TMI Blog1968 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the petitioners and the third sent by messenger. It is not disputed that the notices which were sent by registered acknowledgment due post were received by the petitioners on 11th April, 1962, i.e., after the commencement of the Income-tax Act, 1961. In so far as the notice sent by messenger are concerned, the petitioners deny service thereof while it is the case of the respondents that these were served according to law by affixation on 30th March, 1962, i.e., before the commencement of the Income-tax Act, 1961. The first petitioner is the assessee and it was assessed as a Hindu undivided family. The second petitioner is the present karta of this family. It is not disputed that the first petitioner carried on extensive business, inter alia, as forest contractors and had considerable income from such business. The forest business was in respect of forests which were situate in Nepal. Contractors were employed by the petitioners for felling the trees, converting them into logs and floating them down a river in Nepal to reach Indian territory and for all this the contractors were paid what have been described as conversion charges. The petitioners had, originally, filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Amount of fresh Interest relatable Total Year cash credits to the total credits of the Ranas debited to the P. L. Account -------------------------------------------------------------------------------------------------------------------------------------------------- 1942-43 1,00,000 2,495 1,02,495 1943-44 7,00,000 14,803 7,14,803 1944-45 10,00,000 31,633 10,31,633 1945-46 3,75,000 51,083 4,26,083 1946-47 2,30,000 1,17,363 3,47,366 1947-48 4,00,000 1,24,333 5,24,333 1948-49 " 1,20,000 1,20,000 1949-50 " 1,26,000 1,26,000 1950-51 " 1,26,000 1,26,000 1951-52 " 1,26,000 1,26,000 1952-53 " 1,26,000 1,26,000 1953-54 " 1,26,000 1,26,000 -------------------------------------------------------------------------------------------------------------------------------------------------- Total 28,05,000 10,91,713 39,96,713 -------------------------------------------------------------------------------------------------------------------------------------------------- (b) In addition to the cash credits and interest thereon mentioned above, the assessee Hindu undivided family had credited the account of Rana Anand Nar Singh on account of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses falling to the share of Rana Anand Nar Singh Rana and allowed by the Income-tax Officer in the respective assessments shall be disallowed : 1944-45 : Behran Ghat branch, Rs. 35,398 ; 1945-46 : Behran Ghat branch, Rs. 38,081. 4. As a result of these changes and after making certain other adjustments, e.g., a mistake of under-totalling made in the assessment order to the extent of Rs. 1,07,714 the profits liable to excess profits tax, total income liable to income-tax and super-tax and the taxes payable will be as per the enclosed schedule. 5. For the assessment year 1949-50 the present assessment will be revised by deleting therefrom the disallowances of conversion charges, interest on deposits and by substituting Rs. 2,42,594 for suppression of sales as against Rs. 2,75,000. The revised figures are given in the schedule. These figures disclose a business profits tax liability of Rs. 20,367 for the C.A.P. ending 31st March, 1949, and the assessee agrees not to raise any technical objection regarding time-limit against this assessment. A penalty of Rs. 1 lakh will be imposed under section 28(1)(c) for the assessment year 1949-50 but no penal interest should be charged f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer via the Minister for Home Affairs and the Directorate of Inspection (Investigation). This information was that a bogus sale deed was executed in favour of the Nepalese relations of the then karta of petitioner No. 1 " with a view to convert concealed income of the petitioner No. 1, to the tune of Rs.47,10,000 earned between the years 1940 to 1954, into the capital of the petitioner No. 1...... in respect of property which did not exceed Rs. 40,000 in value and which property was till then (December, 1961) under the possession of the petitioners " and that " the income from the said property did not exceed Rs. 2,000 from the tenants and Rs. 100 per year from the land under personal possession of the petitioners. " Thereupon, enquiries were conducted into the allegations as a result of which the Income-tax Officer was led to believe that the credit s appearing in the names of the Ranas were not genuine. It is further alleged that the result of the enquiries showed that the land which was the subject-matter of the sale deed was 3,531 nalies ; that the price worked out to Rs. 1,339 per nali or Rs. 26,610 per acre ; that the prevalent rate of sale in the area was about Rs. 100 per n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son of the failure on the part of the assessee to disclose all material facts necessary for making the assessment, any income had escaped assessment ; that the proposed enquiry was roving enquiry and his belief was a mere pretence. Before I deal with this contention, I would like to mention the other contentions that were sought to be raised on behalf of the petitioners on which we have not heard the parties. These contentions are : (1) That a notice under section 34 cannot be issued where there is an agreed assessment and the only remedy of the revenue is by way of suit to set aside the agreement. This contention is based upon the aforesaid agreement or settlement dated 18th October, 1945, relating to assessment years 1943-44 to 1949-50 to which I have referred above. (2) A notice under section 34 must not only be issued but also be served on the assessee before 31st March, 1962, to apply section 34(1)(a) of the Indian Income-tax Act, 1922. For this contention, the petitioners, relied upon the fact that the notices served by registered acknowledgment due post were saved upon them on 11th April, 1962, and they denied the service by affixation as alleged by the respondents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year in question ; all the material that was available with the petitioners was disclosed ; the Ranas were examined ; on the facts disclosed, the contention of the petitioners was that the amounts standing to the credit of the three Ranas or to the credit of Rana Anand Nar Singh represented deposits or loans and credit on account of conversion charges remaining payable to Rana Anand Nar Singh ; there was no non-disclosure of these incomings into the books of the petitioners but the contention