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TMI Blog1969 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... name of Ganeshdas Sreeram which originally owned all the businesses of the family and carried on the same as such, till the assessment year 1946-47. Thereafter, there was partial partition in the year 2003, Ramnavami, corresponding to 1946, in respect of the business carried on and some movable properties owned by the Hindu undivided family. With respect to these divided businesses, a partnership was formed under the instrument of partnership dated September 19, 1947, consisting of the petitioners Nos. 1 to 4 and their late father, Jivan Ram Goenka. On the death of Jivan Ram Goenka on February 20, 1950, a fresh deed of partnership dated July 26, 1950, was executed and the petitioner No. 5, the mother of petitioners Nos. 1 and 2, was taken in as a partner in place of Jivan Ram Goenka. Thereafter, another partnership deed was executed on May 18, 1954, on attainment of majority of a minor by the name of Sankarlal Goenka. The partnership firm applied for registration under section 26A of the Income-tax Act, 1922, hereinafter called the " old Act ", for the assessment year 1947-48 in the form prescribed giving all necessary particulars as required. The Income-tax Officer by his order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the matter of submission of reply was due to the illness of the senior partner, and for which no other materials could be placed. In spite of it, the cancellation order was passed and against this order an appeal was preferred, but the Appellate Assistant Commissioner of Income-tax dismissed the appeals as they were not maintainable. Thereafter, after the lapse of about three years, notice dated March 20, 1965, was issued by the Income-tax Officer under section 148 of the Act for the assessment year 1948-49 to the Hindu undivided family alleging that the Income-tax Officer had reason to believe that the income chargeable to tax of the said Hindu undivided family had escaped assessment within the meaning of section 147 of the Act. Similar notices were issued in respect of other assessment years as well. On receipt of such notice, a letter was written as to how under section 148, such a proceeding had been started and at the same time a return was submitted by the Hindu undivided family under protest showing the same income as was shown in the original return already filed. From paragraph 2 of the affidavit-in-opposition, it appears that it was admitted that for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm and whether natural justice was denied to it. As to interference by the High Court under article 226 of the Constitution on the said grounds, it is now well-settled that the High Court may issue a writ of certiorari to quash quasi-judicial proceedings taken by the income-tax authorities in excess of his jurisdiction and to quash an order which is vitiated by an error apparent on the face of the record or if it is passed in violation of the principles of natural justice. Before dealing with the question as to the propriety of the cancellation order, it is necessary to set out briefly certain facts which weighed in favour of cancellation : The Income-tax Officer cancelled the registration when he came to know that late Jivan Ram Goenka executed two powers-of-attorney one in the year 1949 and another in 1950 executed in favour of Rameswar Goenka. The bank account in the name of Ganeshdass Sreeram, the Hindu undivided family, with the State Bank of India, Shillong, was converted into the partnership account only on December 22, 1951. Thirdly, the share income from the firm, A. V. Morello Co., Shillong, in which the Hindu undivided family of M/s. Ganeshdass Sreeram was par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Jivan Ram Goenka show that these were executed for the purpose of management of properties and business. Secondly, an account in the State Bank of India was converted into a partnership account on December 26, 1951. We have already dealt with the matter of A. V. Morello Co. The most important point for consideration is whether the petitioners were given reasonable opportunity to say anything against the contemplated cancellation based on other papers and records on which also conclusion was reached that the partnership deed was a mere paper transaction purported to evade taxation and there never existed a genuine firm. The partnership firm showed cause in pursuance of this notice, vide annexure " G ", that the senior partner, Sri Rameswar Goenka, was going to be operated on March 23, 1962, and, as such, a request was made to grant the firm two months' time for giving necessary reply to the alleged matter under reference. This was refused and the reasons given for granting time as prayed for do not appear to be based on natural justice. The Income-tax Officer replied on March 26. 1962, that the prayer for extension of time was rejected as a time-bar matter is involved. