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Lakhmini Mewal Das Vs. Income-tax Officer, j Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 234 of 1969
Judge
Reported in[1972]84ITR649(Cal)
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantLakhmini Mewal Das
Respondentincome-tax Officer, "j" Ward and ors.
Appellant AdvocatePal, Adv.
Respondent AdvocateSuhash Sen, Adv.
Cases ReferredOfficer v. Sudhir Kumar Bhose
Excerpt:
- k.l. roy, j. 1. this application appears to be an offshoot of the alleged all india spurious hundi racket unearthed by the income-tax department. by this application the petitioner impugns a notice issued under section 148 of the income-tax act, 1961, for reassessment of the petitioner's income for the assessment year 1960-61.2. for the said assessment year, for which the petitioner's accounting year was the financial year ending on the 31st march, 1960, he was assessed under section 23(3) of the income-tax act, 1922, on a total income of rs. 24,469, by sri a. k. chanda, the income-tax officer, 'j' ward vi, calcutta, on 23rd october, 1962. in making the said assessment the income-tax officer allowed the petitioner's claim for deduction of a sum of rs. 35,236, alleged to have been paid as.....
Judgment:

K.L. Roy, J.

1. This application appears to be an offshoot of the alleged all India spurious hundi racket unearthed by the income-tax department. By this application the petitioner impugns a notice issued under Section 148 of the Income-tax Act, 1961, for reassessment of the petitioner's income for the assessment year 1960-61.

2. For the said assessment year, for which the petitioner's accounting year was the financial year ending on the 31st March, 1960, he was assessed under Section 23(3) of the Income-tax Act, 1922, on a total income of Rs. 24,469, by Sri A. K. Chanda, the Income-tax Officer, 'J' Ward VI, Calcutta, on 23rd October, 1962. In making the said assessment the Income-tax Officer allowed the petitioner's claim for deduction of a sum of Rs. 35,236, alleged to have been paid as interest on loans on hundis. A further claim for a credit of Rs. 20,157, on sale of old gold appearing in the petitioner's profit and loss account was disallowed, as the Income-tax Officer did not accept the sale of gold. It appears that at the time of the original assessment the petitioner had submitted to the Income-tax Officer the relevant balance-sheet and profit and loss account and also a list of the creditors to whom interest had been paid during the accounting year showing the amounts of such interest and a copy of the complete loan account of the various creditors, 65 in number, appearing in his books of account. This is established by producing certified copies of the aforesaid documents from the records of the income-tax department. It is also claimed in the petition and not disputed in the affidavit-in-opposition thatat the time of the assessment various confirmation letters from the lenders as well as some of the discharged hundis were produced before the Income-tax Officer A notice purported to be under Section 148 of the Income-tax Act, 1961, dated the 24th March. 1969, and issued by the Income-tax Officer, 'E' Ward, Hundi Circle, Calcutta, the respondent No. 2, herein, was served on the petitioner on the 26th March, 1969, that as the said Income-tax Officer had reason to believe that the petitioner's income chargeable to tax for the assessment year 1960-61 had escaped assessment, it was proposed to reassess the income for the said year and that the petitioner was required to submit his return within thirty days from the date of the service of the notice. The notice further mentioned that it was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, West Bengal I. By his letter dated the 15th April, 1969, the petitioner contended that the respondent No. 2 had no material for his belief that the petitioner's income had escaped assessment and further required the respondent to furnish him with the materials on which the said reason to believe was based. The petitioner also filed his return for the assessment year 1960-61, in response to the aforesaid notice under protest. As there was no compliance with his aforesaid letter this application was moved and this rule obtained from this court on 17th April, 1969, requiring the respondents to show cause why the impugned notice and all proceedings taken thereunder should not be quashed.

3. The affidavit-in-opposition has been affirmed by one Santosh Kumar Banerjee, the present incumbent to the post of Income-tax Officer, 'E', Hundi Circle, who had neither made the original assessment nor issued the impugned notice. His statements in the affidavit are necessarily based on the records of the assessment proceedings of the petitioner. The material on which the respondent No. 2 had reasons to believe that the petitioner's income for the assessment year 1960-61 had escaped assessment are stated in paragraph 7 of the said affidavit in the following terms:

'I say that on subsequent investigation it was found that the alleged loans obtained by the petitioner on hundis were not genuine and some of the persons from which (?) the petitioner alleged to have obtained loans specifically admitted that they had been mere name-lenders for the purported loans which were entered in the books of accounts of various assessees including the petitioner on commission.'

