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Raibahadur Chowdhury Vs. Income-tax Officer, b Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 154 of 1965
Judge
Reported in[1971]79ITR274(Cal)
ActsIncome Tax Act, 1922 - Section 34(1); ;Income Tax Act, 1961 - Section 147
AppellantRaibahadur Chowdhury
Respondentincome-tax Officer, "b" Ward and ors.
Appellant AdvocateD. Pal and ;R. Dutt, Advs.
Respondent AdvocateB. Bachawat and ;A. Sen Gupta, Advs.
Excerpt:
- .....as the assessee's income from undisclosed sources. the petitioner preferred an appeal to the appellate assistant commissioner. the appellate assistant commissioner by his order made on the 7th october, 1964, held that ' there was no valid service of notice under section 34(1)(a)'. he stated further that:' the income-tax officer who made the original assessment had made enquiries about those loans and had accepted them as genuine. no fresh information has come into the possession of the succeeding officer to show that the position was otherwise. besides, it does not appear unlikely that raibahadur shadi lal and the ladies of his family did have the means to advance those loans. i cannot see my way to sustain this assessment and the income-tax officer's order is vacated. '2. the.....
Judgment:

Sankar Prasad Mitra, J.

1. In this application under Article 226 of the Constitution the petitioner has questioned the validity of a notice dated 24th March, 1965, issued by the respondent No. 1 under Section 148 of the Income-tax Act, 1961, for the assessment year 1948-49. The original assessment order under Section 23(3) of the Indian Income-tax Act, 1922, was passed on the 16th January, 1952. The petitioner's case was that, during the assessment year 1948-49, it had obtained loans from five several persons aggregating Rs. 85,000. In 1957, the original assessment of the 16th January, 1952, was reopened by a notice under Section 34(1)(a) of the Act of 1922. The petitioner was called upon to prove the genuineness of these loans. Affidavits affirmed by the said five persons were filed before the Income-tax Officer stating that they had made advances to the partnership firm, namely, the petitioner, but the Income-tax Officer in his fresh assessment order under Section 23(3)/34 added the loan of Rs. 85,000 as the assessee's income from undisclosed sources. The petitioner preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order made on the 7th October, 1964, held that ' there was no valid service of notice under Section 34(1)(a)'. He stated further that:

' The Income-tax Officer who made the original assessment had made enquiries about those loans and had accepted them as genuine. No fresh information has come into the possession of the succeeding officer to show that the position was otherwise. Besides, it does not appear unlikely that Raibahadur Shadi Lal and the ladies of his family did have the means to advance those loans. I cannot see my way to sustain this assessment and the Income-tax Officer's order is vacated. '

2. The department was not satisfied with the order of the Appellate Assistant Commissioner and preferred an appeal to the Appellate Tribunal. The grounds of appeal were as follows :

' (1) That, on the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner erred in holding that there has been no valid service of the notice under Section 34(1)(a).

(2) That the learned Appellate Assistant Commissioner also erred in holding that there was no material to justify initiation of proceedings under Section 34(1)(a).

(3) That the learned Appellate Assistant Commissioner erred in giving his observation that it does not appear unlikely that Raibahadur Shadi Lal and the ladies of his family did have the means to advance the loans. '

3. On the 25th March, 1965, the department prayed for permission to withdraw the appeal to the Tribunal. The permission was granted and the appeals stood dismissed as withdrawn. But, on the 24th March, 1965, another notice was issued to the petitioner under Section 148 of the Income-tax Act, 1961. It appears from paragraph 8 of the affidavit-in-opposition of Monoranjan Ghosh affirmed on the 27th July, 1965, that before the notice was issued permission was sought from the Central Board of Direct Taxes to initiate proceedings under Section 147(a) of the 1961 Act.

4. Since the notice under challenge is a notice under Section 148 read with Section 147(a) the department's case obviously is that the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, income chargeable to tax has escaped assessment.

5. It seems to me that the respondent No. I had no jurisdiction to issue the notice under Section 148 in view of the Appellate Assistant Commissioner's findings referred to above. The Appellate Assistant Commissioner was clearly of the view that there was no justification for issue of notice under Section 34(1)(a) of the 1922 Act, inasmuch as the Income-tax Officer responsible for the original assessment made enquiries and was satisfied that the loans were genuine. The department appealed against this finding of the Appellate Assistant Commissioner to the Tribunal but did not proceed with the appeal. The withdrawal of the appeal meant that the Appellate Assistant Commissioner's findings aforesaid remained undisturbed and became finally binding on the department.

