TMI Blog1968 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family was carried on in partnership under the name and style of "Firm Madan Mohan Damma Mal ". Both Sarvasri Madan Mohan and Damma Mal are ancestors of the persons now living. Shri S. G. Chandra is now a leading member of the family and he is said to be carrying on business of all units either himself or through the other members of the family. In the beginning the firm used to import liquid gold from England against import licences. But subsequently Firozabad Glass and Chemical Industries Ltd. was started in the year 1954 and liquid gold was manufactured by this limited company. The firm used to sell this liquid gold also manufactured by the company. After the manufacture of liquid gold had been started in Firozabad, a trust was created called " Madan Mahan Damma Mal Trust Society " for promotion of technical education and in order to provide funds this Trust Society, the Firm Madan Mohan Damma Mal passed a resolution that liquid gold which was to be imported on the import licences till then left in the hands of the firm would be transferred at cost price to the Trust Society and the profits thus received by sale of that liquid gold would be profits of the Trust Society f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Firozabad, (3) the residence, of Gopal Chandra -and Surendra Kumar situate in the same compound at Kotla Road, (4) the premises of Madan Mohan Damma Mal Trust Society also in the same compound, (5) the Gaddi of the firm Madan Mohan Damma Mal at Gher Khokhal, (6) the residence of L. Dau Dayal and Rameshwar Dayal at Gher Khokhal, (7) the office and godown of the firm Kunji Lal Har Dayal situate at Mutwali Gali, Firozabad, (8) the residence of Trilokinath at Gher Halwaiyan, Firozabad, and (9) the residence of Prem Bhari Lal at Gher Halwaiyan. The validity of this search is being challenged on several grounds which will be considered hereafter. It is alleged that unnecessary force was utilised and an indiscriminate search was earried out during which all the safes were broken, floors and walls were dug up at several places and all the account books and papers available were indiscriminately seized and taken away without proper lists being prepared and without following the procedure laid down by law. After this raid, the Income-tax Officer, (A) Ward, served notices on the 4th of March, 1965, under section 22(4) of the Income-tax Act on the Firozabad Glass and Chemical Industries Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes issued a notification including this special circle in the schedule as within the jurisdiction of the Commissioner of Income-tax, U. P. (2) with effect from the 1st of November, 1965. On the 12th of November, 1965, notices under section 23(2) of the Income-tax Act were issued fixing dates for appearing against the firm Madan Mohan Damma Mal and the Firozabad Glass and Chemical Industries Ltd. for the assessment year 1961-62 by the Income-tax Officer, Special Circle. The jurisdiction of the Income-tax Officer Special Circle, to proceed with these cases is challenged. Proceedings were started against these two units for the assessment year 1966-61. Thereupon, the firm Madan Mohan Damma Mal filed Writ Petition No. 672 of 1966 on the 21st of February, 1966, challenging the jurisdiction of the Income-tax Officer, Special Circle, to proceed with those cases. Shri Surendra Kumar filed Writ Petition No. 775 of 1966 for himself and on behalf of the Firm Kumar Pharmaceutical Works on the 25th of February, 1966, and the Firozabad, Glass and Chemical Industries Ltd. filed Writ Petition No. 673 of 1966 on the 21st of February, 1966. All these writ petitions were heard together by a lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circle, transferring cases to that circle and appointing an Income-tax Officer to that circle with effect from the 1st of November, 1965, were passed by the Commissioner of Income-tax U. P. (2). Section 124 of the Income-tax Act, 1961, provides that all Income-tax Officers shall perform their functions in respect of such area or of such persons or classes of persons, etc., as the Commissioner may direct. Shri K.C. Gupta, who was the Income-tax Officer, (C) Ward, Agra, was subject to such directions under section 124 of the Income-tax Act, issued by the Commissioner. And as the Commissioner directed him to be in-charge from the 1st of November, 1965, of all those cases which were pending in (A) Ward, the Income-tax Officer validly got the power to deal whith those cases. The Commissioner was within his jurisdiction to direct one Income-tax Officer to take charge of particular cases and to start work from a particular date. The contention on behalf of the learned counsel for the assessees was that it is the power of the Board to place a particular area or circle within the jurisdiction of the Commissioner and unless that is done, the special circle could not come within the jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the Commissioner himself passed orders transferring the cases from (A) Ward to the special circle. The question of jurisdiction had not arisen independently of such orders. The Income-tax Officer was bound by the orders of the Commissioner and since the Commissioner had himself directed him tobear those cases, there was no point in referring the matter back to the Commissioner for decision. To my mind, cases challenging the validity of transfer orders cannot be covered by this provision. Sub-section (6) of section 124 of the Act is as follows : " Subject to the provisions of sub-section (5), where an assessee calls in question the jurisdiction of an Income-tax Officer, then, the Income-tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (4) before assessment is made. " This sub-section contemplates that an Income-tax Officer where he is satisfied with the correctness of the claim will himself refuse to proceed with the assessment. But where he is not satisfied with the correctness of the claim, he will refer the matter to the Commissioner. This at least contemplates that the Income-tax Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as dealer. " These words were interpreted to mean that "there must in fact exist sucla reasonable grounds known to the Controller before he can validly exercise the power of cancellation. " But their Lordships further proceeded to note that the Controller