The petitioner in this case is Narsinghdas Bagree. It appears that he has been assessed to income-tax for a period of twenty years or more in District I(1), Calcutta. Since the inception of his file, he was assessed in the status of an 'individual' under G.I.R. No.I(1)/N-77-B. From the assessment year 1954-55 his status was changed to that of a 'Hindu undivided family.' It is stated that from the assessment year 1954-55, the petitioner filed returns in the status of a Hindu undivided family as well as that of an individual. Regular assessments in the status of Hindu undivided family were made under file No. 1(i)/77/B but the returns made in the individual status were merely filed. A file was started, being G.I.R. No. I(1)/N-317/B of the petitioner in his Hindu undivided family but it was merely noted therein that as the Hindu undivided family of the petitioner had already been assessed in the other file, no further action was necessary. Returns have been filed up to the assessment year 1961-62. Some complaint has been made in the petitioner regarding the strange procedure adopted in mixing up the filed, but in this application the learned standing counsel appearing on behalf of the petitioner has not pressed that point. The only point pressed by learned counsel is the illegality of certain notices served under section 34(1)(a) of the Indian Income-tax Act, 1922. In order to appreciate the point, it will be necessary to state certain facts. It appears from the materials placed before me that the assessee had been connected with racing for a large number of years. In fact, during the assessment for past years, a controversy arose as to whether he should be allowed the loss in his racing account. The following extract from the assessment order of the petitioner for the assessment year 1949-50 shows this clearly :
'In the return filed and P/L account and balance-sheet furnished, the loss in respect of the race account has not been claimed and only the balance amount has been shown in the balance-sheet treating it as usual as an asset. But, subsequently, the assessee came with a statement claiming the loss in the account as business loss. It is definitely an afterthought in order to minimise the tax liability and there is no reason why the whole transaction will not be treated as a hobby as has been done so long and admitted by the assessee himself in the statement furnished. As such, even if it is admitted but not accepted to be a loss, it is clearly in the nature of personal expanses and at best a casual loss and far away to have any connection with trading profit. Moreover there were no receipts of payment for the expenses alleged to have been incurred by the assessee. In view of the reasons stated above, the loss claimed by the assessee on this account is not entertained. As such the question of summoning different parties under section 37 for verification of the expenses incurred, as claimed by the assessee, does not arise.'
On 27th February, 1961, Mr. A. K. Banerjee, the Income-tax Officer, 'B' Ward, Dist. II, Calcutta, wrote a letter to the petitioner, a copy whereof is annexure 'F' to the petition. This letter was entitled 'show cause for starting section 34 proceedings assessment years.' It is stated in the letter that it appeared from the petitioners bank account with the Eastern Bank Ltd., that he had deposited a sum of Rs. 4,98,045 between the dated January 4, 1943, and August 29, 1944, being relevant for the assessment years 1942-43, 1943-44 and 1944-45. Thereafter, appears this rather amazing statement :
'You have stated in your letter dated November, 6, 1957, that the balance-sheet of the assessee of the relevant assessment year was there in the income-tax file but no such balance-sheet could be found in that file. Therefore, it appears that you had not disclosed the bank account and the deposits therein at the time of assessments for the three years. You are, therefore, requested to explain why proceedings under section 34 may not be drawn against you in view of unexplained concerned income noted hereinbefore.'
In answer to it, by his advocates letter dated 27th February, 1961, the petitioner stated that these deposits were disclosed in the petitioners individual assessment and in the assessment of Messrs. Bhicomchand Bagree and this represented the proceeds of stakes or bets in racing. It was further stated that this racking was done by the member of the Hindu joint family of Bhicomchand Bagree although the account was sin the petitioners name, and this was disclosed and the profit and loss of the 'racing hobby' had been decided long ago. An extract from the 1949-50 assessment order noted above was set out. On or about 22nd March, 1962, notices were issued under section 34(1A) for the assessment year 1943-44, 1944-45 and 1945-46. It is now stated that there was a typing mistake and that they were notices sunder section 34(1)(a). The reasons for issuing notices under section 34 were, not, of course, communicated to the petitioner but they have now been set out in an affidavit filed by Pyaray Lal Kanojia, Income-tax Officer, 'B' Ward, District II, Calcutta, affirmed on 6th July, 1962. The reason have been stated as follows :
'On receipts of certain information it was found that the assessee and/or the petitioners had deposited in the Eastern Bank Rs. 4,98,045 during the period 4th January, 1943, to 29th August, 1944. It was also found from the petitioners file for the assessment years 1944-45 to 1945-46 that the petitioner did not disclose this bank account for the assessment years. In view of the same proceedings were taken for reopening the assessment under section 34(1)(a) after getting permission of the Central Board of Revenue to enquiry into the source of deposits. In view of the materials that have come into my possession I have reasons to believe and I bona fide believe that due to omission and failure on the part of the petitioner the income has escaped assessment. It further appears from the records for the assessment years 1944-45 and 1945-46 that there is nothing in the record to indicate that this account was ever disclosed or that the deposit explained.'
