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TMI Blog1972 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... s leading to the issue of these notices are the same and these were stated and arguments advanced with respect to O.P. No. 581 of 1972. The fate of the other two writ petitions was left to depend upon the result of O.P. No. 581 of 1972. I, therefore, turn to the facts as disclosed in O.P. No. 581 of 1972. For the assessment year 1963-64, by exhibit P-1 communication dated June 29, 1964, of the 1st respondent, the petitioner was asked to give details in the pro forma indicated, of the loans taken by its Bombay branch on executing hundies. The pro forma required full details, showing the names and addresses of parties and brokers from and through whom the loans were taken, the dates of the transactions, their duration and dates of redemption; whether the money was paid and repaid by cheque or cash; dates of payment and repayment; whether the person who advanced the loan had discounted the hundies with any bank, and if so, the name of the bank or purjawalas with full address ; whether the person advanced the loan with any bank or Purjawalas, etc. The petitioner complied (vide exhibit P-2 dated 30th July, 1964). The 1st respondent by the original of exhibit P-3 letter dated 7th Augus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions were specified in exhibit P-6. The total of the loans taken by the petitioner covered by such statements in the years 1960-61 and 1961-62 and assessable on that basis for the assessment years 1962-63 and 1963-64 was stated to amount to Rs. 9,65,000. The letter wound up: "I may please be informed within three days from the date of receipt of this letter whether you still maintain that all the loans taken by you as shown above were genuine." By exhibit P-7 letter dated 25th November, 1965, the petitioner replied that all the loans raised through hundi transactions were absolutely genuine ; that the brokers through whom the hundies were executed and from whom the loans were received were income-tax assessees, and that it was understood that they had fully accounted for and paid tax on the discounts and brokerage amounts received by them in their income-tax assessment, besides having given the declarations filed before the 1st respondent. The 1st respondent was assured that the loans were actually received by the petitioner through brokers and the hundies were discharged by payment of value to the brokers, as could be seen from the discharged hundies produced before the 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed. Explanation 2.-Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section. 149. Time limit for notice.-(1) No notice under section 148 shall be issued, - (a) in cases falling under clause (a) of section 147 (i) for the relevant assessment year if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii) ; (ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be had in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law (see Calcutta Discount Co. Ltd. v. Income-tax Officer). " The court was there considering the validity of proceedings which had resulted in reassessment under section 34, and which had been carried up in appeal, in further appeal, and in reference to the High Court. In Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, the assessee, a Hindu joint family, was assessed on income derived principally from money-lenders. In the course of proceedings for assessment of a private limited company the officer discovered that there was a large accretion to the wealth of the assessee, which had not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich had escaped assessment." In Malegaon Electricity Co. (P.) Ltd. v. Commissioner of Income-tax the assessee-company informed the officer of its resolution to sell the concern to the Belgaum company, of the minutes of the meeting of the board of directors of the Belgaum company agreeing to purchase the assets of the assessee-company, and of the agreement between the two companies regarding the sale and purchase. But, the assessee-company did not disclose the profit on sale, under section 10(2)(vii) of the Indian Income-tax Act, 1922, in the relevant column of the return of income, nor did it indicate the written down value of the assets sold. Proceedings under section 34 were started and the reassessment order was carried up in appeal, and further appeal to the Tribunal, and by way of reference to the High Court. Thereafter, the matter went up to the Supreme Court. It was observed : " It is true that if the Income-tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was, and, consequently, he would have been able to find out the price in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the proceedings recorded by the officer before issuing the notices and the officer's report to the Commissioner or even the Commissioner's sanction had not been produced. It was in these circumstances that the Supreme Court held that action taken under section 34(1)(a) was without jurisdiction. In view of the above decisions of the Supreme Court, I am not referring to the decisions of the High Courts, a large number of which were cited by counsel on either side. The principles applicable appear to be clear enough. The difficulty is only to decide on which side of the line the case falls, whether there was an omission to disclose on the part of the assessee, or a failure to draw inferences or a change of opinion on the part of the officer. Proceedings for assessment are not a game of hide and seek, where one party tries to overreach the other. Under section 147(a) read with section 143 of the Income-tax Act, an obligation is implicit on the assessee to disclose fully and truly all the material facts. The conditions which the disclosure must satisfy are cumulative, viz., it should be both full and true. This aspect of the matter is stressed by Explanation II to section 147, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure of the material facts ; and hence the notices, exhibits P-6 and P-8. This has been stated also in the counter-affidavit. Going by the test propounded by the Supreme Court in Narayanappa's case and in Venkata Narayana's case, it cannot be said at this stage that the 1st respondent did not even have prima facie reason to believe that the facts material to the assessment had not been fully and truly disclosed and that, as a result thereof, the income had escaped assessment. In that view the impugned notices were justified. This is not to say that a further and fuller investigation as to whether the grounds of action under sections 147 and 148 actually existed or not, would stand foreclosed. That should follow hereafter. It. would be open to the petitioner to urge all objections to the proposed action including those of a jurisdictional nature before the 1st respondent before he proceeds to reassess the petitioner in pursuance of the impugned notices. In Sowdagar Ahmed Khan v. Income-tax Officer, the assessee was an individual carrying on business in the distribution and exhibition of cinema films. He owned a cinema theatre at Nellore. The original assessments for 1943-44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no jurisdiction to issue notice under section 148. Nor has the 1st respondent precluded himself by reason of the enquiries pursued and the disclosure made prior to exhibit P-5. It is, therefore, unnecessary to consider the petitioner's argument that action would, if at all, properly lie only under section 147(b) and that the larger time-limit provided under section 149 would not be available, and that, therefore, the proceedings are barred. It remains to notice the contention that section 151 of the Act has not been properly complied with. The section has been quoted earlier. The petitioner's argument was based on the decisions of the Supreme Court in Chhugamal Rajpal v. S. P. Chaliha and Madhya Pradesh Industries Ltd. v. Income-tax Officer. Besides the averment in the counter-affidavit that the officer had duly satisfied himself and performed his obligations as required by section 151 of the Act, the files were made available to me at the hearing and they show that the officer had recorded the reasons for taking action, and that on the said report, the Board and the Commissioner were satisfied that the case was a fit one for issue of the notice. An additional counter-affida ..... X X X X Extracts X X X X X X X X Extracts X X X X
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