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1969 (1) TMI 16 - HC - Income TaxNotice u/s 34 was issued to HUF by the ITO, wherein it was stated that he had reason to believe that the income of the HUF assessable to income-tax had been under-assessed - validity of the notice
Issues Involved:
1. Validity of notices under Section 34(1)(a) of the Indian Income-tax Act, 1922, for the assessment years 1943-44 and 1944-45. 2. Jurisdiction of the Income-tax Officer to issue the impugned notices. 3. Whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 4. The extent of the High Court's jurisdiction under Article 226 of the Constitution to challenge the validity of the notices. Detailed Analysis: 1. Validity of Notices under Section 34(1)(a) for Assessment Years 1943-44 and 1944-45: - The petitioner challenged the validity of the notices dated November 16, 1960, issued under Section 34 of the Indian Income-tax Act, 1922, for the assessment years 1943-44 and 1944-45. - The basis for the notice for the assessment year 1943-44 was a deposit of Rs. 27,996 in the books of M/s. Walaiti Ram Jaishi Ram, alleged to represent the sale proceeds of gold belonging to Kishen Das, deceased. - For the assessment year 1944-45, the notice was based on several grounds, including investments of Rs. 6,00,000 in Jagdish Trading Company, Srinagar, and other deposits and jewellery recovered from Kishen Das's box. 2. Jurisdiction of the Income-tax Officer: - The petitioner argued that the Income-tax Officer lacked territorial jurisdiction to issue the notices and that the matter should have been referred to the Commissioner of Income-tax under Section 64 of the Act. - The Commissioner of Income-tax had passed an order on October 12, 1966, addressing the jurisdiction issue, making this ground irrelevant for the court's consideration. 3. Omission or Failure to Disclose Material Facts: - The petitioner contended that there was no omission or failure on the part of Jaishi Ram Mehra (Hindu undivided family) to disclose fully and truly all material facts necessary for assessment, which might have resulted in under-assessment or escapement of income. - The court examined whether the Income-tax Officer had "reason to believe" that there was any omission or failure on the part of the assessee, as required under Section 34(1)(a) of the Act. 4. Extent of High Court's Jurisdiction under Article 226: - The court discussed the legal framework for challenging the validity of notices under Section 34 of the Act and the extent of its jurisdiction under Article 226 of the Constitution. - It referred to various Supreme Court judgments, including S. Narayanappa v. Commissioner of Income-tax, Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, and Commissioner of Income-tax v. A. Raman and Co., to outline the scope of judicial review in such matters. - The court emphasized that it could examine whether the reasons for the belief had a rational connection or relevant bearing to the formation of the belief and were not extraneous or irrelevant to the purpose of the section. Judgment: Assessment Year 1943-44: - The court found that the notice for the assessment year 1943-44 was based on an irrelevant ground, as the deposit of Rs. 27,996 in the books of M/s. Walaiti Ram Jaishi Ram had no rational connection with any non-disclosure by the Hindu undivided family of Jaishi Ram. - The notice dated November 16, 1960 (annexure "B"), was quashed. Assessment Year 1944-45: - The court held that the first ground for the notice, relating to the investment of Rs. 6,00,000 in Jagdish Trading Company, was valid and germane to the formation of the requisite belief under Section 34. - However, the other grounds mentioned in the notice (items Nos. 2 to 4) were found to be irrelevant. - Despite the irrelevance of some grounds, the notice for the assessment year 1944-45 (annexure "C") was upheld because one valid ground was sufficient to sustain the notice. Final Order: - The petition was partially allowed. The notice dated November 16, 1960 (annexure "B"), and parts of the notices dated February 10, 1966 (annexure "D"), and February 18, 1963 (annexure "RB"), relating to the assessment year 1943-44 were annulled and quashed. - The petition was dismissed concerning all other matters. - No order as to costs was made due to the divided success and failure of the parties.
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