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Kerorimull and Company Vs. Income-tax Officer, a Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 218 of 1969
Judge
Reported in[1971]79ITR270(Cal)
ActsIncome Tax Act, 1961 - Section 148
AppellantKerorimull and Company
Respondentincome-tax Officer, "a" Ward and ors.
Appellant AdvocateD. Pal and ;S. Battacharya, Advs.
Respondent AdvocateB.K. Bachawat and ;A. Sen Gupta, Advs.
Excerpt:
- .....under section 68 of the finance act, 1965, provision was made for declaration of income which had escaped assessment for a certain period and for the commissioner of income-tax to accept such disclosures and to accept income-tax on the amount of the income disclosed at certain rales in such instalments as he alight allow and to grant a certificate to every person who had made such a declaration and paid the tax setting forth the particulars of the amount declared, the amount of tax paid and the date of payment. under section 24 of the finance (no. 2) act, 1965, provision was made for disclosure of any income which has not been included in the disclosure made under section 68 of the earlier act and similar provisions for payment of tax and grant of certificate by the commissioner.2. the.....
Judgment:

K.L. Roy, J.

1. The two Finance Acts of 1965 made legal what was formerly a sort of a gentleman's agreement under the so-called Tyagi Scheme for disclosure of escaped income by assessees. Under Section 68 of the Finance Act, 1965, provision was made for declaration of income which had escaped assessment for a certain period and for the Commissioner of Income-tax to accept such disclosures and to accept income-tax on the amount of the income disclosed at certain rales in such instalments as he alight allow and to grant a certificate to every person who had made such a declaration and paid the tax setting forth the particulars of the amount declared, the amount of tax paid and the date of payment. Under Section 24 of the Finance (No. 2) Act, 1965, provision was made for disclosure of any income which has not been included in the disclosure made under Section 68 of the earlier Act and similar provisions for payment of tax and grant of certificate by the Commissioner.

2. The petitioner is a partnership firm which was assessed to income-tax for the assessment year 1960-61, by the Income-tax Officer, ' A ' Ward, District II(I), Calcutta, being the respondent No. 1 herein, under Section 23(5)(a) of the 1922 Act on a total income of Rs. 73,352 and the tax demanded was duly paid. It is contended in the petition that at the time of the original assessment all details of the petitioner's income and all documents and evidence in support thereof as required by the respondent No. 1 was produced before him by the petitioner and the assessment was made on consideration of such evidence and documents produced. One Seth Kerorimull, a partner of the petitioner-firm, made an application on the 27th May, 1965, under Section 68 of the Finance Act, 1965, disclosing certain unaccounted income for the period of the assessment years 1954-55 to 1962-63. A further application for disclosure was also made by the said Kerorimull in respect of the assessment years 1963-64 and 1964-65 which was not disclosed in the original petition. The total amount disclosed in the said two petitions was Rs. 14,25,000 which was accepted by the Commissioner of Income-tax, and the tax due thereon at the rate of 60 per cent. amounting to Rs. 8,55,000 was paid and the Commissioner of Income-tax, West Bengal III, Calcutta, the respondent No. 2 herein, granted a certificate in terms of the aforesaid section. In the said disclosure petitions Kerorimull disclosed that he had advanced to the petitioner-firm in the names of third parties a total sum of Rs. 4,31,000. Thereafter, on 14th March, 1969, a notice under Section 148 of the Income-tax Act, 1961, was served on the petitioner by respondent No. 1, requiring it to file its return for the assessment year 1960-61 as he had reason to believe that its income for the above year had escaped assessment. It was mentioned in the said notice that it was being issued after obtaining the necessary sanction of the Commissioner. In response to the said notice the petitioner filed the return for 1960-61, together with a letter dated the 28th March, 1969, wherein the petitioner took the plea that the Income-tax Officer had no reasons to believe that the petitioner's income for 1960-61 had escaped assessment as he could not take action under Section 148 on the basis of any disclosures made by one of the partners of the petitioner. It is also recorded in the said letter that the return was being filed without prejudice to its rights and contentions as to the validity and/or the legality of the notice under Section 148. A demand was made on respondent No. 1 to cancel and/or to withdraw and/or to rescind the said notice. As apparently the Respondent No. 1 did not comply with the said demand, this rule was obtained on the 3rd April, 1969, requiring the respondent-Income-tax Officer and the respondent-Commissioner of Income-tax and the Union of India to show cause why appropriate writs should not be issued for quashing the aforesaid notice under Section 148 and any proceedings held or taken thereunder.

