TMI Blog1957 (4) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of these cases, the proceedings started on 10th December, 1949, under section 34 of the Income- tax Act, as amended by Act XLVIII of 1948, for reopening the assessments of the years 1944-45, 1945-46 and 1946-47 were valid ? 3. Since the drawing up of the statement of case under section 66(1), the assessee filed applications to the High Court and under section 66(2) of the Indian Income-tax Act the High Court has required us to state a case and refer it on the following questions of law: In the assessment year 1944-45 : Whether in the circumstances of the case, the assessment of a sum of ₹ 28,000 to income-tax in the hands of the assessee is legally valid under section 34 of the Income-tax Act? In the assessment year 1945-46: Whether in the circumstances of the case, the assessment of a sum of ₹ 26,000 to income-tax in the hands of the assessee is legally valid under section 34 of the Income-tax Act ? In the assessment year 1946-47: Whether in the circumstances of the case, the assessment of a sum of ₹ 12,000 to income-tax in the hands of the assessee is legally valid under section 34 of the Income-tax Act ? 4. The furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 33,000 and ₹ 15,000 for the assessment years 1944-45, 1945-46 and 1946-47 are excessive. Taking the assessment for 1944- 45, the estimate is to some extent based upon the conclusion drawn by the Income-tax authorities that the assessee had a separate business at Amritsar. The fact that Mangalchand Basantlal sent a draft for ₹ 2,500 to Amritsar to the assessee's sister does not lead to the inference that the assessee had a business at Amritsar. There is no evidence to controvert the assessee's statement that the sum of ₹ 2,500 had been sent to the sister of Pannalal Modi. As the estimate is based upon this conclusion, which we find is wrong, we consider that a small reduction in the estimate is called for. We considered it fair to estimate the assessee's income from the transactions outside the books for the assessment year 1945-46 at ₹ 28,000. 8. Coming to the assessments for 1945-46 and 1946-47, here again the estimate is based to some extent on the conclusion of the Income-tax authorities that the business done by Banwarilal Rajgaria was assessee's own business. Banwarilal Rajgaria has been examined and has admitted that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mangalchand Basantilal of Khurja in Aligarh district. The Income-tax Officer, after satisfying himself and believing that the assessee's income had escaped assessment, started a proceeding under section 34 with the previous sanction of the Commissioner on the 10th December, 1949, and, after the statutory notices under section 22 of the Act, assessed the assessee to income-tax on the 2nd August, 1950, on a sum of ₹ 40,000 which was reduced by the Appellate Assistant Commissioner on the 4th April, 1952, to ₹ 32,000 which also, however, was further reduced by the Tribunal on the 31st March, 1953, to ₹ 28,000. The question of law, which has been referred to the High Court in this case, is as below: Whether in the circumstances of the case the assessment of a sum of ₹ 28,000 to income-tax in the hands of the assessee is legally valid under section 34 of the Income-tax Act? In M.J.C. No. 654, the assessment year is 1945-46, the corresponding accounting year of which ends in July, 1944. The original assessment was made by the Income-tax Officer on the 31st August, 1949, under section 23(3) of the Act at ₹ 77,034, but it was reduced on appeal to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Income-tax Officer, therefore, obtained information on the point from the Income-tax Officer, Aligarh, who furnished him with the copies of the assessee's account with M/s. Mangalchand Basantilal for all the relevant years. Before the Income-tax Officer the assessee admitted that he did business through M/s. Mangalchand Basantilal, and that he had never shown this business in his account books. As these transactions were not recorded in the account books of the assessee, an enquiry was made from him for this omission by the Income-tax Officer. The reasons given by the assessee, for not incorporating this account in his account books, were that the business at Khurja was done out of funds of zamindari estate. The Income-tax Officer held that there was no reason for omitting the business transaction from the assessee's business account books, and, further that since there were admitted omissions in the account books of the assessee, it was expected that he had done more such transactions with other parties and, therefore, he estimated the income from these undisclosed business transactions, as stated earlier, under section 34 of the Act. When the assessment against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section: Provided that............ On the language of section 34(1), therefore, if the Income-tax Officer decides to start a proceeding under section 34 of the Act, he is required to give a notice containing all or any of the requirements which may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Division Bench of this Court in Raghu Karson v. Commissioner of Income-tax, Bihar and Orissa***, held that where the Income-tax Officer came to the conclusion that the assessee had, in fact, books of account, which were not produced in accordance with a notice under section 22(4) of the Act, he was entitled to make an assessment to the best of his judgment under section 23(4). This case was followed by the Lahore High Court in Vir Bhan Bansi Lal v. Commissioner of Income-tax, Punjab [1936] 4 I.T.R. 111. In a proceeding under section 34, however, the Income-tax Officer is only dealing with the extra income, which has not been assessed to income-tax. This section imposes no charge on the subject, but deals with the machinery of assessment. No jurisdiction is given to the Income- tax Officer by section 34 to make a new assessment for the purpose of taking the whole of that assessment under the Act. Section 34 does not require the whole thing to be reopened and every item under which income-tax is charged to be considered afresh, and a fresh assessment levied. In one sense, of course, he