9911796707
TMI Blog1973 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... oth business in Surat and, therefore, Ratilal Desai should invest the said sum of Rs. 2,00,000 in the petitioner's factory at Surat. The petitioner and Ratilal Desai thereupon decided to form a partnership firm in which it was also agreed to admit the son of Ratilal Desai as one of the partners. This son of Ratilal Desai was at that time in the United States. The terms of the agreement arrived at between Ratilal Desai and the petitioner were reduced to writing in the shape of an agreement executed on stamp paper and Ratilal Desai gave an amount of Rs. 1,70,000 out of the sum of Rs. 2,00.000 which Ratilal Desai was to contribute towards the capital of the proposed partnership firm. It is the petitioner's case that Ratilal Desai had withdrawn a sum of Rs. 2,00,000 from his account with the State Bank of Hyderabad, Secretariat Branch, Hyderabad, on June 18, 1969, and out of this amount of Rs. 2,00,000 the said amount of Rs. 1,70,000 was paid by Ratilal Desai to the petitioner. The petitioner passed a regular receipt to Ratilal Desai in respect of the said sum of Rs. 1,70,000. The petitioner retained with him one copy of the agreement or deed of partnership land the original document o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd about another prize won by the petitioner's wife in a crossword puzzle competition and the respondent, according to the petitioner, continuously asked the petitioner to submit to a settlement and accept the position that the prizes won by the petitioner and his wife were bogus and were only devices adopted by the petitioner to introduce his own concealed moneys in his books of account. The petitioner, according to him, declined to submit himself to the said pressure and contended that the prizes were won by the petitioner and his wife in a genuine and straightforward manner in an open contest. The petitioner had also called upon the respondent to examine the organizers of the said crossword puzzles and give to the petitioner proper oppurtinity to cross-examine them but this was not done. Ultimately, the respondent passed an order on October 9, 1969, under section 132(5) of the Act and by that order the respondent held that the amount of Rs. 1,70,000 did not belong to Ratilal Desai but belonged to the petitioner. The respondent also held that the prizes won by the petitioner and his wife represented undisclosed income of the petitioner and he further held that the value of 23 gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounded and could not be sustained. It was further held that the classification made by section 132 between evaders of tax who are in possession of undisclosed income or property and evaders of tax who are not in such possession was reasonable, for the object of the section was to get hold, of undisclosed income or property and that could only be done by effecting search and seizure from those who are in possession of it. It was further held that there was no overlapping between the provisions of section 132 and section 147 and it was pot possible to say that it was open to the income-tax authorities to adopt one procedure or the other according to their absolute discretion. Section 132 could not, in the circumstances, be said to be violative of the equal protection clause contained in article 14. In view of this decision of the Division Bench of this High Court, the learned Advocate-General appearing on behalf of the petitioner has not argued before us the question of the constitutional validity of the provisions of section 132 though he has not given up that point. Before we take up the second contention urged on behalf of the petitioner, it will be necessary to refer to a few fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the locker and these amounts were seized by the respondent. On July 17, 1969, the petitioner addressed another letter to the Income-tax Officer and on July 30, 1969, Ratilal Desai filed his affidavit before the respondent supporting the different documents on which the petitioner and Ratilal Desai were relying in support of their contention that the amount of Rs. 1,70,000 belonged to Ratilal Desai. On October 9, 1969, the impugned order was passed by the Income-tax Officer. A perusal of the Income-tax Officer's order shows that apart form the material which he had gathered by questioning the petitioner himself and from the petitioner and from Ratilal Desai whom he had also examined and from Ratilal's statement, the respondent relied upon certain admissions alleged to have been made by Ratilal Desai before the Commissioner of Income-tax, Gujarat II, being a statement recorded on October 3, 1969. It also becomes clear that in order to arrive at his conclusions regarding the prizes won by the petitioner and his wife at prize competitions, the respondent relied in the impugned order on certain information available to him and in order to find out whether the prizes which were wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Income-tax Act, 1922, or this Act, he may authorize any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search. Under sub-section (5) of section 132, where any money, bullion, jewellery or other valuable article or thing referred to in the rest of the section as the assets is seized under sub-section (1), the Income-tax Officer, after affording a reasonable opportunity to the person concerned for being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order with the previous approval of the Commissioner, estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him, calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922, or the 1961 Act and specifying the amount that will be required to satisfy any existing liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may deem fit. Clause (4), which is the material clause, is in these terms: "(4). Before any material gathered in the course of the examination or inquiry under sub-rule (3) is used by the Income-tax Officer against the person referred to in sub-rule (1) the Income-tax Officer shall give a reasonable notice to that person to show cause why such material should not be used against him." It will be noticed that clause (4) of rule 112A states that the Income-tax Officer shall give a reasonable notice to the person concerned to show cause why such material should not be used against him. It may be pointed out that this alone provides for compliance with the principles of natural justice because, if the Income-tax Officer is going to utilise any materials gathered by him against the person concerned under section 132(5), then it is but fair and just that he should disclose those materials to that person. In Ramjibhai Kalidas v. L G. Desai, Income-tax Officer, the Division Bench also considered the question whether a particular provision in a statute which on the face of it appears to be mandatory inasmuch as it uses the word "shall" is really mandatory or directory cannot be resolved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be placed at the time of passing the order against the person concerned, must be disclosed to him and an opportunity of explaining those materials or those circumstances must be given to the person concerned. This