4. The jurisdiction of an Income-tax Officer to reopen an assessment and make a fresh assessment are conferred by sections 147, 148 and 153 of the, 1961 Act, corresponding substantially to the provisions of Section 34(1) of the 1922 Act. Under the aforesaid provisions if an Income-tax Officer has reason to believe--(i) that by reason of the omission or failure on the part of an assessee to make a return or to disclose fully and truly all materialfacts necessary for his assessment for any year, income chargeable to tax has escaped assessment for that year; or (ii) notwithstanding that there has been no such omission or failure 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 within eight years from the end of the assessment year in cases falling under (i) and within four years from the end of the assessment year in cases falling under (ii) proceed to assess or reassess such income after issuing a notice containing all the provisions as mentioned in Section 139. There is an Explanation which lays down that 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 the above sections.

5. Dr. Pal, the learned counsel for the assessee, submitted that in this case the assessee had disclosed all the materials in his possession which were necessary for the determination of his claim for deduction of the interest paid on the hundi loans. The names of the lenders, the amounts of the loans, the amount of interest paid to each lender, their names and addresses, confirmation letters and in some cases the discharged hundis were produced before the Income-tax Officer. The balance-sheet showing the position of assets and liabilities and containing a list of creditors were also filed before the Income-tax Officer. In the profit and loss account a claim for receipt of Rs. 20,157, on sale of old gold was shown and the Income-tax Officer, on scrutiny, disallowed that claim. In this case it could not be said that the original assessment was made by the Income-tax Officer without looking into the evidence and documents placed before him. He considered the evidence and after considering the matter has allowed the claim for interest on the hundi loans. As is usual in such cases, Dr. Pal referred me to the following classic passages from the decision of the Supreme Court in Calcutta Discount Company's case, : [1961]41ITR191(SC) , as to the extent of the duty of an assessee to disclose :

'The words used are 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable.........

There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the legislature has put in the Explanation which has been set out above.........His omission to bring to the assessing authorities' attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed 'to have disclosed other evidence, which might have been discovered by the assessing authority if he bad pursued investigation on the basis of what has been disclosed. The Explanation to the section gives a quietus to all such contentions; and the position remains that so far as the primary facts are concerned, it is the assessee's duty to disclose all of them--including particular entries in the account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority from the documents and other evidence disclosed.'

6. These passages have been repeatedly referred to in the subsequent decisions of the Supreme Court in cases relating to the validity of reassessment proceedings. Mr. Sen for the department also relied on the aforesaid observations and emphasised that the duty of the assessee was to disclose truly and fully all material facts necessary for his assessment. Dr. Pal contended that as in this case all the material facts in the possession of the petitioner relating to the hundi loans were placed before the Income-tax Officer at the time of the original assessment it could not be said that there was any failure on his part to disclose truly and fully such material facts.

7. Mr. Suhash Sen, learned counsel arguing the case for the respondents, also laid stress on the requirement that the disclosure must be a true and full disclosure. His contention was that if subsequently the Income-tax Officer comes into possession of information which leads him to believe that such disclosure was not true or that any material evidence placed before the Income-tax Officer at the time of the original assessment was false, theIncome-tax Officer was entitled to issue a notice for reassessment under the provisions of the Act. Dr. Pal's counter to that argument was that if subsequently the Income-tax Officer received any information which led him to believe that the assessee's income had escaped assessment that would bring the case within Section 147(b) and in that case a notice of reassessment must be issued within four years from the end of the assessment year. Mr. Sen referred me to a decision of the Supreme Court in Income-tax Officer v. Bachu Lal Kapoor, : [1966]60ITR74(SC) , where the facts were as follows : An assessee assessed as Hindu undivided family claimed that a partition had taken place in the family on the basis of a compromise decree and its claim was accepted and the subsequent assessments were made on the members of the family as individuals. Later on, the Income-tax Officer came to the conclusion that the aforesaid decree was collusive and that no partition had actually taken place and the Hindu undivided family continued to exist and issued a notice of reassessment on the Hindu undivided family. In this context, the following observation was made by the Supreme Court on which reliance is placed by Mr. Sen :

'If the case of the revenue was true--on which we do not express any opinion--and the fact of the continuance of the joint Hindu family was kept back from the knowledge of the Income-tax Officer, it would be a clear case of the said family escaping assessment during the relevant year. If that be so, Section 34(1) would immediately be attracted and the notice issued would be good.'