was not required to perform any judicial or quasi-judicial functions and unless that was the position the matter would not become justifiable. Their Lordships observed: " It is a long step in the argument to say that because a man is enjoined that he must not take action unless he has reasonable ground for believing something, he can only arrive at that belief by a course of conduct analogous to judicial process. And yet, unless that proposition is valid, there is really no ground for holding that the Controller is acting judicially or quasi-judicially when he acts under this Regulation. If he is not under a duty so to act, then it would not be according to law that his position should be amenable to review and if necessary to voidance by the procedure of certiorari. " In the present case the issue of a search warrant by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts for the sale of liquid gold and that he was also keeping accounts thereof. He also stated that these realisations were not entered in the regular books of account and that he was maintaining another set of accounts. There is other information also contained in his statement but it is unnecessary to refer to the same. In my, opinion, on these affidavits of responsible officers, coupled with this evidence which has been disclosed, there is no reason to doubt that the Commissioner had information which led him to issue the necessary warrant. The next contention raised was that the statement of Kalicharan was not sufficient to issue a search warrant for all the places mentioned in the warrent and that the search itself was conducted at least at two places which was not authorised by the warrant, namely, at the premies of Madan Mohan Damma Mal Trust Society and the Kumar Pharmaceutical Works. The justification for the issue of the warrant for the search of so many places is, as put forward by the department, that all these units were allied concerns of the firm Madan Mohan Damma Mal and that duplicate sets of accounts whice they were out to find out, could be placed at any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her documents has omitted or failed to produce,... or any person to whom a summons or notice as aforesaid has been or might be issued will not,...., produce.... any books of account or other documents which will be useful for, or relevant to, any proceeding.... he may authorise any...., Inspecting Assistant Commissioner.... Income-tax Officer ( . . . . . ) to enter and search any building or place where he has reason to suspect that such books of account,..... are kept... It may be noted here that the search is to be authorised for purpose of finding out account books which may relevant for the purpose of income-tax. Where the income-tax department has to discover duplicate sets of account books from which the real account of profit and loss of a particular assessee is to be discovered, it is impossible for the Commissioner to exactly know the nature of those papers from which such discovery can be made. In the very nature of things, the warrant cannot specifically describe the documents and the language of the section is certainly wide enough to include a general description of the documents which would be relevant for finding out the real income of the assessee. I am, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt resistance was offered from their side with show of fire-arms and in order to prevent such occurrence it was necessary to take police protection. In the present case, fourteen premises were simultaneously searched and in view of the allegations mentioned above, I find it difficult to hold that the number of persons taking part in the search was excessive. Lastly, it was contended that according to the provisions of the Code of Criminal Procedure it was necessary to have two respectable witnesses of the locality to witness the search but this was not done. In this connection it has been stated that the witnesses who had signed the list of documents taken away at the time of the search were not present and their signatures were obtained later on. The allegation on behalf of the departement is that persons of the locality who were persent in the very beginning were scared away by the assessees and did not argee to witness the search on account of influnce of the assessees. Whatever be the reason, there appears to be this irregularity in the proceeding. But this precaution was meant to ensure that a particular article had been recovered from the place of search. In the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n between the two cases. On the executive side, the department has recovered a document which is placed for consideration before the Income-tax Officer who acts quasi-judicially at the time of assessment and who has not taken any part in the method of recovery. What the Income-tax Officer making the assessment has to see is the relevancy of the document for purposes of the assessment. It was further contended that the process of assessment includes the procedure of recovery of documents, etc., and, therefore, the whole process utilised for purposes of assessment must be according to law and any breach of law would entail invalidity of the assessment. I am unable to see any direct connection between the assessment of tax and the method by which a document is found out, which is utilised for purpose of assessment. I am, therefore, not prepared to hold that the process of finding out a document is a part of the procedure for assessment. I am of the opinion that the documents recovered at the search could be utilised for purposes of assessment. The mere fact that some premises were searched specifying that place, is not material in the present case because no documents recovered at tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant allegation on behalf of the assessees challenging the validity of these proceedings including the search was that, according to the assessees, the department was actuated by malice and not by an honest motive for the purposes of the Act I have already considered above the validity of the raid and the discovery of the documents and have come to the conclusion that there was nothing illegal about it and the main motive alleged for malice against the assessees also does not appeal to me. Subsequent orders passed during the assessment proceedings are orders which have to be considered in