well that the business income of the erstwhile Hindu undivided family of Sankaralinga Nadar and his sons was not fully assessed in the year 1950-51 and that the assessee family had escaped assessment in regard to a portion of its income. Thereupon the officer initiated proceedings under section 34 of the Act and as a result of an enquiry in such proceedings held that the income of the family in the year ending April 12, 1950, had escaped assessment and estimated such escaped income at Rs. 10,000. A revised assessment, as a result of the proceedings under section 34 of the Act, was made by the officer on 31st of May, 1954. The assessees appeal to the Appellate Assistant Commissioner, Madurai, and to the Income-tax Appellate Tribunal, Madras, failed. An application under section 66(2) of the Act having been made by the assessee in this court, the Tribunal was directed to state a case raising the following questions :
'(i) Whether, on the facts and in the circumstances of the case, the reassessment of the joint family made under section 34 of the Act is valid ?
(ii) Whether, on the facts and in the circumstances of the case, there was material to sustain the estimated addition of Rs. 10,000 as the income of the assessee ?'
In the books of account of the family business standing in the name of Sankaralinga Nadar an amount of Rs. 3,666 was shown as credit balance outstanding and due to Colombo Muthumaniratnam. Similarly a credit balance for a sum of Rs. 1,858 in favour of the said Colombo Muthumaniratnam also stood in the business account of the family standing in the name of Muthumaniratnam. These credit balances said to be due by the family to Colombo Muthumaniratnam aggregating to Rs. 5,524 gave the clue to the Income-tax Officer that there might have been an omission to bring to tax all the income of the family in the relevant year and that the family might have escaped full and proper assessment of all its income. At the commencement of the proceedings initiated under section 34 of the Act, the Income-tax Officer had, in consequence of information in his possession, reason to believe that the family had escaped tax.
Before dealing with the contentions urged on behalf of the assessee, we shall advert to the materials forming the basis of the order of reassessment resulting in the addition of Rs. 10,000 to the computation of income already arrived at in the regular proceedings of assessment. The account books of the family business in the names of Sankaralinga Nadar and Muthumaniratnam at Virudhunagar showed that the cost of arecanuts purchased from Colombo during the year was Rs. 11,740 and Rs. 24,131 respectively. The accounts further showed that, towards these purchases from Colombo, repayments had been made by way of drafts by three persons aggregating to Rs. 5,006 and Rs. 18,700 respectively. The final casting of accounts relating to debits and credits arising out of the Colombo dealings disclosed a credit balance of Rs. 3,666 and Rs. 1,858 respectively in favour of Colombo Muthumaniratnam. It is now admitted by the assessee that Colombo Muthumaniratnam is no other than Muthumaniratnam, the son of Sankaralinga Nadar, who had business at Virudhunagar, in his own name, and which business was also part of the family business. The assessee failed to produce any bills or vouchers for the alleged purchases of arecanuts from Colombo. The account books of Muthumaniratnam relating to the Colombo business were also not produced. There is no satisfactory explanation on the part of the assessee as to why no proper proof was adduced before the assessing authority to support the plea that the entries in the family accounts relating to the purchase of arecanuts from Colombo are genuine entries representing true transactions. It must not be forgotten that Muthumaniratnam was certainly one of the persons interested in resisting the proceedings under section 34 and he would have produced his Colombo accounts if those accounts also contained entries in respect of the export of nuts to India for the family. The account books of the family business in the name of Nagarajan show purchases from outsiders at Colombo but there are no outside purchases in the course of business done in the name of Sankaralinga Nadar and Muthumaniratnam. The gross profit rates based upon the business turnover in the names of Sankaralinga Nadar, Muthumaniratnam and Nagarajan were 16.4%, 14.7% and 31% respectively. It is not without significance that where nuts were purchased by the family from outsiders at Colombo other than Muthumaniratnam, the rate of profit was very much higher than the rates disclosed in the other businesses having imports only from Muthumaniratnam. In the declaration of the value of imports by the assessee to the Customs authorities, admittedly, the value given was very much lower than that debited in the purchase account. The veracity and the business integrity of the assessee were not beyond criticism and the Income-tax Officer reached the conclusion that the accounts of the business in the names of Sankaralinga Nadar and Muthumaniratnam showed an inflated value of purchase of arecanuts from Colombo Muthumaniratnam. It is on these materials that the Income-tax Officer estimated the escaped income of the family for the relevant year at Rs. 10,000. As stated already this addition by way of estimate has been confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal.
Mr. K. Srinivasan, learned counsel for the assessee, contends that section 34 of the Act was improperly invoked as the proper requisites to attract that provision are completely absent. This is a case in which the proper provision applicable and which has been applied is section 34(1)(b) which reads as follows :
'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 the believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may.... in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee.... notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains ...'
The Explanation to section 34(1) reads as follows :
'Production before the Income-tax Officer of account books and other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.'
This Explanation is primarily referable and relevant only to section 34(1)(a) which affords a cause of action to the department to reopen an assessment on the ground that the assessee failed to disclose fully and truly all material facts necessary for his assessment for the relevant year.