3. As is usual in such cases the affidavit-in-opposition has been affirmed neither by the Income-tax Officer who made the original assessment or the Income-tax Officer who issued the notice under Section 148, but by the present incumbent to the post of the Income-tax Officer, 'A' Ward, District II(I), Calcutta, who has affirmed all the material statements in the affidavit to be based on information received from the records. In paragraph 7 of the affidavit, which is also affirmed as based on information received from the records, it is stated that the Income-tax Officer had reason to believe that the amount shown to be credited in the books of account of the petitioner as and by way of hundi loans and interest shown to have been paid thereunder were not genuine and were fictitious. It would also appear from paragraph 10 of the petition that the petitioner's authorized representative was given to understand by the respondent No. 1 that the impugned notice was issued on the basis of the disclosure petition made by the said partner of the petitioner and it is contended that any particulars contained in the said disclosure proceedings are confidential and could not be used by the department in taking any proceedings against the petitioner. That the petitioner was under the impression that the reassessment proceedings were initiated on the basis of the disclosures made by one of its partners would also appear from its aforesaid letter dated the 28th March, 1969.

4. Dr. Pal for the petitioner pointed out that in spite of repeated injunctions from this court that in writ proceedings the affidavit showing cause should be affirmed by a person who has personal knowledge of the facts alleged in the petition and that in matters concerning income-tax it is either the Income-tax Officer who made the assessment or who had issued the notice at the relevant time that should affirm such affidavit, the usual lethargy of the department has resulted in this case in the affidavit-in-opposition being filed by a person who is not competent to affirm such an affidavit at he has no personal knowledge of any of the facts in issue in this application. Recently I have on several occasions allowed the department time and opportunity to file fresh affidavits by competent persons showing cause against applications challenging the vires of a notice issued by the department for reassessment of the petitioner's income even at a very late stage of the proceedings. Even at the end of the first day's hearing no such application was made to me by the learned counsel for the department. However, the question to be decided in this application is whether the respondent-Income-tax Officer has disclosed to this court any reason for his belief that the petitioner's income has escaped assessment. Undoubtedly this court cannot go into the sufficiency of such reason. The learned counsel for the department pointed out that as the petition has not been affirmed by any of the partners of the petitioner but by an accountant of the petitioner-firm, the petition also suffers from the same defect as has been complained of by Dr. Pal against the affidavit-in-opposition. Learned counsel drew my attention particularly to paragraph 10 of the petition where certain discussions purported to have taken place between the petitioners' authorised representative and respondent No. 1 have been affirmed to be true to knowledge. Both the petition and the affidavit-in-opposition could certainly have been affirmed by more competent persons. Learned counsel further points out that after filing the return in response to the notice under Section 148 the petitioner did not demand of respondent No. 1 to be informed of the reasons for the issue of the notice, and if such demand had been made the reasons would certainly have been communicated to it. Instead the petitioner came straight to this court and obtained this rule. The trend of judicial decisions is that until and unless the assessee has complied with the notice and filed the return he is not entitled to be informed of the reasons for the issue of the notice. On the other hand, when the court issues the rule calling upon the respondent-Income-tax Officer to show cause why the notice should not be quashed it is for the respondent-Income-tax Officer to show cause by satisfying the court that some reasons existed for his belief that the petitioner's income has escaped assessment. Fortunately for the department instead of the usual negative affidavit filed in such cases some reasons have been disclosed in paragraph 7 of the affidavit-in-opposition, viz., that the amount shown to be credited in the books of account of the petitioner as and by way of hundi loans and the interest shown to have been paid thereon were not genuine and were fictitious. Dr. Pal submitted that this statement is too vague and, in the absence of any particulars whatsoever, cannot be treated as a reason leading to the belief that any income has escaped assessment. As I have already pointed out, the court is not entitled to go into the sufficiency of the reasons. All that it has to see is whether cause has been shown by the respondent-Income-tax Officer that he had some reason to believe that income had escaped assessment. I have repeatedly pointed out that in such cases it would have been so easy for the Income-tax Officer to state the reasons for his belief that income has escaped assessment. In the case under consideration the fact that one of the partners had disclosed that he had made advances to the firm in the fictitious names of other persons would certainly be a very strong reason for the Income-tax Officer to believe that other partners might also have introduced money into the firm in fictitious names. But, apparently, the authorities of the department are averse to take even the small trouble of going through the records and pointing out the obvious reasons for taking the action that they have purported to take. In this case I must hold that there was some reason for the respondent-Income-tax Officer to have issued the notice under Section 148 and this rule must be discharged. There will be no order as to costs. Interim orders, if any, would be vacated.


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