1970 (2) TMI 51 - HC - Income Tax

Assessee won a prize - Whether the income-tax authorities were right in holding that out of this amount a sum of Rs. 1, 00, 000 was available to the assessee for investment in his money-lending business - whether estimate of capital available can be made on the basis of past history of money-lending business

Summary

Issues Involved:
1. Whether the income-tax authorities were justified in estimating the capital available for the assessee's money-lending business at Rs. 1,00,000 during the assessment years 1956-57, 1957-58, and 1958-59.
2. Whether the principle of res judicata applies to income-tax assessments, preventing the authorities from revising their previous estimates.

Detailed Analysis:

Issue 1: Justification of Capital Estimation by Income-Tax Authorities
The primary issue revolves around the correctness of the income-tax authorities' estimate that Rs. 1,00,000 was available to the assessee for investment in his money-lending business during the assessment years 1956-57, 1957-58, and 1958-59. The assessee contended that only Rs. 80,000 was available at the commencement of the assessment year 1956-57, dwindling to Rs. 44,000 and Rs. 30,000 in the subsequent years. The Income-tax Officer, dissatisfied with the assessee's accounts, noted irregularities such as improper maintenance of accounts, unbalanced cash books, and unrecorded receipts. He observed that the cash, if any, was kept secretly, citing an example of a deposit of Rs. 2,000 in Andhra Bank on March 7, 1956, which could not be accounted for from the recorded cash balance.

The Income-tax Officer estimated the capital at Rs. 1,50,000 based on the prize won by the assessee in 1947, income from money-lending business, other property income, and expenditure over the years. This estimate was reduced to Rs. 1,00,000 by the Appellate Assistant Commissioner, who agreed with the application of the proviso to section 13 of the Indian Income-tax Act, 1922. The Income-tax Appellate Tribunal upheld this estimate, reducing the interest rate to 7%, thus lowering the estimated income to Rs. 7,500.

The court found that the estimate was based on substantial material, including the original capital, past income, and expenditure, and was not merely a guess or suspicion. The court distinguished this case from Raghubar Mandal Harihar Mandal v. State of Bihar and Bansidhar Onkarmall v. Commissioner of Income-tax, where assessments were based on pure guesswork without material evidence. The court held that past history, if complete, could legitimately support an estimate without additional material for the specific assessment year.

Issue 2: Application of Res Judicata in Income-Tax Assessments
The assessee argued that the Income-tax Officer had previously accepted Rs. 80,000 as the capital for the money-lending business during the assessment year 1955-56, and thus could not revise this estimate for subsequent years. The court rejected this argument, stating that the principle of res judicata does not apply to income-tax assessments. Each assessment year is separate, and findings for one year are not binding for subsequent years. The court cited the case of Commissioners of Inland Revenue v. Sneath, emphasizing that while past decisions are cogent factors, they are not estoppels binding for all years.

The court acknowledged that income-tax authorities should not arbitrarily depart from previous findings but are entitled to revise estimates if new facts come to light or if previous material facts were overlooked. The court referenced H. A. Shah & Co. v. Commissioner of Income-tax, supporting the view that subsequent tribunals could revise earlier decisions if material facts were previously ignored or if the earlier decision was arbitrary or perverse.

The court concluded that the Income-tax Officer's revised estimate was justified, as it was based on material facts not considered in the previous assessment. Therefore, the court answered the question in favor of the department, affirming the estimate of Rs. 1,00,000 as the capital invested in the money-lending business. The assessee was ordered to pay the costs of the reference.