is the main object of enacting clause (4) of rule 112A and looking to the purpose which is sought to be served and looking to the context in which this provision occurs, it is obvious that this clause lays down a madatory requirement and non-compliance with this mandatory requirement would render the order passed under section 132(5) bad because the inquiry as contemplated by rule 112A cannot be said to have been held. When one turns to the impugned order, one finds that under paragraph 5, sub-paragraph (h), the respondent was dealing with the contention of the petitioner that the receipt passed by the petitioner on July 1, 1969, correctly mentioned the numbers of ten Government currency notes of Rs. 10,000 each. In this connection he observed: "Shri Ratilal who appeared before the Commissioner of Income-tax, Gujarat II, clearly admitted that this was written up later though he said to him that the admission was unofficial." While dealing with the entries in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner on 24th July, 1969, and 23rd August, 1969. In reply to the said notices the petitioner addressed a letter to me dated 30th August, 1969, wherein the petitioner relied on his letter dated 16th July, 1969, and the affidavit and statement made by Shri Ratilal C. Desai of Bombay. I had recorded the statements of Shri Ratilal C. Desai as he had lodged a claim on 19th July, 1969, claiming that he was the owner of the sum of Rs. 1,70,000 seized from the petitioner and demanding that the said sum he refunded to him. The statement made by the said Shri Ratilal C. Desai was supported by the petitioner. I say that since the petitioner had himself relied on the statements of the said Shri Ratilal C. Desai there was no question of allowing the petitioner to cross-examine the said Shri Ratilal C. Desai." In the affidavit-in-reply filed by the respondent on July 22, 1970, he has stated in paragraph 7 : "The said Ratilal had filed a special civil application in this honourable court challenging the validity of the seizure of the said sum of Rs. 1,70,000 being Special Civil Application No. 1408 of 1969. I was impleaded as respondent No. 1 to the said Special Civil Application No. 1408 of 1969 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming to his conclusion regarding the ownership of this sum of Rs. 1,70,000. It is nobody's case that a copy of this statement of Ratilal Desai alleged to have been made before Ramaswami was furnished to the petitioner before the order under section 132(5) was passed on October 9, 1969. It is equally clear that the petitioner had never been called upon to show cause why this statement of Ratilal Desai should not be used against the petitioner in the proceedings under section 132(5). There is thus considerable substance in the grievance of the petitioner that the respondent did not give notice of this particular material which he used against the petitioner nor a chance to cross-examine those whose statements had been used against the petitioner, particularly Ratilal Desai and the Commissioner. As regards the conclusion of the respondent that the moneys alleged to have been won as prizes in the prize competitions by the petitioner and by the petitioner's wife were in reality undisclosed income of the petitioner, the impugned order mentions in paragraph 7 as follows: "According to the information available to me, the assessee had allegedly won the following prizes from Kasoti and Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed these prizes. It is thus clear that the huge credits referred to above were to enable the withdrawals of the so called prizes. Cheques did not come from the organizers of the Harifai and the only alternative is the prize winner, the assessee himself in this case. The fact that the prize winner has received the money and is enjoying it shows that it is only his own money that has been used, for declaring and awarding this so called prize." In the affidavit-in-reply filed by the respondent, being his affidavit, dated October 22, 1971, after ground (L), was added in paragraph 12, regarding these prize competition, this is what he has stated : As regards information gathered from Harifaiwallas, that is to say, persons conducting called prize competitions, I say that I had not received any information from any operator of prize competition in the case of the petitioner specifically. I say that the Commissioner of Income-tax had learnt that several persons were conducting bogus prize competitions with a view to enable persons to convert their unaccounted income or property into white money. I say that with a view to unearth the said racket, premises of several operators of so called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given to him, the impugned order must be held to be void. The main emphasis in clause (4) of rule 112A is not the source of the material but that the material is going to be utilised against the person concerned in the course of the inquiry under section 132(5). If this material is to be utilised against the person concerned, it is but fair and just and also the requirement of clause (4) of rule 112A that it should be disclosed to the person concerned and a reasonable opportunity of meeting such material and to give his explanation regarding such material must be given to him. It is clear that no such opportunity was given to the petitioner and on the contrary, the contention on behalf of the respondent in his affidavit-in-reply, dated October 22, 1971, is that there was no obligation on the Income-tax Officer to give such an opportunity or to disclose such material to the petitioner. This stand taken up by the Income-tax Officer was clearly in violation of the principles of natural justice as well as in violation of the requirement of clause (4) of rule 112A. The petitioner has made a grievance in his petition that principles of natural justice were violated in passing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the Commissioner, some which were extraneous, if the rest were relevant and could be considered sufficient the Commissioner's conclusions would not be vitiated. The principle that if some of the reasons relied on by a Tribunal for its conclusion turn out to be extraneous or otherwise unsustainable, its decision would be vitiated, applies to cases in which the conclusion is arrived at not on assessment of objective facts or evidence, but on subjective satisfaction. The reason is that whereas in cases where the decision is based on subjective satisfaction if some of the reasons turn out to be irrelevant or invalid, it would be impossible for a superior court to find out which of the reasons, relevant or irrelevant, valid or invalid, had brought about such satisfaction. But in a case where the conclusion is based on objective facts and evidence, such a difficulty would not arise. If it is found that there was legal evidence before the Tribunal, even if some of it was irrelevant, a superior court would not interfere if the finding can be sustained on the rest of the evidence. The reason is that in a writ petition for certiorari the superior court does not sit in appeal, but exer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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