8. Mr. Sen submitted that assuming the revenue's case to be true, namely, that these hundi lenders were spurious persons and the loans were fictitious and that such fact was not disclosed to the Income-tax Officer at the time of the original assessment, it would be a case of the assessee's income escaping assessment, and the validity of the impugned notice could not be assailed. The next case relied on by Mr. Sen is a decision of the Andhra Pradesh High Court in Anna Nagendram and Bomma Reddi Venkayya & Co. v. Commissioner of Income-tax, [1967] 66 I.T.R. 46, 54 (A.P.).. What happened in that case was that certain cash credits shown by the assessee in his books during the assessment year 1948-49 were not questioned by the Income-Officer in making the assessment for that year. In the assessment for the subsequent year 1950-51 the assessing officer enquired into the genuineness of the cash credits and came to the conclusion that the cash credits were bogus. In the course of such inquiry he also came to the conclusion that the cash credits in the earlier year were also not genuine and accordingly issued a notice under Section 34 of the 1922 Act, and proceeded to make a reassessment for the year 1948-49. The assessee's appeal to the departmental authorities and the Tribunal having failed the matter came upbefore the Andhra Pradesh High Court on a reference. The court found that for the assessment year 1948-49 the Income-tax Officer had not examined the assessee's accounts or considered the genuineness of the cash credits debited in such accounts, but had made the assessment on the basis of the return filed. The Tribunal in the assessee's appeal rejected his contention that the cash credits were genuine and the assessee did not contest before the Tribunal that the assessment could be reopened under Section 34(1)(a) of the Act. It was only during the course of the assessment proceedings for the year 1950-51 that the Income-tax Officer came to the conclusion that the cash credits found in the assessee's accounts were not genuine. On these facts it was held that the Income-tax Officer was justified in taking proceedings for reassessment. What was relied on by Mr. Sen was the following passage from the judgment:

'On the facts and in the circumstances of the case and the application of the law as disclosed by the decisions referred to above, we have no hesitation in coming to the conclusion that the assessee did not fully and truly disclose all the material information necessary for the assessment. Even where the cash credits were examined by the Income-tax Officer, who accepted his explanation, and we are not to be understood as accepting the contention of the learned advocate that he in fact did, the provisions of Section 34(1)(a) can be properly invoked if it is subsequently discovered by the Income-tax Officer that those cash credits were got up ones and not genuine.'

