TMI Blog1968 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Indore, on the 3rd June, 1947. The preliminary enquiry made by the Income-tax Officer on receipt of this information showed that the said amount represented a part of the total sale proceeds of Rs. 1,76,444 in respect of 826 bales of cotton sold by the assessee firm to the Nandlal Bhandari Mills Ltd., Indore, and Rai Bahadur Kanhaiyalal Bhandari Mills Ltd., Indore. In the assessee's account books, which had been produced before the Income-tax Officer at the time of the original assessment, there was an account in the name of one Hastimal Parikh. A credit entry was made in the said account in respect of the said sum of Rs. 1,75,000 received by the telegraphic transfer and an equal amount was shown as having been paid to him in cash in Bombay. In view of these facts the Income-tax Officer was of the opinion that there was a case for reopening the assessment under clause (a) of section 34(1). He accordingly issued a notice to the assessee firm and served it on one of its partners on the 23rd March, 1957. In response to the said notice a return was submitted on behalf of the assessee firm on the 24th April, 1957, and the reassessment was completed on the 18th March, 1958. The rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were sold by it to the two textile mills at Indore. The amount of Rs. 1,75,000 which it had received from the Nandlal Bhandari Mills by telegraphic transfer was, therefore, a receipt of the assessee itself and the entire receipt, according to the Appellate Assistant Commissioner, was chargeable in accordance with the provisions of section 4(1) of the Income-tax Act. The Appellate Assistant Commissioner accordingly dismissed the assessee's appeal. The assessee took a second appeal to the Income-tax Appellate Tribunal. All the contentions, which were urged before the Appellate Assistant Commissioner, were repeated before the Tribunal. In addition, it was urged before the Tribunal that the action under section 34(1)(a) was not validly instituted because all the primary facts were before the Income-tax Officer when he made the original assessment and, as such, he was not competent to take recourse to section 34(1)(a) of the Act. It was further complained that the Appellate Assistant Commissioner had relied on certain additional evidence which had been secured behind the back of the assessee while the appeal was pending and the assessee had no opportunity to meet it. The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law arising out of its order. It accordingly drew up a statement of the case and referred to this court the two questions, which were as follows : " 1. Whether the assessment made upon the assessee-firm, Laxmidas Co., on the basis of the notice issued under the name of the firm, and served upon Chatrabhuj Vithaldas on March 23, 1957, was valid in law, the validity being challenged on the ground that the firm ceased to exist at the material time of service of notice under section 34 ? 2. Whether the reassessment made upon the assessee on March 18, 1958, was barred by limitation of one year mentioned in the first proviso to section 34(3) ?" When the reference came to this court, a notice of motion was taken out by the assessee praying that the Tribunal should be asked to furnish a supplementary statement on certain other questions of law which arose out of the Tribunal's order and which it had declined to refer. That notice of motion was heard by us on the 27th February, 1967. There were in all four questions asked by the assessee in the said notice of motion. Two of them, however, were not pressed. Of the other two, one was : " Whether there was any evidence in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising two other questions, which were sought by the assessee. Those questions were as follows : " 1. Whether there was any evidence in support of the conclusion arrived at by the Tribunal that the said sum of Rs. 1,75,000 represented the undisclosed income of the applicants ? 2. Whether there is any evidence in support of the conclusion that the whole of the said sum of Rs. 1,75,000 representing the sale proceeds of 826 bales of cotton sold and delivered to the mills at Indore, represents income of the appellant or whether only a part thereof, representing the estimated profits of the applicants on the sale thereof, can be said to be the applicants income ?" The Tribunal accordingly has drawn up a supplementary statement and referred the said, two questions to us. Now, when the matter went back to the Tribunal for drawing up the supplementary statement, it was urged on behalf of the assessee that it should be allowed to put before the Tribunal evidence regarding the actual profits that the assessee could have made on the transaction of the sale of 826 bales of cotton and desired to produce the material part of the Bombay Cotton Annual 1946-47, No. 28, where the review of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the additional evidence to be produced on the record at the stage when it was asked to draw up a supplementary statement of the case. We are in agreement with the submission urged by Mr. Joshi. The supplementary statement was asked for on the two questions, which, in our opinion, arose on the order of the Tribunal and, since they had not been referred to in the original reference made by the Tribunal, we asked them to be drawn up and submitted to us along with the supplementary statement of the case in respect of the same. It is, no doubt, true that in the order that we made on the notice of motion in giving reasons why we felt that the questions arose on