must fix the taxable income to enable him to fix the rate, but he is not bound to re-open the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that no income has escaped assessment. In support of his contention, he has relied on Commissioner of Income-tax, Bombay v. Gopal Vaijnath Manohar [1935] 3 I.T.R. 372 and Messrs. Chimanram Motilal v. Commissioner of Income-tax (Central), Bombay [1943] 11 I.T.R. 44. It is true that it is for the Income-tax Officer to establish for his own satisfaction on the assessment, and subsequently before any Appellate Tribunal that income has escaped assessment. No doubt, therefore, the burden of proving that the income had escaped assessment within the meaning of section 34 of the Act was on the Income-tax authorities, but, in my opinion, here they have clearly discharged it. The question, in this case, really is: Whether the Income-tax Officer has proved that any income escaped assessment ? In my opinion, on the admission of the assessee himself and on the evidence, which was before the Income-tax authorities, as I shall presently show, the Income-tax Officer could come only to the conclusion that income had escaped assessment , and that the assessee failed to disclose fully and truly all material facts necessary for his assessment in each of the years under-assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Privy Council case was considered by the Supreme Court in Messrs. Chatturam Horilram Ltd. v. Commissioner of Income-tax, Bihar Orissa [1955] 27 I.T.R. 709, and his Lordship Jagannadhadas, J., who pronounced the unanimous judgment of the Supreme Court, although his Lordship did not decide what exactly constituted escaped assessment , observed: Here again, it is unnecessary to lay down what exactly constitutes 'escapement from assessment'. For the purpose of the present case it appears to us sufficient to say that where earlier assessment proceedings had in fact been taken but failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities, notwithstanding the chargeability of income to the tax, it would be a case of chargeable income escaping assessment and not a case of mere non-assessment of income-tax. We must, accordingly, examine what indications there are in the Act, which will show the precise connotation of the words escaped assessment in section 34 of the Act. That section, although it is a part of a taxing Act, is not a charging section, but a machinery section; and a machinery section should be so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his income, or to disclose fully and truly all material facts necessary for his assessment leading to a reasonable belief that his income has wholly or partially escaped assessment, clause (a) comes into operation, and that clause does not require any other condition to be fulfilled. Under the amended section 34, the Income-tax Officer cannot institute a fishing investigation or inquiry merely with the object of finding out facts which would entitle him to reopen a past year's assessment; but if in the course of the assessment of a subsequent year some information comes into his possession, from which he has reason to believe that income has escaped assessment, he would be entitled to proceed under this section. To enable an Income-tax Officer to initiate proceedings under section 34, it is enough that the Income-tax Officer, on the information which he has with him and in good faith, considers that he has a good ground of believing that the assessee's profit has, for some reason, escaped assessment or been assessed at too low a rate, so that a notice can be served if the Income-tax Officer is bona fide of opinion that the income has escaped assessment. An action unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits Tax Officer that chargeable profits had escaped assessment, or had been under-assessed or had been the subject of excessive relief. There is nothing in the wording of the section which would exclude its application, when that finding is based on facts which come into existence subsequently. It is argued by Mr. Kolah that the word 'discovers' can aptly be used only when the facts on which the discovery is made were in existence during the chargeable accounting period. In its natural and ordinary sense, the word 'discovers' carries no such limitation. The meaning given to it in the Oxford English Dictionary is 'the finding out or bringing to light that which was previously unknown' (Vol. 3, page 433). It will therefore be correct to say that when a person comes to know of a fact of which he had no previous knowledge he discovers that fact, whether his want of knowledge is due to its not having been in existence during the material period, or to its having been unknown to him even though it might have been in existence. The word thus being one of wide import, what meaning it bears in any particular enactment must depend on the context. By the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with M/s. Mangalchand Basantilal, which he admittedly did not record in his books, did not result in a profit. It will further appear from the order of the Appellate Assistant Commissioner that the assessee was doing business at Khurja in different names, and he admitted that the business done in the names of Bhimraj Pannalal, Dayanand Modi and Murarilal Modi was his own business. The letter of the Income-tax Officer, Aligarh, also supported the information which the Income-tax Officer got before starting the proceeding under section 34. On these materials, therefore, the Tribunal stated that the fact that the assessee admitted that the transaction with M/s. Mangalchand Basantilal had not been recorded in the books produced by the assessee clearly led to the only inference, which could be legitimately drawn from this, that the assessee had various business transactions which he did not record in his account books. The Tribunal, therefore, found that the only conclusion on these materials, which the Income-tax Officer could come to, was that the assessee had various business transactions not recorded in his books, and that these transactions resulted in a profit, and, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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