9911796707
TMI Blog1976 (12) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... . The company thereupon became entitled to a refund of Rs. 11,026.04 and the same was given effect to by the Income-tax Officer. The company preferred an appeal to the Income-tax Appellate Tribunal against disallowance of the remuneration paid to the director for Rs. 23,000 and by its order dated September 29, 1972, the Appellate Tribunal allowed the remuneration, reducing the total income to Rs. 2,69,208 and increasing the refund to Rs. 12,650 and the order giving effect to the same was also served on the company. It was alleged that at the time of the original assessment the company produced all its books of accounts and evidence relevant for the purpose and on full examination and satisfaction, the income was computed by the officer. There was, it was further alleged, no omission or failure on the part of the company to disclose fully and truly all material facts necessary for the assessment. All on a sudden, on March 22, 1974, the company was served with a notice under section 148 issued by D. P. Majumdar, Income-tax Officer, 'E' Ward, C1, Calcutta, calling upon the company to deliver to him within thirty days of service a return in the prescribed form of its income for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The statements made in paragraph 7 of the said petition are not admitted. I say that the assessee failed to disclose truly and fully at the time of original assessment particulars regarding the nature of certain bills drawn by the petitioner-company in favour of Sri D. N. Bhattacharjee, a director of the petitioner-company, resulting in allowance in the original assessment of expenses which are for extra-commercial considerations and prima facie not allowable ....... 9. With reference to the statements made in paragraph 9 of the said petition nothing is admitted save and except what appears from the records. It is further stated that no letter purported to have been addressed to the Income-tax Officer, 'E' Ward, Companies Dist. I, dated 10th June, 1974, is available from the records. I say that there was ample material in the possession of the Income-tax Officer on which he bad formed a reasonable belief that income chargeable to tax had escaped assessment. I further say that an anonymous petition was received in the income-tax department pointing out various irregularities in the accounts of the assessee which prima facie also led to the belief that the assessee's income has es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 148 was disclosed before the trial court. The said reasons which form an extract of the order sheet of the case for the assessment year is as per copy supplied by the revenue and compared with the original is as follows: "21-3-74. As per information in my possession, I have reason to believe that income of about Rs. 1,00,000 (approx.) has escaped assessment as a result of failure on the part of the assessee to disclose fully and truly all material facts at the time of original assessment. Therefore, the provisions u/s. 147(a) and 147(b) of the I.T. Act, 1961, are clearly attracted and sections 147(a) and 147(b) are consequently involved. Issue notice u/s. 148 immediately. Sd/- D. P. Majumdar, I.T.O." In support of the appeal it was contended by Dr. Pal that in the return to the rule no affidavit was filed by the Income-tax Officer, D. P. Majumdar, who issued the impugned notice. Instead, the affidavit was affirmed by another Income-tax Officer who was not in any way connected with the proceedings. The only competent person who could vouch about the reasons for belief in consequence of information in his possession that the income had escaped assessment, was the officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was contained in an anonymous petition. Such petition being without any disclosed source had no authenticity and could not constitute information as contemplated in section 147, clause (b). Accordingly, there was no information on the basis whereof the Income-tax Officer could have reason to believe that income had escaped assessment. Reference was made to the decision in Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147, where the Supreme Court laid down that the words "reason to believe" in section 34(1A) of the Indian Income-tax Act, 1922 (similar to section 147, clause (b), of the Income-tax Act, 1961), must be the belief of an honest and reasonable person based upon reasonable grounds but not on mere suspicion, gossip or rumour. The anonymous letter, it was contended, was of the same category as mere suspicion, gossip or rumour. On a review of the relevant cases, the Supreme Court in Kalyanji Mavji & Co. v. Commissioner of Income-tax [1976] 102 ITR 287 laid down the tests and principles which would apply to determine the applicability of section 34(1)(b) of the 1922 Act (in material portions similar to section 147, clause (b), of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading to his requisite belief which gives him jurisdiction to take appropriate action. Merely because, the information, the Income-tax Officer has, is without any disclosed source, there is no legal warrant to discard such information only on the ground that it is anonymous. The records of the case at the bearing were brought to the court for its inspection. There is no dispute that the reasons for assumption of jurisdiction by the Income-tax Officer, as set out above, was before the trial court. This dispute, however, relates to the production of other records for inspection by the court. While the company contends that no other documents were produced before the trial court, the respondents' case is that the entire records were before the court. Be that as it may, in this court at the appellate stage, there is no impediment on the court to look into such records as the respondents were asked to produce at the hearing. To such inspection of records by the court the assessee-company has no objection, as the action of the Income-tax Officer in reopening an assessment finally made, as the authorities held, is always justiciable by the court. But it is strongly contended