the order of the Tribunal, we referred to the submissions urged by Mr. Kolah relating to the same. We also observed that the submissions, which Mr. Kolah had made before us, were not without substance. But those submissions were referred to by us for the purpose of showing that the Tribunal should have referred the two questions to us. The questions, in our opinion, arose on the Tribunal's order and we, therefore, required them to be submitted to us. The questions had to be referred to us on the order of the Tribunal as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer, Kottayam, relied on by the Tribunal. It was held in the said case that, even after the discontinuance of the business of a firm, either by dissolution or otherwise the firm can be treated as continuing so far as the assessment of its pre-dissolution income is concerned, and the assessment or reassessment of such a firm, after dissolution, under section 44 of the Indian Income-tax Act, could be made in the same manner under Chapter IV as if it had not discontinued its business. It was also held that the service of notice issued in the name of the firm and served on one of the partners was also a valid and proper notice. In view of the said decision which completely covers the first question, Mr. Kolah, learned counsel for the assessee, has agreed that no useful purpose will be served by re-agitating it before this court. The first question, therefore, will have to be answered against the assessee. As to the second question raised on the original reference, viz., whether the reassessment made upon the assessee on the 18th March, 1958, was barred by limitation of one year mentioned in the first proviso to section 34(3), the relevant dates to be mentioned are these : Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by this court, as meaning one year from the date on which the assessee actually knew of the order or had an opportunity of knowing of the order. The provisions of section 33A(2) provided a period of limitation for an application for revision to be made by the assessee against an order passed by any authority subordinate to the Commissioner and the said period was specified as one year from the date of the order which was sought to be revised. In the context of the provision it was held by this court that the right to make an application in revision was given to the assessee against an order and the right can only be effectively exercised if the party affected had the knowledge, either actual or constructive, of the order. If the assessee had neither actual nor constructive knowledge, it could not be said that there was an order under section 33A(2) against which the assessee could possibly make an application for revision. There are, however, a number of authorities on the interpretation of the expression contained in section 34(3) itself, which have taken the view that the period of time specified in the said proviso is the time up to the date of the communication of the said o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Bulakhidas Mills Co. Ltd. v. Raj Singh relied upon on behalf of the assessee, has been referred to and distinguished on the ground that the interpretation of the expression used in section 33A(2) was in the context of the said provision and could have no application to the interpretation of section 34(3). In view of these decisions, the argument urged on behalf of the assessee that the reassessment was barred by limitation could not be sustained. It was pointed out by Mr. Kolah that on the interpretation, which we are accepting, it would be permissible for the Income-tax Officer to ante-date the assessment or re assessment, which he has made beyond the period of limitation prescribed and thus deprive the assessee of the benefit and the advantage intended for by him by the legislature. We are, however, not impressed by the argument advanced by Mr. Kolah. The mere circumstance that in some conceivable cases a possible prejudice is likely to be caused to the assessee would not permit an interpretation to be put on the expression, which does not appear to be consistent either with the language of the provision or the intention of the legislature. Moreover, taking the present case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Coming now to the first question referred to us on the supplementary statement, viz., whether there was any evidence in support of the conclusion arrived at by the Tribunal that the sum of Rs. 1,75,000 represented the undisclosed income of the applicants, what is required to be considered is whether, in the first place, there was evidence in support of the conclusion that the sum of Rs. 1,75,000 represented the income of the applicants and, in the second place, whether it constituted the undisclosed income of the assessee. It was the assessee's case that the said sum of Rs. 1,75,000 did not pertain to the transaction of the assessee itself but was in respect of the transaction of one Hastimal and had been duly passed over to him. This case of the assessee has been negatived by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal also. They have held concurrently that the transaction of the sale of the said 826 bales of cotton to the Indore Mills in respect of which the sum of Rs. 1,75,000 was received by telegraphic transfer from the Nandlal Bhandari Mills Ltd., Indore, was a transaction of the assessee itself and not of Hastimal. Mr. Kolah has argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing the goods to Bombay for sale in the local market. It also indulged in speculative business in cotton on a large scale. It had, however, never