TMI Blog1968 (1) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee's pleader, one Mr. Ramamurti Iyer, that silver bars of the assessee were kept in his house for some time and that such property belonged to the assessee, action was taken by the Income-tax Officer under section 34 of the Act on the foot that he had information relating to sale of jewels in some years, acquisition of properties in some others and of bank deposits in yet others in the names of his mother-in-law and two wives. For the year 1943-44, the original assessment was completed on March 10, 1944, and he was assessed on an income of Rs. 53,628. Notice under section 34 to reopen the assessment was given on December 11, 1950, and it was found that property of the value of Rs. 14,286 and jewels of the value of Rs. 13,178 were purchased from undisclosed money and hence an addition of Rs. 27,464 was made for this year. For the assessment year 1944-45, the original assessment proceedings were completed on February 25, 1947, and the assessee was assessed on a total income of Rs. 42,459. On December 10, 1951, notice under section 34 was given and consequent upon such reopening, a sum of Rs. 38,775 as the value of the properties, a sum of Rs. 90,000 as bank deposits i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresenting the value of part of the properties standing in the name of Thayammal Rukmini Ammal and Saraswathi Ammal as having been acquired from undisclosed sources of the assessee is lawful ? " R.A. No. 713 of 1947-48. " Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by inclusion of Rs. 10,200 representing the deposits made by Thayammal in the bank as belonging to the assessee and as representing the income of the assessee is lawful ? " R. A. No. 714 of 1944-45. " (1) Whether, on the facts and in the circumstances of the case, the supplementary assessment made by the inclusion of Rs. 38,775 representing the value of the properties purchased by Thayammal, Rukmini Ammal and Saraswathi Ammal during the accounting year by treating the said investments as income of the assessee is lawful ? (2) Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 90,000 representing the deposits made by Thayammal, Saraswathi Ammal and Rukmini Ammal, and Rajaguni Ammal in banks as belonging to the assessee and representing the income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law had no requisite financial for making the investments and the moneys invested both in land and in bank deposits in the years 1943-44 and 1944-45 came from the assessee. On the Appellate Assistant Commissioner rejecting the the theory put forward by the assessee as regards the source of the purchase price of the properties and the investments, the Tribunal considered at length the story of the assessee. They found it impossible to believe that the wives sold jewels in order to provide funds to the assessee. In fact, they were of the view that, when according to the mother-in-law of the assessee the wives of the assessee were duly provided for with enough and more funds and properties, there seems to be no necessity or reason for the housewives to sell jewels as if they were in impecunious circumstances and in order to provide funds for the business of their husbands. They characterised the entire transaction as ringing in untruth. Attention is pointedly drawn to the receipts given by the assessee himself in the himself of the sale of jewels. They advert to the claim of Thayammal, the mother-in-law of the assessee, that she was doing cotton business of her own and fund that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not satisfied that there was material before the Tribunal to dislodge the findings of the revenue that the amount of Rs. 13,178 representing the value of jewels came from the assessee. For the year 1944-45 the Tribunal had ample material to find that the purchase of the properties and the investments on fixed deposits on February 8, 1943, and June 16, 1943, were made and ought to have been made from the funds of the assessee and not through funds belonging to third persons including Thayammal. In the assessment year 1945-46 the addition of Rs. 17,900 was rightly sustained. For the assessment year 1946-47 we are unable to find anything strange in the conclusion of the Tribunal when they held that they were unable to believe that Rs. 10,000 was given by Thayammal and the other Rs. 20,000 was made up in the way in which the assessee wanted them to believe. For the last year 1947-48 the Tribunal again holds that the version of the assessee that the investments and the properties were made and purchased from funds given to him by his wives, daughters and sons cannot be believed. As this court exercises jurisdiction only in an advisory capacity in proceedings under section 66 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or fullness of disclosure of material facts. The expression " reason to believe " appearing in section 34 has been the subject-matter of many judicial precedents. The ratio of such well-accepted authoritative pronouncements appear to be that if the Income-tax Officer acts as a reasonable and prudent man on the basis of information secured by him that there is a case for reopening, then section 34 can well be pressed into service and the assessments reopened. As a consequence of such reopening, certain other facts might come to light. There is no interdict or a ban under section 34 for the assessing officer to take into consideration such facts which come to light either by discovery or by a fuller probe into the matter and reassess the assessee in default if circumstances require. A mere submission by the assessee that the entire account books were before the assessing officer even in the first instance is not always the necessary criteria to judge whether a reopening under section 34 is possible. Each case depends on its own facts and circumstances. As seen from the narrative of facts earlier, the reassessments in the respective years under consideration were based on a just a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the question whether the materials may be regarded by a court, before which a dispute is raised, to be sufficient to sustain the belief entertained by the Income-tax Officer. The duty imposed by the Act upon the taxpayer is to make a full and true disclosure of all material facts necessary for the assessment ; . . . " In K. S. Abdul Sattar v. Commissioner of Income-tax the following passage is apposite to this case : " Once a case is reopened under section 34 of the Income-tax Act, the Income-tax Officer is not limited to the information which he had received and on the strength of which he had asked for a reopening of the assessment and reassessment of the assessee. If he were to discover other cash credits after issuing the notice, he is entitled to take them into account in the income of the assessee and to assess such income if it had escaped assessment earlier. The term 'such