6. The Supreme Court dealt with similar facts in Commissioner of Income-tax v. Rao Thakur Narayan Singh, : [1965]56ITR234(SC) . In this case, there was a reassessment for the assessment year 1942-43, bringing to tax certain forest income and interest income. The assessee preferred an appeal to the Tribunal objecting to the Income-tax Officer's jurisdiction to initiate reassessment proceedings in respect of the forest income on the ground that he had knowledge of such income when the original assessment was made. The Appellate Tribunal upheld the assessee's contention, but, by mistake, the Appellate Tribunal set aside the entire reassessment order and restored the original assessment order. No steps were taken under Section 35 of the 1922 Act to rectify the mistake; nor was any reference to the High Court sought against the order of the Appellate Tribunal. Thereafter, the Income-tax Officer initiated fresh reassessment proceedings under Section 34 With respect to the interest income and made a fresh reassessment order for the assessment year 1942-43 to include that income. The Supreme Court has held that as the order of the Appellate Tribunal became final, the finding of the Tribunal, even though by mistake, that the officer could not initiate reassessment proceedings in respect of the interest income also, was binding on the Income-tax Officer and he could not reopen the assessment over again to include the interest income.

7. Mr. Bachawat, learned counsel for the department, has drawn my attention to a passage at page 239 of the Supreme Court judgment. Here, Subba Rao J., as he then was, speaking for the Supreme Court, has said :

' The Tribunal held in the earlier proceedings that the Income-tax Officer knew all the facts at the time he made the original assessment in regard to the income he later on sought to tax. The said finding necessarily implies that the Income-tax Officer had no reason to believe that because of the assessee's failure to disclose the facts, income has escaped assessment. The earlier finding is comprehensive enough to negative 'any such reasons' on the part of the Income-tax Officer. That finding is binding on him. He could not on the same facts reopen the proceedings on the ground that he had new information. If he did so, it would be a clear attempt to circumvent the said order, which had become final. We are not concerned in this appeal with a case where the Income-tax Officer got new information which he did not have at the time when the Tribunal made the order. '

8. Mr. Bachawat's point is that it is true that the Appellate Assistant Commissioner was of opinion that the Income-tax Officer who originally made the assessment was satisfied as to the genuineness of these loans but on the 28th December, 1964, respondent No. 1 gave a notice to the petitioner calling upon the petitioner to produce the lenders before him. He also sent to the petitioner notices in duplicate under Section 131 of the Act of 1961 to compel the attendance of the lenders. There was no response on the part of the petitioner to this notice and respondent No. 1 came to the conclusion that these alleged creditors would not appear before the tax authorities if called upon to do so. This is a new information or material, according to Mr. Bachawat, which the Income-tax Officer did not have when the Appellate Assistant Commissioner made his order. Mr. Bachawat has also produced before me the report which respondent No. 1 sent to the Commissioner of Income-tax to obtain his sanction to the issue of notice under Section 148 for initiation of proceedings under Section 147(a) of the Act of 1961. This report has been seen in court by counsel for the petitioner as well. In this report it is, inter alia, stated :

' Fresh opportunity was given to the partners of Rai Bahadur Raghunath Singh to produce evidence in connection with the loan accounts which appear in the balance-sheet but there was no response from the side of the assessee. Proposals may, therefore, be sent to the Board of Direct Taxes for initiation of proceedings under Section 147(a) de now as a protective measure so that even if the assessment is quashed by the I. T. A. T. (Income-tax Appellate Tribunal) we can make a fresh assessment for this year.'

9. It is possible that the Income-tax Officer was trying to initiate proceedings on the basis of new information or new material which was not in his possession at the time the Appellate Assistant Commissioner gave his findings. But he can, on the facts and in the circumstances of this case, initiate proceedings on new information or materials not under Section 147(a) but under Section 147(b). In the instant case initiation of proceedings under Section 147(b) is now time-barred. And that is why an attempt was made to initiate proceedings under Section 147(a) which, in law, cannot be sustained.

10. The result is that this rule is made absolute. There will be a writ in the nature of mandamus directing the respondents to cancel the notice dated 24th March, 1965, for the assessment year 1948-49 mentioned in the petition.

11. There will be no order as to costs.

12. The operation of this order is stayed for four weeks.


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