9911796707
TMI Blog1968 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 their returns under section 22(1) of Indian Income-tax Act, 1922, for all the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edits 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 expenses alleged to have been incurred in connection with its timber business. Credits appearing in this account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi, with reference to the assessment years 1943-44 to 1949-50. Investigation was made by the aforesaid Deputy Director of Inspection (Investigation) into the probable suppression of profits and the following terms of settlement were arrived at which were given effect to by the various income-tax authorities : "1. For the various assessment years 1943-44 to 1948-49, the business profits will be computed by adding the following amounts as extra sale proceeds of timber sold to the public. 1943-44 1,10,620 1944-45 1,42,125 1945-46 1,36,403 1946-47 99,135 1947-48 62,742 1948-49 87,856 2. The additions made in the above assessment, since set aside by the Appellate Assistant Commissioner on account of deposit, interest and deposits, inflation in conversion charges and sale of gold will be excluded. 3. The following losses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable to them in coming to the conclusion that they did with respect to the deposits and the conversion charges. By 1955, the amount due to the Ranas was to the tune of 47 lakhs of rupees by way of deposits, interest on deposits and balance of conversion charges. It was on 10th May, 1955, that a sale deed was executed by the petitioners in favour of Rana Nar Singh and his brother, Rana Lav Nar Singh, for a consideration of Rs. 47,10,000. The property conveyed by the sale deed was, according to the petitioners, " valuable " agricultural and forest lands as also buildings and equipments, kolhus and crushers, etc., appurtenant thereto. The land that was sold measured about 8,000 and odd nalies. It is alleged by the respondents that some time thereafter specific information came to the notice of the Income-tax Officer 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t money for the purchase of the properties. The rest was paid in cash in Kathmandu and/or by adjustment in running account to Rana Anand Nar Simha, Judh Nar Simha and Ek Nar Simha in payment of their outstandings against the sellers as per details given hereunder: Rana Anand Nar Simha 37 lakhs Rana Judh Nar Simha 5 lakhs Rana Ek Nar Simha 5 lakhs Formal receipts were obtained from these parties and sent to Thakur Dan Singh Mohan Singh Bist of Nainital before the properties sold out to us were mutated in our names as stipulated in the sale deed. " The first and main contention is with reference to the jurisdiction of the Income-tax Officer in issuing and the validity of the notices issued by him under section 34(1)(a) and it is contended that the Income-tax Officer had no reason to believe that by reason 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection is that the writ petitions are belated and the second objection is that there are adequate and effective remedies by way of appeal, etc., and, therefore, this court should decline to interfere on petitions filed under article 226 of the Constitution. No arguments were, however, addressed to us by Mr. Narasa Raju or Mr. A. N. Kirpal, learned counsel appearing for the respondents, when we called upon the respondents to reply to the first contention. Coming back to the first and the only contention with which we are dealing, the broad facts are that the amounts of deposits standing to the credit of the Ranas and the amount of conversion charges standing to the credit of Rana Anand Nar Singh were disclosed as such to the Income-tax Officer during the assessment proceedings for each assessment 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may, as authorised by sub-section (2) require the assessee to produce evidence. On the date fixed for assessment such evidence is heard and such other evidence as the Income-tax Officer may require is produced and then the Income-tax Officer makes an order of assessment under sub-section (3). The scheme of this section therefore, contemplates a full-fledged inquiry proving for the production of evidence and a hearing and the purpose of such an inquiry is to determine the validity of the contentions that may be raised by the assessee with reference to the material which is placed before the Income-tax Officer. If in spite of this hearing, a mistake appears in the order of assessment, power has been given to the income-tax authorities by section 35, to rectify the mistake. But if the case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o state the conclusion that could reasonably be drawn from the primary facts. The question of the assessee's intention was an inferential fact and so the assessee's omission to state its ' true intentions behind the sale of shares ' could not be considered to be a failure or omission to disclose any material, fact within the meaning of section 34. " Therefore, so long as the material facts existing right up to the time of assessment are disclosed, there cannot be a case for invoking section 34(1)(a) merely because the assessee has raised a wrong contention which has been accepted. Inferences or conclusions that can reasonably be drawn from the primary facts are not to be stated by the assessee. It is important to notice that this decision was given notwithstanding the fact that in the assessment 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is executed by the assessee himself after the order of assessment containing a clear and categorical admission that the incomings shown in the return had not in fact represented genuine deposits or loans or cash credits but represented the income of the assessee. In such a case, it is contended, even though the fact in the shape of the document containing the admission comes into existence after the order of assessment, it relates back to the period between the filing of the return and the making of the order of assessment because it would then be a fact existing at that time thereby rendering the disclosure neither full nor true. It may be so. But even assuming that such a subsequent fact, if I may call it that, is a material fact, it must be taken at its face value and it would be permissible 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 conversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot primary facts which existed at the time of assessment and which the assessee was under duty to disclose. Mr. Narasa Raju, learned counsel appearing for the respondents, then contended that even if it may be said in the present case that a full disclosure was made, there was a failure to make a " true " disclosure and for this contention he relies upon the words " fully or truly " as appearing in clause (a). On account of the use of the word " truly "--it is his contention--it is the obligation of the assessee even in a case of full disclosure to indicate the true nature of the incomings and, therefore, in the instant case since the assessee failed to say that the deposits, loans and cash credits appearing in the names of the three Ranas were really the income of the firm, he has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et this debt, the assessee got their distribution rights in lieu of the amount advanced and exploited the films. It was also detected by the Income-tax Officer that in the relevant returns the assessee had not shown income from property in the names of his sons, wife and daughter, though many of the properties were purchased by him in their names. " It is obvious from a mere recital of these facts that this was a clear case of non-disclosure of what I may call existing material facts during the assessment years 1943-44 to 1949-50 and that was the reason why the Andhra Pradesh High Court and, on appeal, the Supreme Court repelled the contentions which had been raised on behalf of the assessee. This case throws further light upon the duty of the assessee in respect of the disclosure 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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