9. Mr. Sen submits that even though the Income-tax Officer making the original assessment in this case might have accepted the assessee's contention that these were genuine hundi loans on which interest has been paid, the subsequent discovery of facts which led him to believe that the hundi loans were not genuine would entitle him to invoke the provisions of Section 147 of the 1961 Act. Dr. Pal's counter to that argument is that the observations must be confined to the facts of that case as appearing from the passage quoted above, and as confined to the facts of that case Dr. Pal has no quarrel with the proposition laid down. If there has been any failure on the part of the assessee fully and truly to disclose all facts, then on subsequent information that the income has escaped assessment the Income-tax Officer would certainly be justified in initiating proceedings for reassessment. Dr. Pal submitted that in this case there has been no failure at all on the part of the assessee to disclose any material facts. This is not a case where the Income-tax Officer merely accepted the return without scrutinising or examining the evidence and documents produced before him. That he has scrutinised the profit and loss account and the balance-sheet would be obvious from his disallowing the claim for the sale of old gold. In Dr. Pal's submission the above observations made by theAndhra Pradesh High Court have no application to the present case. A passage from the judgment of the Supreme Court in Sowdagar Ahmed Khan v. Income-tax Officer, (S.C.). was relied on by Mr. Sen for the proposition that even where the books are produced before the Income-tax Officer, and if he had been circumspect, he could have found out the truth, he is on that account not precluded from exercising the power to reassess the income which had escaped assessment. This principle has also been stated by the Supreme Court in Calcutta Discount Company's case in the passage I have already quoted earlier. Undoubtedly mere production of books of account is not enough. If the assessee wants to rely on any particular entry or any particular document he must draw the attention of the Income-tax Officer to that particular entry or to that particular document. This is also implied in Explanation (2) to Section 147. The question, therefore, boils down to this, namely, whether the petitioner has failed to disclose fully all facts necessary for determination of the genuineness of the hundi loans in the present case. The facts in a very recent case before the Patna High Court are somewhat similar to the facts of the present case, but the contentions raised there were entirely different and the decision is of no assistance in solving the present dispute. In Elphinstone Picture Palace v. Union of India, [1971] 74 I.T.R. 115(Pat.). for the assessment year 1961-62 the petitioner had shown in its return loans from four creditors which were accepted. After the original assessment the Directorate of Inspection issued a list of bogus hundi brokers and bankers which included the names of four creditors. The Income-tax Officer issued a notice under Section 148 of the 1961 Act for reopening the assessment which was challenged before the court under Article 226 of the Constitution. The grounds raised in that petition were : (1) that the Income-tax Officer did not have any material before him for believing that there had be [1968] 70 I.T.R. 79 en material non-disclosure, and (2) that the Income-tax Officer had completely abdicated his jurisdiction to the Directorate of Inspection. The court held that there was some material which consisted in the information supplied by the Directorate of Inspection, but whether such material was sufficient or adequate was not for the court to investigate. The second contention was also rejected. Unfortunately, it was not contended before the court that all the primary facts relevant to the alleged loans had been disclosed and considered by the Income-tax Officer at the time of the original assessment and, consequently, there could have been no failure on the part of the assessee to disclose any such facts. On the facts of the present case, I would be inclined to hold that the Income-tax Officer was trying to make reassessment of the petitioner's income on a change of opinion as the original Income-tax Officer had all thematerials before him for deciding the issue of the genuineness of the hundi loans, and the assessment order points to the fact that he did consider such materials and accepted the petitioner's claim. After the argument in this case had been concluded, Mr. Sen drew my attention to a very recent decision of a Divisional Bench of this court sitting on appeal from a decision of A. N. Sen J. in Original Order No. 202 of 1967, Income-tax Officer v. Sudhir Kumar Bhose, [1972] 84 I.T.R. 60. 66 (Cal).. It appears that in the return for the relevant assessment year the petitioner had not filled in Part VII of the return showing any transfer of capital assets resulting in either capital gain or capital loss, and during the assessment proceedings also he did not inform the Income-tax Officer that he had sold an immovable property in Calcutta during the accounting year. The same officer who was also the officer assessing the petitioner for wealth-tax was informed of the sale and the alleged profit or loss arising therefrom during the corresponding wealth-tax assessment. On a notice for reassessment being issued on the petitioner he challenged the validity of such notice under Article 226, and Sen J. upheld his contention that as all the material facts were known to the assessing officer in the course of the assessment proceedings for wealth-tax it could not be said that there was any non-disclosure on the part of the assessee. The appeal court held that as the petitioner had not filled in Part VII of the form of the return and as there is no dispute that during the assessment proceedings no disclosure was made of the sale of the property it must be held that the petitioner failed to disclose fully all material facts necessary for determining any capital gains that might have accrued to him. So far as this part of the judgment is concerned. Dr. Pal, who had also appeared before that court on behalf of the respondents, said that he could have no objection. What was relied on by Mr. Sen were certain passages from this judgment which, according to Mr. Sen, recorded the court's approval of the decision of the Andhra Pradesh High Court in Anna Nagendram's case and of the Supreme Court in Bachu Lal's case. At page 7 of the printed copy of the judgment Nagendram's case is referred to and it is observed asfollows:

'In that case, one Income-tax Officer had accepted the return of theassessee as correct and completed the assessment on that basis. His successor had reason to believe that cash credits shown in the return were not genuine and issued notice under Section 34(1)(a). This case has special importance in view of the fact that in the case before us, too, the impugned notice has been issued by an officer other than the officer who had initially accepted the return of the assessee. It was held by the AndhraPradesh High Court that even if the Income-tax Officer had accepted thecash credits as genuine, his successor was not debarred from issuing a notice under Section 34(1)(a) on the ground that they were not genuine. The question whether they were genuine or not was to be determined in the proceedings initiated by the notice.'

10. Similarly, the decision of the Supreme Court in Bachu Lal Kapoor's case has also been accepted as an authority for the proposition that the acceptance of a return or the completion of an assessment does not take away the jurisdiction of the income-tax authorities to issue a notice under Section 34(1 )(a) on the ground that the information supplied by the return was not correct.

11. I do not think that the aforesaid decision takes the matter any further. The primary fact to be decided in all such cases is whether the assessee has fulfilled his duty in making full and true disclosure of all material facts necessary for the purpose of his assessment. In my opinion, Dr. Pal was justified in his query what else could the assessee in this case have disclosed in order to support his claim for deduction of the interest alleged to have been paid on the hundi loans He has supplied a list of the lenders together with their addresses, the particular amount of the loans and the interests paid on account thereof, confirmation letters from these lenders and in some cases some of the discharged hundis. If subsequently some of these lenders had disclosed to the department that they were mere name-lenders and the transactions were spurious that would certainly be information which would lead the Income-tax Officer to believe that the assessee's income had escaped assessment and he would be entitled to exercise his jurisdiction under Clause (b) of Section 147.

