1971 (7) TMI 46 - HC - Income Tax

This petition under article 226 of the Constitution challenges the validity of a notice under section 148, Income-tax Act, 1961 - It was the assessee s duty to inform the Income-tax Officer of the primary facts relating to the transactions. His failure to do so amounted to a non-disclosure of primary facts.

Summary

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961.
2. Whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts.
3. Legality of the sanction accorded by the Central Board of Revenue.
4. Jurisdiction of the Income-tax Officer, Circle I(7), Kanpur, to issue the impugned notice.
5. Legality of the continued retention of the books of account beyond 15 days of their impounding.

Issue-wise Detailed Analysis:

1. Validity of the notice under section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice issued under section 148 on the grounds that the Income-tax Officer had no material to entertain a belief that any part of the income had escaped assessment and acted merely on suspicion. The court found that the Income-tax Officer had relevant material, including the transaction of the sale of 22 silver bars, which was not properly accounted for in the books. The court held that these were relevant materials on which the Income-tax Officer could reasonably entertain a belief that income had escaped assessment, and thus, the notice was not without jurisdiction.

2. Omission or failure on the part of the assessee to disclose fully and truly all material facts:
The court referred to the Supreme Court's decisions in Commissioner of Income-tax v. Hemchandra Kar and Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmundry, emphasizing that the assessee has a duty to disclose all material facts necessary for assessment. The court found that the assessee failed to disclose the transaction of the sale of 22 silver bars and relevant details such as the person from whom the bars were purchased and whether any commission was charged. This omission justified the Income-tax Officer's belief that income had escaped assessment, and thus, the notice was valid.

3. Legality of the sanction accorded by the Central Board of Revenue:
The petitioner argued that the Central Board of Direct Taxes did not apply its own mind and did not record its own reasons for the sanction. The court declined to entertain this point, noting that it raised mixed questions of law and fact, was not taken in the writ petition, and the Central Board of Direct Taxes was not impleaded as a party. Therefore, the court did not investigate this issue further.

4. Jurisdiction of the Income-tax Officer, Circle I(7), Kanpur, to issue the impugned notice:
The petitioner contended that the notice was invalid because the initial report was made by the Income-tax Officer, C-Ward, Kanpur, and the Central Board of Direct Taxes accorded its sanction based on that report. The court declined to entertain this point as it was not raised in the writ petition. The court noted that the respondent could have clarified the jurisdictional division of work between the two Income-tax Officers if the point had been taken.

5. Legality of the continued retention of the books of account beyond 15 days of their impounding:
The petitioner argued that the Income-tax Officer's retention of the books of account beyond 15 days without obtaining the Commissioner's approval was illegal. The court found that the Income-tax Officer had recorded his reasons for impounding the books and obtained the Commissioner's sanction for retention until 31st March, 1967. However, the court noted that there was no justification for retaining the books after that date and directed the respondent to return the books forthwith to Hotilal, the partner of the petitioner firm.

Conclusion:
The petition was allowed in part. The court directed the respondent to return the books of account impounded on 24th September, 1965, to Hotilal. The other reliefs prayed for in the writ petition were refused. The parties were directed to bear their own costs.