raised was that they did not constitute the income of the petitioner ; the contention of the Income-tax Officer was that these credits on account of deposits or conversion charges were false credits and were in reality and truth the income of the petitioners subject to tax ; these respective contentions were urged before the authorities and were adjudicated upon ; there were proceedings and enquiries were held to decide the respective contention and the respective contention were determined by adjudication with respect to assessment years 1942-43 and 1950-51 to 1953-54 and with respect to assessment years years 1943-44 to 1949-50 by agreement or settlement. In so far as these writs are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not fall under section 35, resort can be had to clause (b) of sub-section (1) of section 34 if any income has escaped assessment or has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief or excessive loss or depreciation allowance has been computed. Material facts as contemplated by clause (a) of sub-section (1) of section 34 must not only be existing up to the time of assessment but it must also be a case where such material facts have not been disclosed fully and truly. A mere erroneous decision by the authorities based upon erroneous inferences drawn from the material facts will not by itself bring a case within the purview of clause (a). This clause requires a disclosure of only such material facts as are necessary for assessment for a particular year. This clause has been interpreted on more than one occasion by the Supreme Court. The leading case on the subject is the case of Calcutta Discount Co. Ltd. The facts of this case were that the assessee realised profits by the sale of shares in the assessment years 1942-43, 1943-44 and 1944-45, which were not assessed to tax. The amounts had been shown as incomings of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years 1945-46 and 1946-47, the contention of the assessee with regard to the nature of these receipts was not accepted and it was held that the assessee was in fact carrying on the business of selling shares contrary to its earlier representations. The case has been followed in all subsequent cases whether, of the Supreme Court or of the various High Courts. The next case of the Supreme Court which was cited is reported as S. Narayanappa v. Commissioner of Income-tax. The principles which were settled in Calcutta Discount Company's case were reaffirmed. This was a case in which the assessee did not file any return nor did he comply with the notice issued under sub sections (2) and (4) of section 22 of the 1922 Act with respect to the assessment year 1951-52. The Income-tax Officer completed the assessment on such material as was available to him and assessed the income at Rs. 36,069. Subsequently, while making assessment for the assessment year 1955-56, the assessee filed a wealth statement from which it appeared that the assessee had made investments of Rs. 39,000 during the assessment year 1951-52. Bank accounts were also produced and from a scrutiny of the wealth statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmissible to raise an inference from that and describe such inference as a material fact as contemplated by section 34(1)(a). Now, if taken at its face value, the sale deed is in support of the assessee's case rather than destructive of it because the sale deed confirms that the amounts standing to the credit of the three Ranas represent either deposits or loans or the unpaid amounts of the conversion charges. The Income-tax Officer even made inquiries from the vendees, who it may be mentioned were different from the Ranas, and the vendees confirmed the sale-deed and also confirmed that they had paid the amount of Rs. 47,00,000 to the Ranas as stated in the sale deed and obtained receipts therefor. These facts cannot by any stretch of language make the sale deed ex facie a bogus document. The Income-tax Officer wants to go further in these cases and, upon the basis of the consideration mentioned in the sale-deed ; the fact that only Rs. 10,000 were paid to the petitioners while Rs. 47,00,000 are stated to, have been paid to the three Ranas and the value, arrived at by him as a result of his own subsequent enquiries, of the land which was the subject matter of the sale deed, he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been guilty of a disclosure which is not true even if it may be full. In other words, the argument goes to this extent that in every case where a contention raised by the assessee with regard to the nature of the incoming has been accepted in the original order of assessment, it is open later on to invoke section 34(1)(a) for the purpose of reassessment if the Income-tax Officer comes to the conclusion that the assessee's contention should not have been accepted. The argument cannot be accepted in view of the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd., because if this argument were correct, then there was no reason why a writ should have been issued in that case upon the Income-tax Officer coming to a conclusion in the subsequent assessment proceedings that the said company had always been carrying on the business of sale of shares regularly. Mr. Narasa Raju, however, relies upon a decision of the Andhra Pradesh High Court in Sowdagar Ahmed Khan v. Income-tax Officer, Nellore. which, according to him, has been approved by the Supreme Court in its decision dated 21st November, 1967, in Civil Appeals 265-271 of 1967. The report of the judgment of Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of material facts. It is observed : " ...........that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence. He has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. " The duty of the assessee with reference to a true disclosure has not been stated to be that he must go further and state that the particular items in the books of account or documents which are relevant represent bogus transaction. Applying these principles to the facts of the case before me, the belief at which the Income-tax Officer has arrived is no more than an inference or a conclusion from subsequent facts. Such inferences drawn from the fact of the execution of the sale deed or its recitals or from the facts elicited as a result of subsequent enquiries relating to the market value of the lands which were the subject-matter of the sale deed cannot, in my opinion, amount to material facts which should have been disclosed as required by section 34(1)(a). One of the conditions precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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