TMI Blog1998 (11) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof, named as "Dev Shree" and which being in the vicinity of Kerwa Dam, was also known as "Kerwa House" for brevity, is hereinafter referred to as "the house", the construction of which commenced in the month of July, 1984 and completed in the month of March 1987. Shri Arjun Singh, who was having income from sources other than agriculture also, was assessed to income-tax by the Income-tax Officer, "B" Ward, Bhopal, under section 143(3) read with section 144A of the Income-tax Act, 1961 (for brevity, hereinafter referred to as "the Act"), for the financial years 1985-86, 1986-87 and 1987-88 (GIR No. S-1225) vide order dated September 28, 1987, and also for wealth-tax by the Assistant Commissioner of Wealth-tax, Additional Circle, Bhopal, under section 16(3) of the Wealth-tax Act, 1957 (for brevity, hereinafter referred to as the Wealth-tax Act), for the assessment years 1981-82, 1982-83, 1983-84, 1984-85, 198586, 1986-87, 1987-88, 1988-89, 1989-90, 1990-91 and 1991-92 (P. A. N. No. 18-100-PT-0292) vide assessment order dated April 3, 1992. Smt. Saroj Singh was having income only from agriculture, which was non-taxable. Shri Ajay Singh, who was having income from sources other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e BJP"), having held the office of the Chief Minister of the State as well as the Office of Vice President of the State in the organisational set up of his party, approached this court by way of public interest litigation through Miscellaneous Petition No. 3909 of 1987 Shri Kailash Joshi v. State o Madhya Pradesh, which related to the affairs of Churhat Children Welfare Society and the matter of lottery run by it, alleging hypothetically, that the society which earned a guaranteed profit of one crore of rupees may be only at the surface and the loss of crores of income to the State went to the promoters and agents unnoticed and unaccounted for and also making personal allegations against Shri Arjun Singh and his family members regarding investment and cost of construction of the house near about the time or after the lotteries were conducted by the said society. The petition was decided on January 20, 1989, directing that an enquiry be made by a high power agency into the affairs of the Churhat Children Welfare Society and how the share of its profits derived from the draws had been utilised and, in a casual way, observations were made concerning Shri Arjun Singh that he owes an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not rest here and in efforts to resuscitate the concluded issues, it was agitated by one the members of the Rajya Sabha belonging to the BJP on the floor of the House inviting a statement from the Union Government in relation to the enquiry in the wake of the aforesaid observations of the High Court in relation to construction of the house whereon the Union Government through the Ministry of Finance, was called upon to reply to the question which, as per the established practice and procedure, was replied to by making the following statement on the floor of the House on March 10, 1992, by the Minister of State (Finance) after gathering all necessary facts, making necessary enquiries and having clearance from the highest authority under the Department of Income-tax : "The High Court of Madhya Pradesh in its judgment dated January 20, 1989, in the case of Kailash Joshi v. State of Madhya Pradesh had made certain observations regarding the building, constructed near Kerwa Dam, Bhopal, by the former Chief Minister of Madhya Pradesh, Shri Arjun Singh. The cost of construction and sources of investment in the said building were examined by the Income-tax Department in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Special judge, Delhi, against Madhav Rao Scindia, Arjun Singh, Narayan Dutt Tiwari and R. K. Dhawan, cases CC, No. 12 of 1996, CC No. 16 of 1996, CC No. 42 of 1996 and CC No. 43 of 1996 were registered against them, respectively. Case CC No. 16 of 1996 related to Arjun Singh where charge-sheet was under section 10B of the Indian Penal Code and section 5(2) read with section 5(1)(d) of the Prevention of Corruption Act, 1947, and sections 7, 11, 12 and 13(2) read with section 13(1)(d) of the Prevention of Corruption Act, 1988, containing allegations that Arjun Singh was also one of the recipients who worked as a public servant in the capacity of Chief Minister of Madhya Pradesh from February 13, 1988 to January 23, 1989, and Member of the Legislative Assembly (M.P), from June, 1988 to June 1991, and the Jain diaries and files seized from the residence of accused J. K. Jain showed the payment of Rs. 10.5 lakhs to him during the period from April, 1988, to March 1990 and August 1990, as per diary (MR 71 of 1991), small note book (MR 70 of 1991), File (MR 72 of 1991) and file (MR 73 of 1991) and it had nothing to do so far as the assessment year 1987-88 was concerned. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reservation of democracy in the country, requires that the Government agencies be compelled to duly perform their legal obligations and to proceed in accordance with law against each and every person involved, irrespective of the height at which he is placed in the power set up. The facts and circumstances of the present case do indicate that it is of utmost public importance that this matter is examined thoroughly by this court to ensure that all Government agencies, entrusted with the duty to discharge their functions and obligations in accordance with law, do so, bearing in mind constantly the concept of equality enshrined in the Constitution and the basic tenet of rule of law : 'Be you ever so high, the law is above you'. Investigation into every accusation made against each and every person on a reasonable basis irrespective of the position and status of that person, must be conducted and completed expeditiously. This is imperative to retain public confidence in the impartial working of the Government agencies. In this proceeding we are not concerned with the merits of the accusations or the individuals alleged to be involved, but