It has subsequently been stated that the only bank accounts disclosed were with the Bank of Baroda and the National State Bank of New York. With regard to the deposits with the Eastern Bank, the petitioner has stated as follows in his petition :
'13. That the said bank account was maintained by the petitioner for depositing his receipts from races and for paying the expenses on that account; that the racing account was disclosed in the balance-sheet filed with the income-tax department and the bank pass book used to be produced in assessment proceedings; but that as it was a non-taxable hobby the Income-tax Officer concerned used to ignore these set of accounts; that the petitioner carried on this hobby on behalf of the firm, M/s. Bhicomchand Bagree, of which he was a partner; and that the Income-tax Officer, B-Ward, Dist. I(1), Calcutta, was by a letter dt. March 13, 1961, reminded of all theses, specially by reference to 1949-50 assessment order in which all about this hobby, which was exempt from taxation, was mentioned; and a true copy of the said letter dt. March 13, 1961, is annexure 'G' to this petition.
14. That the relevant order-sheets relating to the assessment years 1943-44, 1944-45 and 1945-46 would show that accounts relating to racing had been brought to the notice of the taxing authorities, and the relevant accounts in the Eastern Bank had also been produced before them.'
In answer to this Shri Kanojia in his affidavit-in-opposition, paragraph 10, merely states that : 'It is not admitted that the alleged racing account was disclosed in the balance-sheet and to the Income-tax Officer'. With regard to the categorical statement in paragraph 14, that the order-sheets for the assessment year 1943-44, 1944-45 and 1945-46 would show that the account in the Eastern Bank had been produced before the authorities, the answer given in paragraph 11 by Shri Kanojia is that he did not admit any of the allegations in paragraph 14. By the rule nisi the respondents were commanded to produce in court or cause to be forwarded to the Registrar of this court for being so produced, all the records of the proceedings of the income-tax case in respect to the said notice issued under section 34 of the Indian Income-tax Act, 1922, In spite of this, neither the order-sheets nor the other records were produced. I might mention that this matter came up for hearing and was adjourned from time to time. In fact, on one occasion it was discovered that the affidavit were wholly inadequate and opportunity was given for filing a fresh set of affidavits. In spite of this, the respondents have not placed before the court the relevant records. At the last hearing, when I asked for the record in the morning, it was stated that they would be produced in the afternoon, and in the afternoon a file was produced which did not contain the order-sheets. It contained fresh carbon copies of the assessment orders for several years. I enquired as to why fresh carbon copies were produced of order which were nearly 20 years old. The learned counsel could not adequately explain the same, beyond suggesting that they were prepared for the purposes of this application. In other words, in spite of the command of the court and every opportunity given for that purpose the respondents have not produced the relevant records. I must presume that the records, if produced, would have gone against them. In this background, I shall now proceed to consider the legal position.
