1966 (10) TMI 50 - SC - Income Tax

Whether the High Court in appeal did not decide whether any primary facts on which the determination of the issue of reasonable belief in non-disclosure of material facts necessary for the assessment of the previous year and escapeme nt of tax in consequence thereof depended were not disclosed, the judgment of the High Court should be set aside? Held that - The High Court has pointed out that no final decision about failure to disclose fully and truly all material facts bearing on the assessment of income and consequent escapement of income from assessment and tax could be recorded in the proceedings before them. It certainly was not within the province of the High Court to finally determine that question. The High Court was only concerned to decide whether the conditions which invested the Income-tax Officer with power to re-open the assessment did exist, and there is nothing in the judgment of the High Court which indicates that they disagreed with the view of the trial court that the conditions did exist. Appeal dismissed.

Issues Involved:
1. Validity of the notice issued under Section 34 of the Income-tax Act.
2. Jurisdiction of the Income-tax Officer to issue the notice.
3. Non-disclosure of material facts by the assessee.
4. Adequacy of grounds for reassessment.
5. Role of the High Court in reviewing the Income-tax Officer's decision.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 34 of the Income-tax Act:
The notice issued by the Income-tax Officer did not specifically refer to section 34(1)(a) of the Income-tax Act nor did it set out the clause under which it was issued. However, the Court held that this omission does not vitiate the proceedings under section 34. It was referenced that the Calcutta High Court in P. R. Mukherjee v. Commissioner of Income-tax held that it is not necessary for a notice under section 34 to specify the clause under which it is issued.

2. Jurisdiction of the Income-tax Officer to Issue the Notice:
The Court referenced the judgment in Calcutta Discount Co. Ltd. v. Income-tax Officer, which established that two conditions must co-exist for the Income-tax Officer to issue a notice under section 34(1)(a): (1) the Income-tax Officer must have reason to believe that income had been under-assessed, and (2) such under-assessment was due to non-disclosure of material facts by the assessee. The Court further noted that the adequacy of the grounds for such belief is not open to investigation by the court.

3. Non-disclosure of Material Facts by the Assessee:
The Court observed that the Income-tax Officer had received information which led him to believe that the assessee had not disclosed fully and truly all material facts necessary for the assessment. The Income-tax Officer's affidavit indicated that there were large investments in money-lending which were not explained by the assessee. Specifically, the increase in investments was not supported by evidence, and the assessee had suppressed account books and failed to produce the deed of partition. The Court held that the Income-tax Officer had prima facie reason to believe that income chargeable to tax had escaped assessment due to non-disclosure of material facts.

4. Adequacy of Grounds for Reassessment:
The Court referenced a recent judgment in S. Narayanappa v. Commissioner of Income-tax, which stated that if there are reasonable grounds for the Income-tax Officer to believe that there had been non-disclosure of material facts, it would be sufficient to give jurisdiction to issue the notice under section 34. The sufficiency of the grounds is not a justiciable issue. The Court affirmed that the Income-tax Officer had prima facie reason to believe that information material to the assessment had been withheld.

5. Role of the High Court in Reviewing the Income-tax Officer's Decision:
The Court noted that the High Court in appeal did not decide whether any primary facts on which the determination of the issue of reasonable belief in non-disclosure of material facts depended were not disclosed. The trial judge had dealt with the affidavits in detail and concluded that there was prima facie evidence of non-disclosure. The High Court in appeal observed that without an enquiry by the concerned Income-tax Officer, it was not possible to decide whether the assessee failed to disclose fully and truly all material facts. The High Court was only concerned with whether the conditions for reopening the assessment existed, and there was no indication that they disagreed with the trial court's view.

Conclusion:
The Supreme Court dismissed the appeals, affirming that the Income-tax Officer had valid jurisdiction to issue the notice under section 34, based on reasonable grounds for believing that there was non-disclosure of material facts by the assessee, leading to income escaping assessment. The High Court's role was limited to determining whether the conditions for reopening the assessment existed, which they affirmed. The appeals were dismissed with costs.

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