TMI Blog1969 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... elieve that the petitioner's income chargeable to tax for the assessment year 1961-62 had escaped assessment within the meaning of section 147 of the Act, and requiring the petitioner, within 30 days from the date of the service of the notice, to file a return in the prescribed form of its income for the said assessment year. Facts relevant for the decision of the case may briefly be stated. The assessment of the petitioner for the assessment year 1960-61 was completed by Shri J. Pathak, the then Income-tax Officer, Special Circle, Patna, accepting the return of the petitioner and the books of account produced. In its return the petitioner had shown that it had taken the following loans : (i) Loan of Rs. 5,000 on January 12, 1961, through hundi from Seth Mohan Singh Kanhaiyalal, 252/D, Chitranjan Avenue, Calcutta-6-I.T. File No. 522/Md. (ii)Rs. 10,000 through hundi on February 23,1961, from Maya Ram Madhav Das Bankers--48 Vivekanand Road,Calcutta-6.--I.T. File No. 346/C/V assessed by Income-tax officer, Dist. II(1), Calcutta. (iii) Rs. 5,000 on January 12, 1961, through hundi from Seth Tirath Das Sons, 36, Ezra Street, Calcutta-1--I.T. File No. V/1-122-I/IX. (iv) Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self to the propriety or otherwise of that order, such an order is illegal. It is true that in the instant case too the Income-tax Officer before issuing a notice had himself to form an opinion that there were reasons for believing that the petitioner had escaped assessment and not the Directorate of Inspection ; but it is nobody's case that the copy of list of bogus hundi brokers and bankers sent by the Directorate of Inspection contained any statement that the petitioner had escaped assessment. It merely provided an information to the Income-tax Officer that four of the creditors of the petitioner were bogus hundi brokers and bankers. On the basis of such information the Income-tax Officer himself has formed an opinion that the petitioner has prima facie escaped assessment. It cannot, therefore, be said that the Income-tax Officer has abdicated his jurisdiction to the Directorate of Inspection. In the notice, (annexure " 1") there is nothing to indicate that the basis for the notice was not his belief but of somebody else. The question whether the said list can be held a material on the basis of which the Income-tax Officer could form a belief as required by section 147 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the material is relevant or irrelevant. In cases where the material could not at all be a basis for the belief, the notice has to be struck off. Learned counsel for the parties have relied on a good number of decisions in support of their respective contentions whether the list of the Directorate of Inspection was a relevant or an irrelevant material and whether it could at all be a basis for the belief of the Income-tax Officer that the petitioner's income chargeable to tax had escaped assessment for the year 1960-61. The relevancy or irrelevancy of a material has to be decided with reference to the facts and circumstances of each case. Therefore, the decision cited may not be of much assistance specially when it has been conceded by Mr. Lal Narain Sinha that rules of evidence do not apply to the income-tax department and what may not be relevant under the Indian Evidence Act may be relevant for formation of a belief of the Income-tax Officer under section 147 of the Act. Nonetheless, they can throw some light on the question and I now proceed to consider the decisions cited by Mr. Lal Narain Sinha, learned counsel for the petitioner. In Calcutta Discount Co. Ltd. v. Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits. The Supreme Court upheld the striking off of the notice and observed : " But the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands : income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment a case for commencing a proceeding for reassessment under section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. " It was further observed that it was not the case of the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Directorate of Inspection could not be the basis of the belief of the Income-tax Officer as required by section 147 of the Act for issuing a notice against the petitioner in the instant case. In support of this contention he has relied on an unreported decision of the Supreme Court in Civil Appeals Nos. 2274 to 2276 of 1966 : Rohtas Industries Ltd. v. S. D. Agarwal (judgment dated the 16th December, 1968). In that case the Central appointed in inspector to investigate the affairs of the, Rohtas Industries Ltd. under section 237(b) of the Companies Act, 1956. The relevant portions of section 237 of the Companies Act run as follows : " Without prejudice to its powers under section 235, the Central Government, there are circumstances suggesting-- (b) may do so if, in the opinion of the Central Government, there are circumstances suggesting- (1) that the business of the company is being conducted with intent to defraud its creditors, members, or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose ; (ii) that persons concerned in the formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down by the Supreme Court in Rohtas Industries case for the matter of subjective formation of the opinion must apply with greater rigour in the matter of formation of belief under section 147 of the Act. There can be no doubt that the test laid down by the Supreme Court in the matter of formation of opinion under section 237 of the Companies Act ought to apply in the matter of formation of belief under section 147 of the Act. What must be demonstrable and has to be proved prima facie is not the inference, but the existence of the circumstance relevant to the inference and that circumstance in the instant case is that the creditors are bogus hundi brokers and bankers, the existence of which is proved prima facie by the list of the Directorate of Inspection. Merely because, in the circumstances of that case, the Supreme Court held that the conduct of S. P. Jain with regard to the management of his other concerns was not relevant in the matter of formation of an opinion as to fraud, etc., by the management of Rohtas Industries Ltd., it cannot be said that in the instant case the fact that the alleged creditors of the petitioner are bogus hundi brokers and bankers is also irrelevan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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