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could never arise in this case, inasmuch as there was a peremptory order, as stated before, that if within March 29, 1962, nothing was done, the case would be decided ex parte. We are of the opinion that on such order being given, there could not be any scope for any prayer for adjournment and the petitioners were left at the mercy of the Income-tax Officer. In such circumstances, it goes without saying that the Income-tax Officer wanted to proceed with the matter in a break-neck speed which clearly goes against the principles of natural justice. It has been observed in the case of Y. Narayana Chetty v. Income-tax Officer, Nellore, that if the power under rule 6B is exercised by the Income-tax Officer against a firm, without giving it a notice in that behalf and without affording it an opportunity to satisfy the officer that it is a genuine firm, it may be open to the firm to question the validity of the order on that ground. On reference to the explanation given by the firm as per annexure " I " of the petition, it appears that regarding the documents stated before, no opportunity was given to the firm to explain the contents thereof after they were disclosed. In our opinion, alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellate authority, it was open to cancel the registration by the Income-tax Officer, as it depended upon his own satisfaction. This rule is not clear to show whether he could cancel the registration which has been granted by the appellate officer. In this connection, we may quote here the relevant portion of section 31(3) [part of (b) and (c)] of the old Act, it is provided, inter alia, that in case of an order cancelling registration of a firm ... or refusing to register a firm ... under section 26A ... the Appellate Assistant Commissioner may confirm such order or cancel it and direct the Income-tax Officer to register the firm or to make a fresh assessment as the case may be. This clearly shows that by an appellate order a direction was made to the Income-tax Officer to register a firm. In such circumstances, the question of satisfaction for cancellation of an appellate order does not arise as under the ordinary principles of law an inferior authority cannot set at naught an appellate order. In such circumstances, we are of the view that in so far as the order of cancellation regarding 1947-48 is concerned, the order of cancellation of registration must be set aside an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 133, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year). " It has been urged on behalf of the department that the case falls under section 147(a), inasmuch as there has been a non-disclosure of the income by the Hindu undivided family and therefore the case clearly falls within the ambit of this clause (a). In section 147(a) the expression " material facts " is very important, inasmuch as the criterion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment and had not disclosed the true intention behind the sale. It is not disputed that the expression " reason to believe " is the test for issuing a notice under section 148 and as such the whole question hinges upon the fact whether the primary facts were not disclosed before the issue of notice was embarked upon. We have already said that the returns for the previous years were submitted by the petitioners partly for the Hindu undivided family and partly for the firm and, therefore, the question is whether the petitioners were guilty of non-disclosure. In so far as non-disclosure is concerned, it will appear from the affidavit-in-opposition at page 141 of Civil Rule No. 357, that the Hindu undivided family, the assessee in 1948-49, had a total income of Rs. 1,00,247 out of which it did not disclose Rs. 75,168 in its return and this amount is liable to assessment in the hands of the Hindu undivided family as it escaped assessment. Similar is the case with other assessment years. It will not be out of place to mention here once again that the old partnership firm ceased to exist and new partnership documents were created on some change of devolution of shares, arising out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law can never be disputed and it is also true that it is not for the High Court to decide whether the ground was adequate or inadequate. We have already said that cancellation of registration was the originating circumstance to set in motion the provision of section 147(a) and therefore we shall have to look into the reasons of the Income-tax Officer as to whether was a prima facie case for issuing notice under section 148. It goes without saying that every case must be decided on its own merits. In the instant cases it appears that there was prima facie no non-disclosure in so far as the firm and the Hindu undivided family were concerned before the date of cancellation of registration. We have had the advantage of going through the reasons recorded by the Income-tax Officer for approval by the appropriate authority and in all these cases it appears that in the course of investigation in respect of another sister concern of this assessee, namely, the Hindu undivided family, it was found that the alleged partial partition of the Hindu undivided family was not correct and in fact the Hindu undivided family continued to remain as before. Accordingly, the registration for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur opinion, the foundation having been snapped, the matters remain at large and the notices under section 148 of the Act for this reason also cannot be said to be operative. The other question which requires consideration is, if the notices do not come within the ambit of section 147(a), whether they should be deemed to be notices under clause (b). In cases where there has been no failure on the part of the assessee to make a return of his income and to disclose fully and truly all material facts necessary for his assessment, clause (b) comes into operation. It appears from this clause that the Income-tax Officer should receive the information after the original assessment and the information should lead him to believe that income has escaped assessment. It appears to us on examination of the records of the case that for all intents and purposes, the Income-tax Officer has sought to issue a notice under section 148 on an information which he had received in connection with a sister concern and which gave rise to the cancellation of proceedings. This in our opinion brings the notices within the ambit of clause (b) and not under clause (a) of section 147 of the Act. It is very impo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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