that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to appear and produce his evidence. In that enquiry, the Income-tax Officer will be bound to disclose to the assessee the material on the basis of which he seeks to find that the assessee's income to the extent of rupees one lakh or more has escaped assessment during the relevant years. Natural justice demands full disclosure of all the materials which the Income-tax Officer seeks to use against the assessee in course of that enquiry, so that the assessee has sufficient opportunity to meet the case made against him. That stage of the enquiry will arise in this case after the assessee files its return and produces its account books. It is not desirable that the assessee should be informed of those materials at this stage." The court made the above observation while meeting the attack on the ground of violation of the principles of natural justice. The appellant's counsel contended, we have indicated above, that since it is the settled law that the court had the jurisdiction to examine if conditions precedent for initiation of action under the law did in fact exist such scrutiny can only be made where the aggrieved party is also given adequate opportunity to present his case on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(1A) of the Act and to determine the question whether such conditions precedent do in fact exist or not. In the concurring judgment Debabrata Mukherjee J. observed that once the reasons are held justiciable they cannot be withheld from the assessee. It was further observed that where the court is persuaded that the conditions precedent for exercise of jurisdiction had not been fulfilled, i.e., no reasons existed for the belief that income liable to tax has escaped assessment and consequently none recorded, and no sanction of the Central Board of Revenue obtained, disclosure could not be resisted. But where disclosure would defeat justice as when there was the revenue's apprehension that the assessee's books of account might be destroyed or tampered with, it was in the interest of justice and fairplay (sic) and no abridgement of an indefeasible right not to order disclosure of documents produced. The appellants also strongly relied on the decision in F.M.A. No. 280 of 1970 (Hindusthan Motors Ltd. v. T. N. Kaul) decided on March 25, 1971, in which the court was concerned with the legality of issue of notices for search and seizure of documents alleged to have been secreted in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer on the information which he had before him and in good faith considered that he has good ground for believing that he assessed at too low a rate. It was held in K. S. Rashid and Son v. Income-tax Officer [1964] 52 ITR 355 (SC) that the assessee is not entitled to a copy of the reasons recorded at the time of issue of notice under section 34. When, therefore, a challenge is thrown to the absence of requisite conditions precedent for issuance of notice, the court following the uniform and consistent practice looks into the relevant records for the purpose to see if there was any material at all before the Income-tax Officer for his belief that there has been all escapement of income on account of the failure of the assessee to disclose fully or truly all material facts or in consequence of information in his possession. The court will also scrutinise that the action has been taken purely on subjective satisfaction or the conclusion arrived at is bona fide and of a prudent or rational man and not merely based on gossip, rumour or change of opinion and the like and if there be any of such infirmities the proceeding would be quashed. To investigate these aspects by the court it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an unsigned letter with a number of sheets containing statements of accounts as annexures, the original whereof was sent to other Governmental authority. This letter contained various allegations about irregularities in the accounts maintained by the appellant for a number of years including the assessment year we are concerned with. Reference was made therein in respect of the relevant year to entries in the books of accounts with specific reference and sufficient particulars in respect of specific sums which should not have resulted in allowance of expenses in the original assessment. This information from an external source came into the possession of the Income-tax Officer long after the original assessment and the conclusion thereon by the Income-tax Officer cannot be said to be purely subjective or a change of opinion or bare pretext, or based on gossip or rumour. It cannot also be said that there is no live link or rational connection between the information and the belief or that the information is too tenuous to warrant a support for the belief or that such conclusion could not be bona fide or that of a rational or prudent man. It is accordingly not possible to hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve which was a pre-requisite for assumption. of jurisdiction. The appellant-company, therefore, contended that the Income-tax Officer purported to assume jurisdiction on a mere change of opinion on the basis of materials which were produced before him and which were duly examined and considered by him at the time of the original assessment and an attempt has now been made for starting a fishing and roving investigation unwarranted in law. While dismissing the application under article 226 of the Constitution of India, Sabyasachi Mukharji J. observed as follows: "In this case possibly the assessee might validly contend that there was no material to believe that there was failure or ommission on the part of the assessee to disclose fully or truly all material facts. But in the anonymous petition there may be some information of such a nature which prompted the Income-tax Officer to examine the facts in a little more detail and then to infer whether there was escapement of income. In other words, the anonymous petition may be of such a nature which put the Income-tax Officer to re-examine to find out if certain allowances or certain expenditure had been allowed which should