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TMI Blog1976 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner-firm was the commission agents of Ganesh Flour Mills and were working as such at various places in and out of Delhi. The CBI raided the premises of the petitioner-firm on January 19, 1965, at various places and during the search, books of accounts and documents, apart from cash and jewellery, were seized. The relevant assessment years are 1949-50 to 1955-56. For the assessment year 1949-50, the ITO, Central Circle III, Delhi, on March 21, 1966, issued a notice under s. 148 of the I.T. Act of 1961 (the Act) to the petitioner. " Whereas I have reason to believe that your income chargeable to tax for the assessment year 1949-50 has escaped assessment within the meaning of s. 147 of the I.T. Act, 1961. reassess I, therefore, propose to-----------------the income for the said assessment year and I hereby re-compute require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income in respect of which you are assessable for the said assessment year. 2. This notice is being issued after obtaining the necessary satisfaction of the Central Board of Revenue. " For the subsequent assessment years th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other writ petitions, that is, C.W.P. Nos. 228 to 233 of 1970, the ITO, the CIT and the CBDT were the three respondents. The fourth respondent is the Director of Inspection (Investigation), New Delhi. Mr. A. K. Sen, on behalf of the petitioner, has raised two principal contentions before me. In the first place, he has argued that the order of H. R. Khanna J., dated March 24, 1969, in C.W.P. No. 782-A/D of 1966 ( [1978) 111 ITR 140) which on appeal was affirmed by the Letters Patent Bench on January 28, 1976 ( [1978] 111 ITR 138), constitutes res judicata for the subsequent assessment years which form the subject-matter of the present six writ petitions. What did H. R. Khanna J. decide in C.W.P. No. 782-A/D of 1966 between these very parties ? This we must know before we can see whether the doctrine of conclusiveness of judgments or estoppel by judgment applies in these cases. The principal question to which the learned judge addressed himself was this : Was there any material on the basis of which the ITO could have formed the belief that income had escaped assessment in the assessment year 1949-50 because of the omission or failure on the part of the assessee to disclose fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve now given reasons for initiating proceedings under s. 148. The reasons set out by the ITO pertain to the assessment year 1949-50. As regards the assessment year 1950-51, it is said that : " Reasons have been related in detail in the note submitted with the proposal for the year 1949-50 on 19-2-66. The escapement for this year of assessment is estimated as below on the basis of similar study of the seized material : Rs. (i) Bogus credits 6,21,434 (ii) Unaccounted money utilised in business 5,74,050 (iii) Unaccounted transactions 60,000 ------------------ 12,55,484 ----------------- (Estimated escaped income after giving benefit of rotation of Rs. 5 lakhs). " Similarly for each of the subsequent assessment years the escaped income is estimated on the basis of " similar study " of the seized material at Rs. 1,00,000 and above. The revenue, as I have said, has given reasons in these six writ petitioner To those reasons, I shall return a little later. The question is : Notwithstanding the reasons good, bad or indifferent whatever they may be, will not the judgment of H. R. Khanna J. dated March 24, 1969, operate as a res judicata to a hearing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law, namely, that of setting to rest rights of litigants, applied to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. The same principle of setting parties' rights to rest applies and estoppel occurs. There would be no quieting of litigation unless the judgment was taken as it stands. Since the classic judgment of Sir Williams De Grey C.J. in Duchess of Kingston's case [1776] 2 Smith L.C. (12th Edn.) 754, the principles of law governing estoppel per rem judicatam inter parties are generally repeated in the form he expounded and is now embodied in s. 11 of the Code of Civil Procedure in India. If in any court of competent jurisdiction a decision is reached, a party is estopped from questioning it in a new legal proceeding. This principle extends to any point whether on fact or law, which was in substance the ratio of and fundamental to the decision. The rule on this subject was set forth in the leading case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy Council of the same year by a differently constituted Board in Hoystead v. Commissioner of Taxation [1926] AC 155, taking a contrary view has not been preferred to Broken Hill's case [1926] AC 94 (PC) by the Supreme Court of India. " It is well settled ", the Supreme Court has said, " that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period." (See Instalment Supply (P.) Ltd, v. Union of India [1962] 2 SCR 644, 658 ; [1961] 12 STC 489, 501 ; AIR 1962 SC 53). This view was reiterated in New Jehangir Vakil Mills Co. Ltd. v. CIT [1964] 2 SCR 971 ; [1963] 49 ITR (SC) 137. It is true that in England Hoystead [1926] AC 155 (PC) and Broken Hill [1926] AC 94 (PC) cases were