only with the performance of the legal dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a preliminary objection in regard to territorial jurisdiction of this court qua the maintainability of Writ Petition No. 2593 of 1997 as it stood prior to its amendment consequent upon issuing of notices dated March 31, 1998, against the petitioners under section 148 of the Act and section 17 of the Wealth-tax Act, saying that this court may not have jurisdiction to adjudicate the matter involved in the petition, as both the petitioners permanently reside at Delhi where the following order for investigation/enquiry under section 131(1A) of the Act was passed by the Assistant Director of Income-tax (Investigation), Unit-I, New Delhi [for brevity hereinafter referred to as "the ADIT (Inv.), Delhi"] requiring the District Valuation Officer, Income-tax, Bhopal (for brevity hereinafter referred to as "the Valuation Officer") for determining the cost of construction of the house : "You are requested to determine the cost of construction of the property completed on March 31, 1987, you are also requested to find out the cost of construction, improvements, additions, alterations, etc., made, if any, after March 31, 1987, specially during period April 1, 1987 to March 31, 1993." The Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which has given rise to the cause of action, so far as the petitioners are concerned. The permanent address of the petitioners is not of Delhi but is of Bhopal, as the petitioners in the description of their address in the array of the petitioners in the writ petition clearly stated their address as r/o Dev Shree, Near Kerwa, Bhopal, which is their permanent address and "10, Canning Lane, New Delhi" was shown as present address as Shri Arjun Singh is a Member of Parliament. In view of it, it ill comes from the mouth of the respondents that the permanent address of the petitioners is of Delhi, and as such, this court has no territorial jurisdiction. Further various orders relating to assessment to income-tax and wealth-tax, as aforesaid, and also the impugned notices issued by the Income-tax Officer under section 148 of the Act and the Wealth-tax Officer under section 17 of the Wealth-tax Act indicate the permanent address of the petitioners, which, undisputedly, is within the jurisdiction of this court. Thus, the objection regarding residence criteria, as submitted by the respondents for the purpose of territorial jurisdiction of this court, fails and so far as the action under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various High Courts so to save time. Para. III of the said order dated February 22, 1996, which is relevant in the context, is as extracted below : "III. In view of the fact that this matter has been entertained in public interest and the role assigned to Anil Diwan is in substance of an amicus curiae, we direct that no other matter however described, pertaining to the subject-matter of this proceeding would be entertained in this court or in any other court. This direction is necessary to avoid any overlaping proceeding which would not be conducive to public interest, since one proceeding in public interest is sufficient to cover the entire scope of the subject-matter of this proceeding. Multiplicity of proceedings or parties would delay the progress of this matter and tend to diffuse the focus on the significant aspects of the case which is not conducive to the larger public interest." This order did not stop any individual from approaching the High Court or the Supreme Court qua his individual grievances or invasion of or attempt for invasion of personal rights. Apart from it, the said PIL petition in the Supreme Court does not deal with the rights of an individual and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est litigation. Thus, this subsidiary submission in regard to ouster of territorial jurisdiction of this court on the plea of jurisdiction of convenience is sans substance and is rejected, holding that, in the facts and circumstances of the case, there cannot be jurisdiction of convenience for the. respondents to the detriment of the petitioners for curtailment of their rights. Learned counsel for the petitioners next submitted that the impugned notice dated May 30, 1997 (annexure P-5 to the petition), jointly issued to Shri Arjun Singh and his wife, Smt. Saroj Singh, under section 131(1)(d) of the Act by the Valuation Officer, on the basis of reference made to him by the Assistant Director of Income-tax (Investigation), Delhi, for determination of the cost of construction of the house as on construction period, requiring them for submitting documents and parawise replies to the various queries, is without jurisdiction which, under the law, could not be issued for the purpose of fishing out the material for reopening the assessment completed and foreclosed long back having attained finality. The submission was that the power under sub-section (1) of section 131 of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or class of persons obviously other than the assessee against whom assessment proceedings are pending as for him the power is already available under sub-section (1). So far as this proposition is concerned, the matter is no more res integra. The case of respondent No. 1, Assistant Director of Income-tax (Investigation), Delhi was that the power was exercised by him under the aforesaid order of the Supreme Court dated January 30, 1996, under sub-section (1A) of section 131 of the Act. In para. 10 of the preliminary reply filed on behalf of respondent No. 1, Assistant Director of Income-tax (Investigation), Delhi, and respondent No. 2, Valuation Officer, dated July 10, 1997, it is clearly stated that the starting point of the present investigation/enquiry is by virtue of public interest petition filed before the Supreme Court in respect of S. K. Jain hawala case and the Bench of it is monitoring the investigations and enquiries in the Jain hawala case conducted by the Central Bureau of Investigation, and in order to file status report, the income-tax authorities have to conduct investigation/enquiries