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Prahladrai Agarwalla Vs. Income-tax Officer, e Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 31 of 1969
Judge
Reported in[1973]87ITR655(Cal)
ActsIncome Tax Act, 1961 - Section 147 and 147(1)
AppellantPrahladrai Agarwalla
Respondentincome-tax Officer, "e" Ward and ors.
Appellant AdvocateDebi Prosad Pal, Adv.
Respondent AdvocateS. Sen, Adv.
Cases ReferredGaya Ram Gabbu Lal v. Commissioner of Income
Excerpt:
- .....of challenge in this application. by the said notice the petitioner was asked by the income-tax officer, e-ward, district i, calcutta, to give the particulars of the persons to whom gold ornaments were sold. the petitioner was further asked to show cause why the income-tax assessment for the assessment year 1956-57 should not be reopened under section 147(a) of the income-tax act, 1961, and the petitioner was also required to comply with the said notice by the 31st may, 1967. the petitioner was requested to produce evidence in support of the above statement made in the original return. subsequent to this a notice was issued under section 131 of the income-tax act, 1961, directing the petitioner to produce certain evidence. however, the said notice dated the 8th september,.....
Judgment:

Sabyasachi Mukharji, J.

1. For the assessment year 1956-57 the petitioner was assessed on the 25th August, 1960, under Section 23(3) of the Indian Income-tax Act, 1922. This assessment was made pursuant to a voluntary return filed by the petitioner. In the said return it was the case of the petitioner that the petitioner had sold his wife's ornaments, received at the time of her marriage, at Rs. 1,03,000 in October, 1955, and March, 1956. Upon that basis the assessment was made. Thereafter, on the 25th May, 1967, a notice was received by the petitioner which is the subject-matter of challenge in this application. By the said notice the petitioner was asked by the Income-tax Officer, E-Ward, District I, Calcutta, to give the particulars of the persons to whom gold ornaments were sold. The petitioner was further asked to show cause why the income-tax assessment for the assessment year 1956-57 should not be reopened under Section 147(a) of the Income-tax Act, 1961, and the petitioner was also required to comply with the said notice by the 31st May, 1967. The petitioner was requested to produce evidence in support of the above statement made in the original return. Subsequent to this a notice was issued under Section 131 of the Income-tax Act, 1961, directing the petitioner to produce certain evidence. However, the said notice dated the 8th September, 1967, under Section 131(2) of the Income-tax Act, 1961, is not the subject-matter of challenge in this application. I need not advert to the said notice any further. It is the case of the petitioner that the respondents have no authority to issue the impugned notice dated the 25th May, 1967, and ask the petitioner to produce evidence or to show cause why the assessment for the assessment year 1956-57 should not be reopened under Section 147(a) of the Income-tax Act, 1961. The Income-tax Officer has filed an affidavit-in-opposition to this rule nisi. It has been stated therein that the assessee was assessed for the first time for the year 1956-57 on the voluntary return filed by the assessee and the assessee had filed a certificate from a certain company showing sale at a certain price which was accepted at the time of the original assessment. But, subsequent thereto, the information had come to the income-tax authorities that there was no such firm which had given the certificate and no trade licence was given to the firm. From the said information it appeared to the Income-tax Officer that the evidence produced by the assessee was false and fabricated. Acting upon that, the Income-tax Officer had issued this notice to the assessee in order to give the assessee an opportunity to substantiate his assertions he made at the time of the original assessment.

2. Appearing for the assessee, Dr. Debi Prosad Pal, learned counsel, contended that there was no provision of law which entitled the Income-tax Officer to require the assessee to produce evidence to satisfy the Income-tax Officer whether, the assessment should or should not be reopened. According to Dr. Pal, the Income-tax Officer according to certain information can reopen under certain conditions the assessment, but the Income-tax Officer cannot, according to Dr. Pal, carry on investigation and request the assessee to assist him for the purpose of reopening the assessment. The assessment once made cannot be reopened except in the circumstances mentioned in Section 147 and upon the conditions contained in Sections subsequent thereto and within the time mentioned in the Act. Dr. Pal referred me to the decision in the case of Commissioner of Income-tax v. Khemchand Ramdas, [1938] 6 I.T.R. 414 (P.C.). He relied on the following observations of the Judicial Committee appearing at page 424 of the report:

' When once a final assessment is arrived at, it cannot in their Lordships' opinion be reopened except in the circumstances detailed in Sections 34 and 35 of the Act (to which reference is made hereafter) and within the time limited by those sections. '