considered in Society of Medical Officers of Health v. Hope [1960] AC 551 (HL) and Caffoor v. CIT [1961] AC 584 (PC) and the decision in Broken Hill's case [1926] AC 94 (PC) was approved and followed. In view of this the authority of Hoystead's case [1926] AC 155 (PC) has been considerably shaken and " it is impossible to treat Hoystead's case as constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral questions of law. In Society of Medical Officers of Health v. Hope [1960] AC 551, 563 (HL), Lord Radcliffe said : " For that limited purpose it is a court with a jurisdiction competent to produce a final decision between the parties before it : but it is not a court of competent jurisdiction to decide general questions of law with that finality which is needed to set up the estoppel per rem judicatam that arises in certain contexts from legal judgments." The point of distinction between cases of assessment and the present writ decision is that, in assessment cases there is no lis, the ITO is not a party in the sense of a party hostile to the writ petitioner and the Tribunal is a Tribunal of limited jurisdiction in the writ petitions there is a lis, there are parties to the writ--the assessee on the one side and the revenue on the other--and the court dealing with the general question of law is a court of competent jurisdiction. The point involved before Khanna J. was a question of law. He decided it in favour of the assessee. Though that writ petition was limited to the assessment year 1949-50, the question involved is common to all the seven writ petitions for reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set of reasons. That the estimated escaped income was fluctuating from year to year, i.e., from 1949-50 to 1955-56, is also not determinative of the main question of the validity of notice. The assessment year of 1949-50 was taken to be the base year. The writ concerning that year was taken by the parties to be a test case. The principles touching the assessee were, settled therein (Tribune Trust v. CIT [1944] 12 ITR 370, 385 (Lah)). On this point the learned authors of Whitman and Wheatcraft on Income-tax and Surtax, 1971 ed. at p. 840, say : " It is possible that where there has been a decision by the courts on a question of law on a previous occasion the point raised could not be litigated again. " (See Hood Barrs v. IRC (No. 3) [1960] 39 TC 208 (CA), per Lord Evershed M.R.). My conclusion on the first point is, therefore, that the revenue is estopped and the decision of Khanna J. dated March 24, 1969, in C.W. No. 782-A/D of 1966 (since reported in [1978] 111 ITR 140) which was affirmed on appeal operates as a bar on the principles of res judicata. These cases have a prologue and an epilogue. After the raid of January 19, 1965, the I.T. department took possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of search by the CBI some Uchanti Bahies have been recovered which indicate the original entries made in the course of the carrying out of the business. A comparison of these Uchanti Bahies with the corresponding official books of accounts, which appear to be duplicate, show that some of the transactions recorded in the original Uchanti Babies do not find place in the official (duplicate) books. They also indicate that the rates charged in respect of certain transactions are higher as per Uchanti Bahi than the rates shown and accounted for in the official (duplicate) books. There is also evidence to show that sales were suppressed by showing lower rates in the vouchers. For this Purpose, the vouchers showing lower rates of sale were prepared in the names of bogus parties whereas the sales were actually made in the black market at higher rates. The money thus charged remained unaccounted for in the books. Besides, there is evidence of benami business carried on mostly in the names of trusted employees. It may also be noted that there are several remittances of drafts through banks in respect of which the entries in the relevant cash book have not been made on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------------------------------------- Asstt. Income assessed Income alleged to have Income assessed Alleged income year as per escaped assessment u/s. 143(3)/147 which escaped assessment as per proposal made assessment originally made by the ITO included in the U/s. 23(3) in the order of reassessment passed u/s.147(a) --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. 1950-51 45,496 12,55,988 1,50,476 1,11,134 (after giving benefit of rotation Rs. 5,00,000) 1951-52 10,063 6,13, 712 16,291 7,228 (after giving benefit of rotation Rs. 2,00,000) 1952-53 6,731 3,48,453 12,323 5,592 (after giving benefit of rotation Rs. 1,00,000) 1953-54 5,747 2,81,135 56,087 7,100 (reassessed u/s 34 (after giving benefit of at Rs. 50,759 on rotation Rs. 1,00,000) settlement) 1954-55 41,338 12,13,795 80,265 37,550 (reassessed u/s 34 (after giving benefit of at Rs. 46,715) rotation, Rs. 3,50,000) 1955-56 22,629 3,15,512 55,734 3,100 (reassessed u/s 34 (after giving benefit of at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. As H. R. Khanna J. said : " The expression ' reason to believe ' does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. Khanna J. went on to say : " Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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