those proceedings and need not be detailed here. One question has, however, been raised which, according to the learned counsel appearing for the assesses, cannot be raised at the time of the appeal. His contentions is that in cases where best judgment assessment has been made on account of failure to comply with the notice issued under section 142 of the Act, only method of getting that judgment set aside under the Income-tax Act is to make an application under section 146 of the said Act in which all that is open to the assessees is to say that he did not have a reasonable opportunity to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trust Society filed or to be filed on behalf of the trust. Learned counsel appearing for the assessees referred to a large number of orders passed during the course of the assessment which according to the learned counsel were not justified in the circumstances and which indicated that the officers were actuated by malice. But all these matters are under consideration in the assessment proceedings where they can be heard on them. After hearing learned counsel at some length, I am not satisfied that the officers concerned were actuated by malice against the assessees and not by a genuine desire to discover concealed profits. The only other contention which needs consideration in these special appeals is that the penalty notice issued to some of the assessees were wholly without jurisdiction, as section 271 of the Income-tax Act, 1961, under which they had been issued was applicable to cases arising out of assessment for the year before the Ist day of April, 1962. The contention is that clauses (f) and (g) of sub-section (2) of section 297 of the said Act contravened the provisions of article 14 of the Constitution, and, therefore, section 271 read with section 297 of the Act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctically in the same situation except for the mere chance of the assessment having taken place a little later. For this proposition reliance was placed on the case of Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax. The Bombay High Court h as taken the view which supports the contention of the learned counsel. After carefully examining the provisions of law, I am, however, unable to agree with thing preposition. Under the old Act, penalty was not treated as a separate matter. All that was provided under section 28 of the Income-tax Act, 1922, was that in certain cases, the assessee was liable to pay something more in addition to the tax already assessed. Formerly, there was no separate Chapter dealing with penalties but in the Act of 1961, Chapter XXI has been separately provided dealing with penalties alone and under the new scheme it was necessary that section 297 of the Act should provide definitely and separately for the procedure to be followed in penalty matters and, therefore, clauses (f) and (g) separately deal with the question of penalty and it cannot be said that the matter of penalty is also by necessary implication included within clauses (a) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work to the prejudice of those in whose cases the provisions of the new Act have become applicable on account of clause (g) quoted above. Lastly, it may also be noted that in this matter the provisions of article 20 of the Constitution also have no application. Article 20 merely prohibits a person being subjected to greater penalty " than that which might have been inflicted under the law in force at the time of the commission of the offence. " As stated above, the possibility of greater penalty being imposed than could have been imposed under the old law does not arise even though the act for which penalty can be imposed be treated as an offence within the meaning of that article. I am, therefore, unable to hold that the penalty notices under section 271 of the new Act were without jurisdiction. In this connection another contention of the learned counsel may be considered. The contention is that on the words of section 271, failure to file a return must be under section 139 of the new Act. But in the case of a return for previous years before the 1st day of April, 1962, section 139 was not applicable. This argument does not appeal to me because section 297(2)(g) expressly pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 states : " Income-tax Officers shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income...... as the Commissioner may direct. " Section 124(l) confers on the Commissioner wide power of distribution of work among Income-tax Officers subordinate to him. At all material times (October and November, 1965), Shri K. C. Gupta was subordinate to the Commissioner of Income-tax, U. P. II, and the whole of district Agra was within the jurisdiction of the Commissioner. Power to create zones or circles within the juridiction is implicit in section 124(l) of the Act. It was open to the Commissioner to specify a certain part of district Agra or a group of cases as " Special Circle, Agra ". The subsequent notification issued by the Central Board of Direct Taxes on October 29, 1965, was merely recognition of the situation created by the Commissioner's order dated October 22, 1965. In my opinion, the Commissioner's order dated October 22, 1965 is valid, and Shri K. C. Gupta had jurisdiction to deal with cases assigned to him. Another contention raised on behalf of petitioners is that no action against them could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 31 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 143 may......be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly ;. . . " Clause (d) of section 297(2) of the Act indicates a clear intention on the part of Parliament that action under sections 147 and 148 of the Act is permissible with respect to assessment years between March 31, 1940, and April 1, 1962. So, although an omission or failure may not strictly speaking constitute omission or failure under section 139 of the Act, action under sections 147 and 148 of the Act is permissible under the conditions specified in section 297(2)(d) of the Act. Clause (f) of section 297(2) of the Act is : " Any proceeding for 'the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed. Section 297(2)(g) is : " Any proceeding for the impositio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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