income' in section 34 refers to the entire escaped income, not only to that part of it with respect to which the Income-tax Officer had definite information, in consequence of which he had discovered the escapement. " In Sankaralinga Nadar v. Commissioner of Income-tax this court observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax: " Two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 of the Income-tax Act in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under-assessed ; and (ii) he must have reason to believe that such 'under-assessment' had occurred by reason of either, (a) omission or failure on the part of the assessee to make a return of his income under section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. If there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether at the initial stage or at the later reopening stage which was initiated because of reasonable belief on the part of the revenue, then such intimate relationship between the new facts and the escapement being brought to light, such income which has escaped assessment ought to be and in the instant case has been properly brought to tax. Therefore, we answer questions Nos. 2 and 3 in R. A. No. 712 relating to 1943-44 in the affirmative and against the assessee. In R. A. No. 714 relating to the year 1944-45 we answer the two questions in the affirmative and against the assessee. Our answer to the questions in R. A. No. 715 for the year 1945-46 is in the affirmative and against the assessee. Similarly, our answer to the two questions in R. A. No. 716 relating to the year 1946-47 is in the affirmative and against the assessee. Our answer to each of the questions in R. A. Nos. 713 and 717 for the year 1947-48 is in the affirmative and against the assessee. Counsel's fee, Rs. 250. Tax Case No. 206 of 1965.- In this tax case the propriety and legality of the penalty levied against the assessee in the relevant years which were the subject-matter of Tax Case No. 59 of 1962 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, did not find favour with the revenue which held that the assessee's version was not worthy of credence. The theory put forward by the assessee and the reaction of the department to such an explanation have already been fully set out by us in T. C. No. 59 of 1962. The sale of jewels by the wives of the assessee was found to be unacceptable; that the mother-in law of the assessee carried on a money-lending business or a cotton business did not find favour with the revenue ; that the properties purchased during the relevant years in question could not have been purchased from a source other than the undisclosed source of income of the assessee was also found by the revenue as against the assessee. In fact, the Tribunal gave ample opportunities to the assessee by remanding the case for further enquiry. In the remand proceedings 13 witnesses were examined and after securing the remand report, the Tribunal upheld the additions made in the several years in question. Consequent upon this, the Income-tax Officer initiated penalty proceedings under section 28(1)(c). In reply to the penalty notices, the assessee explained that the credits representing the sale of jewels were genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1944-45, the Tribunal, after considering the records and the quality of the discovery made by the department in the reassessment proceedings vis-a-vis the explanation given by the assessee for the year in question, allowed the departmental appeal and fixed the penalty as stated above. A similar view was taken by the Tribunal as regards the years 1945-46, 1946-47 and 1947-48 and penalty was imposed on the assessee in the manner stated above. Section 28 dealing with concealment of income or improper distribution of profits appearing in Chapter IV by itself is a self contained section which is sufficiently instructive. The object of section 28 is to make tax evasion unremunerative. But the main provisions therein and particularly section 28(1)(c) under which the present proceedings have been initiated by the revenue, relating to the imposition of penalty being essentially a penal provision, it has to pass muster of the essential qualitative test in criminal jurisprudence that an offence if alleged by the prosecutor should be brought home to the accused. The passage of Lord Wright in Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners, relevant to the subject, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of deliberate suppression of the, particulars of his income or wanton avoidance of accurate particulars. In a case where the explanation of the assessee is found to be false, he is not being charged for having given a false explanation. In fact, that is not the sine qua no" of the offence under section 28(1)(c). The ingredients of the offence under section 28(1)(c) are that the assessee concealed the particulars of his income, or, deliberately furnished inaccurate particulars of such income. In C.V. Govindarajulu Iyer v. Commissioner of Income-tax, Rajamannar C.J., speaking for the Bench, observed while considering the power of the Income-tax Officer to levy a penalty under section 28(1) in the following words : " There may be one possible qualification of his power, and that is when the default or the act which is the basis of the imposition of the penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that officer had failed to exercise his power under section 28 during the course of the proceeding before him. Possibly in that case he would have no power. " This case was considered also by the Supreme Court in N. A. Malbar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars about his income, it is not possible to infer from the falseness of his explanation that the receipt necessarily constitutes an income of the assessee. " In all the years under review, the assessee gave an explanation which was not acceptable and, therefore, held to be false. It has to be remembered that the Income-tax Officer who originally assessed these proceedings had occasion to consider this very material before him, but he was not circumspect enough to discover any income which has escaped assessment. By reason of the non-acceptance of the explanation of the assessee the credits and other items, which were added on as additional income, were taken into consideration as deemed income of the assessee on the ground that be should have earned the same from undisclosed sources. This would not enable the Income-tax Officer, in the facts and circumstances of this case, to levy the penalty as imposed by him. In this view, the order of the Tribunal, which set aside the order of the Appellate Assistant Commissioner, appears to be erroneous. We, therefore, answer the following questions formulated by the Tribunal in the negative and in favour of the assessee with costs. Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X
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