3. Dr. Pal also drew my attention to the observations of the Supreme Court approving the aforesaid observations of the Judicial Committee in the case of Income-tax Officer, Madras v. S.K. Habibullah, : [1962]44ITR809(SC) . So far as the contention of Dr. Pal is concerned that the assessment once made is complete and final until reopened, I am in agreement with the same. But, the question in this case is, can the Income-tax Officer before reopening the assessment make an investigation By reading the scheme of the Act it appears to me that the Income-tax Officer before reopening the assessment must have reasons to believe on materials that due to certain omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the income of the assessee had escaped assessment. The Income-tax Officer has also power to reopen the assessment on receipt of information even though there is no failure on the part of the assessee. But, before he acts under the provisions of Section 147 of the Income-tax Act, 1961, and subsequent sections thereto, he has to act reasonably. For that purpose he can make investigation. It is not obligatory in all cases for him, in my opinion, to make investigation. The statute itself does not impose any obligation upon the Income-tax Officer to make any particular enquiry or investigation before reopening an assessment. But, the statute imposes upon the officer the obligation to act reasonably. In certain cases in respect of certain information certain kind of investigation might become necessary for the purpose of acting reasonably. That investigation and enquiry, in my opinion, the Income-tax Officer can conduct from other sources or as well from the assessee himself. For instance, if the Income-tax Officer receives a particular information and on that he wants to check up certain facts from, the assessee before reopening an assessment, in my opinion, there is no provision preventing the Income-tax Officer from so doing. It is, of course, not obligatory for him to do so. It is also not obligatory for the assessee to co-operate. But, if a particular assessee co-operates, that might be a, factor having certain practical advantages for the assessee. Dr. Pal drew my attention to the decision in the case of Haji Ali Mohammed v. Commissioner of Income-tax, [1940] 8 I.T.R. 243 (Nag.).. There the Nagpur High Court held that the Income-tax Officer, if he received information which would justify him in concluding that income had escaped assessment, must give the assessee a chance, to be heard and to explain. Bat, that was not done before the notice is served but in course of the enquiry which was generally started as a consequence of the notice being served. This case, in my opinion, does not resolve the controversy in the present case. As mentioned hereinbefore, the Income-tax Officer is not obliged and the assessee is not entitled to any notice of any investigation prior to the reopening. In a particular case if for the purpose of acting reasonably the -Income-tax Officer carries on investigation, he can do so. There is nothing in the statute to prevent him. As a matter of fact, the statute by implication imposes that obligation to carry on the investigation in certain cases for the purpose of acting reasonably. Reliance was also placed by Dr. Pal on the decision in the case of Gaya Ram Gabbu Lal v. Commissioner of Income-tax, [1951] 19 I.T.R. 114, 121 (All.) Dr. Pal drew my attention to the observations of the Division Bench of the Allahabad High Court appearing at page 121 of the report. The court observed :

' The Income-tax Officer has no right to make a preliminary enquiry before issuing notice under Section 34 and the assessee is not bound at that stage either to produce his books or to give any information or explanation. But, if in the course of the performance of his usual duties, while assessing the income of other assessees or for other years of the assessee himself, definite facts come to the knowledge of the Income-tax Officer, which relate to a year about which the assessment has already been concluded, the Income-tax Officer is not bound to shut his eyes to. them nor is it necessary that when the Income-tax Officer gets some information, he should not verify the correctness thereof or trace it out further so long as he can do it without calling upon the assessee either to supply him with facts or explanations or produce his books. Within those limits he may 'inform himself.'

4. As mentioned hereinbefore, in my opinion, the Income-tax Officer has noobligation as such to make an investigation, but I am not prepared to holdthat the Income-tax Officer has no right to make a preliminary enquiry orinvestigation. In my opinion if the information received is such that somekind of investigation is necessary for the Income-tax Officer in order to bereasonable, he should, in my opinion, make an investigation. In so far asthe Allahabad High Court held that the Income-tax Officer has no right tomake a preliminary enquiry, I am unable to accept that position, withrespect. Indeed, in several decisions before this court and in the SupremeCourt it has been noticed that the Income-tax Officer might investigate andask the assessee to produce certain evidence. In these cases it has beenobserved that such conducts are conducts showing reasonableness of theofficer acting. I am also unable, with respect again, to accept the conclusionof the Allahabad High Court that the Income-tax Officer cannot ask theassessee to produce evidence. If the Allahabad High Court meant by theaforesaid observation that the assessee was not obliged to produce evidencebefore the assessment was reopened, I am respectfully in agreement. But,if the Allahabad High Court meant that the assessee could not be asked atall and the Income-tax Officer had no fight to ask the assessee, forassistance, I am unable to agree, with respect. The correct position seemsto me that the Income-tax Officers in particular cases have the right andindeed the duty to investigate. Such investigations might be done fromall sources including the assessee. He cannot, however, in my opinion,compel the assessee to produce any evidence before a notice under Section 148 has been issued. The notice of the 25th May, 1967, has to bejudged in that light. I am of the opinion that there is no power on thepart of the Income-tax Officer to compel the assessee to produce the particulars or to ask him to show cause why the assessment should not bereopened. The Income-tax Officer has a right to issue the notice. But,the Income-tax Officer, however, has no right to compel the assessee to actin compliance with the notice. The assessee may derive some practicaladvantages by compliance with the notice, but he is not obliged in law tocomply with it. The assessee can choose to ignore the notice. Later on aninference might be drawn from such conduct of the assessee. Whether suchinference should be drawn in this case is a matter on which I pronounce noopinion.

5. In the aforesaid view of the matter this application must fail and is hereby dismissed. Rule nisi is discharged. Interim orders, if any, are vacated. There will be no order as to costs.


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