entered into any transactions as brokers on behalf of others. The vouchers of sale, which were accepted by the assessee, were also in their own name. Hastimal, on the other hand, was a broker and had known the purchasers himself. There was, therefore, no reason whatsoever why he should have sold his goods to M/s. Nandlal Bhandari Mills through the assessee or why he should have come all the way to Bombay to collect the purchase price in cash from the assessee in respect of the goods sold. It was no doubt true that Hastimal was examined in the reassessment proceedings and in his cross-examination by the assessee had accepted the signature on the ledger book of the assessee as his signature and also his having accepted the money. It would, however, be found that his examination by the Income-tax Officer at Indore was inconsistent with what is stated in the cross-examination and moreover the answers which he gave to further questions put by the Income-tax Officer, Bombay, to him at the time when he appeared for the cross-examination by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conclusion based on no evidence. There were quite a few circumstances disclosed on the record of the case relevant to the said conclusion and the contention of the assessee that the said conclusion is erroneous or unjustified cannot be sustained. Coming to the next contention of the assessee, viz., that, even assuming the sale transaction of 826 bales of cotton could be said to be the transaction of the assessee, that by itself would not be sufficient to hold that the receipt of Rs. 1,75,000 represented the undisclosed income of the assessee, it is urged by Mr. Kolah that, if the transaction is taken to be the transaction of the assessee, it is only the profit involved in the transaction that could be regarded as the income of the assessee and not the whole of the sale proceeds. Now, if the price paid by the assessees for the 826 bales of cotton, which it had sold in the present transaction, had come out of the business account or books of account of the assessee, the contention urged by Mr. Kolah would undoubtedly have been correct. It is, however, clear that the cost price for the said 826 bales did not come out of the books of account of the assessee. Indeed, on the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, has nowhere stated that it is the undisclosed income of the year of account and not the accumulated income of the prior years outside the taxable territories as held by the Income-tax Officer. Mr. Kolah's argument is that, in the absence of there being any finding that the income was the undisclosed income of the year of account or in the absence of there being any evidence in support of such a finding, the Tribunal could not treat it as the undisclosed income assessable to tax during the year of account. Mr. Kolah has, therefore, argued that the whole amount of Rs. 1,75,000 could not be treated as the undisclosed income liable to tax and question No. 2, therefore, has got to be answered in favour of the assessee. Now, on the facts, all the authorities are agreed that the entire amount of Rs. 1,75,000 was the receipt of the assessee itself, which constituted its secreted profits. All the authorities have also agreed that the explanation given by the assessee with regard to the said receipt is not acceptable or believable. In these circumstances it has been held in a number of cases that it will be permissible for the Income-tax Officer to draw an inference that the income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Incometax Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income." In A. Govindarajulu Mudaliar v. Commissioner of Income-tax it was held as follows : " Where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature, and where the explanations of the assessee as regards the amounts shown in the account books of a firm of which he was a partner, as credits from him, were rejected as untrue, it was open to the Income-tax Officer and the Appellate Tribunal to hold that they represented the concealed income of the assessee." It was argued in that case that, although the assessee failed to establish the case put forward by him, it did not follow as a matter of law that the amounts in question were income received or accrued during the previous year and that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee by showing that the receipt was either not income or that, if it was income, it was not taxable during the year of account. In the present case the Tribunal's conclusion that the amount of Rs. 1,75,000 constituted the undisclosed income of the assessee liable to be taxed was, therefore, correct and question No. 1 raised on the supplementary statement will have to be answered against the assessee. Coming now to question No. 2, in view of our answer to question No. 1, it would follow that the whole sum of Rs. 1,75,000 representing the sale proceeds of 826 bales of cotton represented the income of the assessee and not only the part thereof, which represented the estimated profits of the assessee. Mr. Kolah's submission was that, although the transaction can be treated as his and the sum of Rs. 1,75,000 could be treated as his receipt, the whole of it did not constitute the income or at any rate the undisclosed income of the year of account, but only the profit involved in the transaction of sale itself was the undisclosed income of the year of account. If there was any evidence put before the authorities by the assessee to substantiate the said submission, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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