1964 (6) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Legality of notices served under section 34(1)(a) of the Indian Income-tax Act, 1922.
2. Alleged non-disclosure of the Eastern Bank account.
3. Adequacy and accuracy of the records maintained by the Income-tax authorities.
4. Change in the Income-tax Officer's opinion regarding the nature of racing receipts.

Detailed Analysis:

1. Legality of Notices Served Under Section 34(1)(a):
The primary issue pressed by the petitioner was the illegality of certain notices served under section 34(1)(a) of the Indian Income-tax Act, 1922. The court scrutinized 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 material facts necessary for his assessment. It was noted that the notices were initially given under section 34(1A), which was prima facie barred by limitation. However, it was later stated that this was a typing mistake and the notice was really under section 34(1)(a).

2. Alleged Non-Disclosure of the Eastern Bank Account:
The Income-tax Officer alleged that the petitioner did not disclose his Eastern Bank account, which had deposits amounting to Rs. 4,98,045 during the period January 4, 1943, to August 29, 1944. The petitioner contended that these deposits were disclosed in his individual assessment and in the assessment of Messrs. Bhicomchand Bagree, representing proceeds from stakes or bets in racing. The court found that the petitioner's statements regarding the disclosure of the Eastern Bank account in the balance-sheets were not contradicted for four years, and the relevant order-sheets were not produced by the respondents despite the court's command, raising a presumption against the respondents.

3. Adequacy and Accuracy of the Records Maintained by the Income-tax Authorities:
The court observed that the respondents failed to produce the relevant records, including the order-sheets, despite multiple opportunities and the court's directive. The court inferred that the records, if produced, would have been unfavorable to the respondents. The court also noted the curious conduct of the respondents, such as producing fresh carbon copies of nearly 20-year-old assessment orders and refusing the petitioner's request for inspection of the records on flimsy grounds.

4. Change in the Income-tax Officer's Opinion Regarding the Nature of Racing Receipts:
The court noted that the petitioner had consistently disclosed his racing account, which was treated by the Income-tax authorities as a non-taxable hobby. The court found that the present Income-tax Officer's attempt to reopen the assessment was based on a change of opinion regarding the nature of the racing receipts, which were previously treated as casual receipts. The court held that this change in opinion did not warrant reopening the assessment under section 34(1)(a), as there was no omission on the part of the petitioner to disclose any primary fact.

Conclusion:
The court concluded that the Income-tax Officer had no reason to believe that the petitioner had failed to disclose the Eastern Bank account for the relevant years. The court found that the petitioner's case was almost uncontradicted and the respondents' conduct raised adverse inferences against them. The court held that the reopening of the assessment was not justified under section 34(1)(a) and quashed the notices issued under this section. The rule was made absolute, and the respondents were directed not to give effect to the notices. The application was allowed, and there was no order as to costs.