12. In most of these cases what was established was that subsequently the department found that some claim made by the assessee was false. Of course, there is the observation of the Supreme Court in Bachu Lal's case, that assuming that the contention of the department was correct, viz., that the Hindu undivided family in that case had continued to exist then the Income-tax Officer would have jurisdiction to reopen the assessment. All that has been said in the affidavit-in-opposition in this case is that the department has on subsequent investigation found that some persons from whom the petitioner is alleged to have obtained loans admitted that they had been mere name-lenders. This would certainly be a ground for the Income-tax Officer to hold that the hundi transactions were not genuine and bring the case within the ratio of Bachu Lal's case. The trend of decisions on the subject seems to have veered from the view previously held that once the Income-tax Officer had decided an issue in the course of the assessee's assessment he could not on a subsequent change of opinion reopen the assessment to the view that if later on the Income-tax Officer has reason to believe that income has escaped assessment due to some representation made by the assessee which is later found to be false or incorrect, that would give the Income-tax Officer jurisdiction to reopen the assessment. That is what seems to have been emphasized in the aforesaid Andhra Pradesh High Court's decision. Similarly, if in the present case, the case of the revenue is assumed to be true, that these hundi loans were spurious and not genuine, then it would be a clear case of the assessee's income escaping assessment and the provisions of Section 147(a) would be attracted and the notice issued thereunder would be good. Whether the hundi loans were genuine or not would be decided during the assessment proceedings. In view of the points discussed above, the rule must be discharged and the application would be dismissed. There will be no order as to costs. Operation of this order would be stayed for four weeks.

K.L. Roy, J.

13. After I dictated my judgment in this matter Dr. Pal requested for an opportunity to argue the case on only one point, viz., on the decision of the Supreme Court in Bachu Lal Kapoor's case, a passage from which had been quoted and relied on in my judgment and which, not having been cited before me in the course of arguments, Dr Pal had no opportunity of dealing with it. I readily accorded Dr. Pal an opportunity of making his submissions on the aforesaid decision of the Supreme Court. Dr. Pal submitted, and in my opinion correctly, that the facts before the Supreme Court were different from the facts in the present case. In that case the notice under Section 34 was admittedly served within four years and, therefore, the question of the income escaping assessment for the failure of the assessee to disclose did not arise. In fact the contention of the department before the Supreme Court was that the Income-tax Officer had subsequent information that the income of the Hindu undivided family had escaped assessment. The only argument advanced by the respondent before the Supreme Court was that after assessing the individual members of the family it was not permissible to try to assess the Hindu undivided family itself. This argument was rejected by the Supreme Court. The observations referred to in my judgment, viz., 'If the case of the revenue was true--on which we do not express any opinion--and the fact of the continuance of the Hindu joint family was kept back from the knowledge of the Income-tax Officer, it would be a clear case of the said family escaping assessment during the relevant year', postulates that assuming the revenue's case to be true the income of the Hindu undivided family has escaped assessment. It does not further hold that such escapement is due to any failure on the part of the assessee. I agree with Dr. Pal that in the case before it the Supreme Court was not considering a case under Section 147(a) and had no occasion to consider, the question whether income hadescaped assessment due to any failure of the assessee to disclose truly and fully all material facts for the purpose of his assessment. But, I referred to the aforesaid observation in that case to illustrate my point that there has been a shift in judicial opinion as to the scope of an assessee's obligation to disclose material facts at the time of the original assessment. If the assessee had disclosed all such facts in his possession before the Income-tax Officer the courts used to hold that the assessee had fulfilled his obligation to disclose and it was for the Income-tax Officer to apply his mind and determine the effect of the materials disclosed. If subsequently the Income-tax Officer or his successor changed his view of the effect of the disclosure made he would not be entitled to say that the income had escaped assessment owing to the assessee's failure to disclose fully and truly all material facts. But the recent trend of judicial decisions seems to be that even if the Income-tax Officer has at the time of the original assessment been satisfied with the facts and materials disclosed and made the assessment on the basis of such materials, if subsequently, on receipt of information he has reason to believe that some of the facts or materials furnished by the assessee at the time of the original assessment was not true or correct, he would have reason to believe that income has escaped assessment due to the assessee's failure to disclose truly and fully all material facts necessary for the assessment. The decision in Bachu Lal Kapoor's case was not relied on for the proposition that subsequent information would entitle the Income-tax Officer to reopen an assessment under Section 147(a).

14. I see no reason to change my opinion and the judgment delivered must stand.

15. The interim order will continue for a further period of six weeks.


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