Section 34(1) comprises two categories : (a) wilful evasion arising out of default or non-disclosure by the assessee; (b) other cases. Each category provides for reassessment in respect of the following matters :
(1) Escaped assessment.
(2) Under-assessment (This may be the result of wrong computation, wrong allowances and exemptions).
(3) Assessment at too low a rate.
(4) Excessive relief.
(5) Excessive loss or depreciation allowance.
The onus of proving that income escaped assessment is on the department : Commissioner of Income-tax v. G.V. Manohar : 3ITR372(Bom) and Chairman Motilal v. Commissioner of Income-tax : 11ITR44(Bom) .
The question for consideration is whether the Income-tax Officer had information in his possession in consequence of which he had reason to believe that income, profits or gains had escaped assessment. It is true that 'information' and 'reason to believe' constitute the essential requisites and the basic foundation to set in motion the machinery of reassessment under section 34(1)(b) of the Act. There is no jurisdiction on the part of the officer to start upon a venture of reassessment in a haphazard fashion on mere suspicion in the hope of unearthing in escapement of tax. Whether the officer had reason to believe, in consequence of information in his possession, may not be a justiciable issue in a proceeding of this court under section 66 of the Act and to that extent it may really be a matter of subjective satisfaction of the officer concerned, but it is open to the assessee to assail the jurisdiction of the officer on the ground that he had no information upon which he could reasonably believe that any income had escaped assessment. While the complete absence of information might knock the bottom out of the jurisdiction of the officer, so long as there is some information in his possession upon which a belief of escapement of assessment could be said to be not unreasonably entertained, the jurisdiction is well founded. Such jurisdiction cannot be impugned merely on the ground that some other officer or some other Tribunal might not have, on the same information, entertained a reasonable belief of leakage of income, profits or gains. The 'advisory' jurisdiction of this court, which is not a court of appeal under the Income-tax Act, is so narrow in its sphere that we cannot substitute our judgment for that of the officer, to test the reasonableness of the belief.
We have ourselves perused the memorandum submitted by the Income-tax Officer to the Commissioner of Income-tax for approval of the initiation of proceedings under section 34 and it seems to us that at that time the Income-tax Officer was of the belief that the business in Colombo in the name of Muthumaniratnam was also part of the family business. It is not, now, the case of the department that the Colombo business, if any, was anything but the sole and exclusive business of Muthumaniratnam. It may be that the belief of escapement of assessment was, to some extent, based by the officer on the misapprehension that the Colombo business was also the family business and that the income from that business had not been brought to tax in the year 1950-51. But substantially the belief of the Income-tax Officer was that the income of the family had escaped assessment. An Income-tax Officer may rightly commence section 34 proceedings if he has, in consequence of particular information in his possession, reason to believe that income has escaped assessment and may, even if that particular information proves to be ill founded at the conclusion of the enquiry, yet bring to tax such escaped income as comes to light as a result of the enquiry. The non-existence of the original ground which led the officer to believe that income had escaped is not a bar to reassessment of escaped income and does not vitiate such reassessment. The statutory requirement of reasonable belief rooted in information in the possession of the officer is to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have escaped assessment.
It is now well settled that an action under section 34 of the Act cannot be justified on the ground of a mere change of opinion regarding chargeability of income on the part of the reassessing officer different from his own previous opinion or from that of his predecessor in office. There can be no doubt of the soundness of this principle of law as otherwise the assessee might become the victim of the freaks of changes of opinions of the officers from time to time. But income which escapes assessment as a result of the lack of vigilance of the Income-tax Officer or due to inadvertence or negligence or the perfunctory performance of his duties without due care and caution, can well be within the ambit of section 34(1)(b) provided the requirements of that section are satisfied. We are unable to agree with the contention of the learned counsel for the assessee that, in the instant case, the officer acted merely on a change of opinion and not in the genuine belief of income having escaped. The assessment proceedings of the year 1951-52 relating to Muthumaniratnam gave sufficient information to the officer to engender the belief that the business income of the family, of the year 1950-51, had escaped assessment. In our opinion, section 34 of the Act was rightly invoked by the Income-tax Officer and the proceedings cannot be challenged as being in excess of his jurisdiction.
The learned counsel for the assessee next contends that, in any event, the addition of Rs. 10,000 was not called for as the credits in favour of Colombo Muthumaniratnam which alone can, if at all, be held to be the suppressed income of the family totalled only Rs. 5,524. The finding arrived at by the Income-tax Officer and affirmed by both the appellate authorities is that the trading account in the name of Muthumaniratnam in the family account books does not depict the true picture and that the entries therein are merely fictitious entries brought about to show an inflated value of alleged purchases. This is a finding of fact which we must accept and we must observe there are enough materials to support this finding. Necessarily and inevitably, the officer had to estimate the income of the family business arising out of the import of arecanuts from Colombo through Muthumaniratnam. It is only in this connection that the gross profit rates between the business in the name of Nagarajan and the other two businesses were compared by the officer. We are unable to say that there has been any wrong approach on the part of the department in making the addition or that the addition of Rs. 10,000 is, in any way, arbitrary or capricious.
Both the questions are answered in the affirmative and against the assessee who will pay the costs of the department, Rs. 250.
Questions answered in the affirmative.