not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity on the stage of the proceeding in which disclosure is a "must ". It was held in the abovementioned case that at the initial stage the action taken in issuing notice was merely administrative. No disclosure is warranted at that stage. The proceeding under section 147 actually commences as a quasi-judicial proceeding after the return and books of account are filed by the assessee. It is at that stage that the disclosure of materials should be made to give the assessee proper opportunity to place such further materials which might safeguard his interest from any further penalty. It was further held that where (as in the present case before us) the assessee challenges the jurisdiction to issue such a notice under section 148 and the disclosure is made to the court about reasons for such action, it is for the court to decide whether the challenge is well founded or not on the materials produced before the court. That was also the view taken by a Bench of this court in the case in Girindranath Paul v. Income-tax Offtcer [1975] 99 ITR 426 (Cal). The same view was taken in the case in Rungta Engineering and Construction Co. Ltd. v. Income-tax Officer [1962] 44 ITR 315 (Cal). The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction even under section 147(b). In paragraph 9 of the affidavit-in-opposition from the side of the revenue it was specifically stated that no letter dated June 10, 1974, was available from the records. It was further stated therein that there was ample material in the possession of the Income-tax Officer on which he formed his reason to believe that income chargeable to tax had escaped assessment. Besides that an anonymous petition was received in the department pointing out various irregularities in the accounts of the assessee which prima facie also led to the belief that the assessee's income had escaped assessment. Then it was further stated therein that on going through the said petition and the records of the case the Income-tax Officer had prima facie reasons to believe that income chargeable to tax had escaped assessment during the relevant year. About the letter dated June 10, 1974, addressed to the Income-tax Officer concerned there was no specific denial by any specific assertion in paragraph 9 of the affidavit-in-reply. As regards the various irregularities in accounts, the existence of which had not been specifically denied in the affidavit-in-reply, the only state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon a supposed violation of natural justice as it was in the case of Rungta Engineering & Construction Co. Ltd. v. Income-tax Officer [1962] 44 ITR 315 (Cal). The attack in the appeal before us is principally based on the ground that the conditions precedent to the assumption of jurisdiction for issuing the notice under challenge, had not been satisfied and that there was no valid information in consequence whereof the Income-tax Officer could have reasons to believe that there had been escapement of tax during the relevant year. The learned judge sustained the notice under section 147(b) of the Income-tax Act, 1961. It was contended on behalf of the appellant-company that on the facts and circumstances of the case there was really no valid information in the possession of the Income-tax Officer in consequence of which he could have reason to believe that income of the assessee chargeable to tax had escaped assessment and as such the conditions precedent for issue of a notice even under section 147(b) had not been satisfied and unless such requirement was satisfied the Income-tax. Officer had no jurisdiction to issue notice under section 148. In this connection, it was further con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Income-tax Act, 1922, couched in language identical with those appearing in section 147(b) of the Act of 1961. This is because in that case the Income-tax Officer proceeded on the basis of information which came to him after the original assessment by discovery of fresh facts revealed during the assessment year 1958-59 and consisted of the conduct of the assessee by not adducing evidence in support of its plea that the amount was incurred for the expenses of the partnership business. It was, therefore, held that it was not a case of a mere change of opinion on the materials which were already on record. In the abovementioned case the Supreme Court held that the word "information" used in section 34(1)(b) is of the widest amplitude and includes a variety of factors. However wide it may be, it is not plenary because the discretion of the Income-tax Officer is controlled by the words "reason to believe". The Supreme Court again laid down certain tests and principles governing the applicability of section 34(1)(b) to the several categories of cases mentioned below: "(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the accounts of the assessee-company hot specifically denied in the affidavit-in-reply would undoubtedly be "information" within the meaning of section 147(b) and the tests laid down by the Supreme Court that it may come from an external source of any kind. Information derived from an anonymous petition as detailed in paragraph 9 of the affidavit-in-opposition must, therefore, be held to be "information" within the meaning of the above test laid down by the Supreme Court in consequence whereof the Income-tax Officer had possibly reinforced his reason to believe derived from enquiry or research into facts appearing from the record of the original assessment. Rightly, therefore, the learned judge came to the conclusion that it could not be said that there was no information before the Income-tax Officer upon which he formed his reason to believe that there had been escapement of income from assessment to tax. Merely because such information was contained in an anonymous petition the same cannot go out of consideration. The changing and diverse society of ours with complex commercial activities has ushered into existence different facts of taxable income. In order to check avo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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