As I have stated above, the notices were given under section 34(1A). Even in the affidavit-in-opposition field by Kanojia he has repeated this. Such a notice is, prima facie, barred by limitation. However, it is now stated that this was a typing mistake and the notices was really under section 34(1)(a). That provision of law runs as follows :
(a) the Income-tax Officer has reason to believer that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed,.... he may in cases falling under clause (a) at any time.... serve on the assessee.... a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of the section 22 and may proceed to assess or reassess such income, profits of gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
Therefore, the question is whether the Income-tax Officer had reason to believe that there was any omission or failure on the part of the assessee to disclose fully or truly all the material facts. In the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Dist. I, Calcutta, it has been laid down by the Supreme Court that the assessee has the responsibility of disclosing all primary facts, but once he has disclosed all the primary facts, his duty ends and it is for the assessing authority to draw the proper conclusion from it. If the wrong conclusion has been drawn, then it is no ground for reopening an assessment under section 34(1)(a). Because the assessing authority previously held another opinion as to the legal effect of certain primary facts, and the assessing authority later on took a different view, there does not exist any ground for such reopening. In this background of the law, let us examine the facts of the present case. From the affidavite of Sri Kanojia we now know the reason for attempting to reopen the assessments for the assessment year 1943-44, 1944-45 and 1945-46. The only reason is that the assessee did not disclose the Eastern Bank account for these years, wherein there was deposit of Rs. 4,98,045 during the period January 4, 1943, to August 29, 1944. The only reason for saying that the assessee had not disclosed this bank account is stated to be that in the petitioners file for the relevant assessment years, it is not shown that he has disclosed that account. The Income-tax Officer who issued the notice under section 34(1)(a) was Mr. M. S. Mann. He, however, has not filed any affidavit. Another Income-tax Officer files an affidavit. Naturally, his knowledge is confined to the record. He has made vague statements in his affidavit and the original records have not been produced. I think that, on the facts, the petitioners case is almost uncontradicted. Statements made, which are based on information received from the records which are not produced are worse than useless. Apart from this, there are some curious aspects of this case. It will oppress from the letter of the Income-tax Officer dated 27th February, 1961, that as long ago as 6th November, 1957, the petitioner had written to say that he had filed the balance-sheets for the relevant assessment years and they contained reference to the Eastern Bank account. For four years there was no reply. Thereafter, the Income-tax Officer wrote that he could not find the balance-sheets in the file and he said that 'therefore, it appears, that you had not disclosed the bank account and the deposits therein at the time of the assessment for the three years' I asked Mr. Mukherjee, who appeared do behalf of the respondent produced were noted down contemporaneously. He failed to produce any records to that effect. It will be remembered that Shri Kanojia has, in his affidavit-in-opposition, categorically denied that the racing account was disclosed in the balance-sheets. If the balance-sheets were not there, how could be make such a statement ?
It is quite clear from the assessment records that the petitioner carried on racing and this fact was well-known to the assessing authority. In fact, he wanted the loss in this branch of his activities to be set off against his profits but this was not allowed on the ground that the racing transactions were to be treated as 'a hobby as has been done so long and admitted by the assessee himself in the statement furnished'. Therefore, the only point to be considered is as to whether the Income-tax Officer who reopened the account had reason to believe that as a result of any omission on the part of the assessee to disclose the Eastern Bank account, any income had escaped assessment for the relevant years. The assessee categorically says that he had disclosed the Eastern Bank account in the balance-sheets which were filed. He further categorically states that the order-sheets for the relevant years would show this. The first statement made by him in 1957 was not even contradicted for a period of four years. So far as the latter statement is concerned, the order-sheets have not been produced. I can only come to the conclusion that the Income-tax Officer concerned had not reason whatsoever to be of the opinion that the assessee had failed to disclose the Eastern Bank account for the relevant years. This, in my opinion, must be inevitable conclusion based on the material placed before the court, together with the curious conduct of the respondents. It does not appears that the assessing authorities kept a careful note of the documents produced before them. They did not care to answer letters in time. It would be strange if an Income-tax Officer could be permitted, after nearly 20 years to say that the assessment should be reopened because a certain document is not to be found on the record. It may be that the document had been produced and not noted. It may again be that the document was on the record and has either been lost or deliberately removed. The fact that a statement made by the assessee was not contradicted for four years may give rise to very adverse inferences unfavourable to the respondents. The fact that the order-sheets have not been produced raises a presumption that, if they had been produced, they would have been unfavourable to the respondents. There is another fact which calls for some comment. When the petitioner was told that the recorded do not show the balance-sheets, he asked for inspection of the records. This was refused on the flimsy pretext that his signature in the application did not tally with his signature in some letters or other. Although the petitioner had a lawyer on record, no inspection was ultimately given. So, not only has the record been withheld from the court, but also from the assessee.
In my opinion, what has happened in this case is as follows :
The petitioner had throughout disclosed his racing account and at one time attempted to set off the loss in that business against his profits but this had been refused. The Income-tax Officer during the relevant years treated these sums as causal receipts characterising it as 'a hobby'. After all these years, some other Income-tax Officer has changed his opinion and thinks that the racing receipts should have been treated as income. This is certainly not within the scope of section 34(1)(a) of the Income-tax Act, 1922. There is no omission on the part of the petitioner to disclose any primary fact. Upon these primary facts, the Income-tax Officer for out 20 years drew the conclusion that they were casual receipts. The present Income-tax Officer is of a contrary view. This is not a ground upon which an assessment can be reopened under section 34(1)(a).
The result is that for the reasons given above, this application should succeed. The rule is made absolute and the notices issued under section 34(1)(a) dated March 22, 1962, being annexure 'E' to the petition are all quashed by an appropriate writ and there will be a writ in the nature of mandamus directing the respondents not to give effect to the same. There will be no order as to costs.
Application allowed : Rule made absolute.