as permitted by law in respect of the alleged hawala recipients to meet the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the category of assessee within the meaning of clause (7) of section 2 of the Act and section 147 of the Act empowers the Assessing Officer, if he has reason to believe that any income chargeable to 'tax for any assessment year, has escaped assessment, then he may, subject to the provisions of sections 148 to 153, assess or reassess income-tax and also any other income chargeable to tax which has escaped assessment and which came to his notice subsequently in the course of proceedings under this section i.e., section 147, and in view of this, the order of the Assistant Commissioner of Income-tax (Investigation), Delhi, which is as disclosed in the counter affidavit and is extracted earlier, passed under sub-section (1A) as well as the impugned notice dated May 30, 1997, issued thereupon under section 131(1)(d) by the Valuation Officer, are without jurisdiction. Learned counsel for the petitioner submitted that by the Direct Tax Laws (Amendment) Act, 1987, amendments were made, inter alia, in sections 131 and 132 of the Act and the scope and effect of these amendments have been elaborated in the departmental Circular No. 551, dated January 23, 1990, which reflected the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of the house situated in Bhopal in the State of Madhya Pradesh, beyond his territorial jurisdiction and, as such, the basic order of the Assistant Director of Income-tax (Investigation), Delhi, as extracted above, as well as the impugned notices suffer from infirmity and are bad in law, as the Assistant Director of Income-tax (Investigation), Delhi, had no jurisdiction in respect to or over the property, i.e., the house situated in the district of Bhopal. The petitioners in para. 5.8 of the petition have clearly stated that respondent No. 1 is neither the Assessing Officer nor has any jurisdiction to make a reference to respondent No. 2 for any purpose under the provisions of the Act. This statement has not been denied specifically by respondent No. 1 in the counter affidavit filed by him and it has not been disclosed that he had been conferred the jurisdiction for the purpose of making enquiry or investigation throughout the territory of India or throughout the territory of the State of Madhya Pradesh. Sub-section (1A) of section 131 of the Act clearly speaks of the jurisdiction in regard to the authority/officer who has reason to suspect that any income has been conceale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fairly, properly and fully investigate into every such accusation against every person, and to take the logical final action in accordance with law." Thus, it is found that the said order of the Supreme Court cannot be treated under section 131(1A) and respondent No. 1 had no reason to suspect on the basis of any material on the record what to say of tangible material legally cognizable and the allegations which find place in the charge sheet in the hawala case fall in the category of hearsay-accusation based on conjectures and surmises, as the Special Court, Delhi, not finding them even prima facie material, discharged Arjun Singh in C. C. No. 16 of 1996 on May 28, 1997. Thus, the investigation in the aforesaid hawala case wherein on the basis of the Jain diaries, seized during the investigation, charge-sheet filed after investigation before the Special judge, Delhi, on the basis whereof Case No. C. C. No. 16 of 1996 was registered, cannot constitute reason to suspect for respondent No. 1 under section 131(1A), as it was only at the investigation stage and on charge-sheet being filed before the Special judge, Delhi, no material was found even for the purpose of framing any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of concealment and it was not even the case of respondent No. 1 that the income has been concealed by petitioner No. 1, Arjun Singh. Learned counsel for the petitioners next submitted that the power under section 131(1A) of the Act is not an independent power but is the power exercisable in aid of proceedings under section 132 of the Act which relate to the undisclosed income of property by any person or class of persons and the impugned action/notice admittedly not being in reference to and in accordance with the requirement of section 132 of the Act, is null and void. Learned counsel for respondent No. 1 submitted that the impugned action was taken in pursuance to the direction of the Supreme Court in the case of Vineet Narain v. Union of India, AIR 1996 SC 3386, wherein the Supreme Court said that the authorities failed to discharge their statutory duties and obligations and on the basis of which, respondent No. 1 took the impugned action for finding out, on the basis of the CBI Investigation in the hawala case against J. K. Jain wherein Arjun Singh was suspected to have been disbursed the hawala money, and he in the same breath, also submitted that the enquiry under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Director-General or Director or Deputy Director or Assistant Director, or the authorised officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. " " 132. Search and seizure.---(1) Where the Director-General or Director or the Chief Commissioner or Commissioner or any such Deputy Director or Deputy Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that -- (a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther documents, money, bullion, jewellery or other valuable article or thing found as a result of such search; (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing ; Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the Revenue : Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, wei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1). (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. Explanation.---For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed -- (i) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets to the person from whose custody they were seized : Provided that if, after taking into account the materials available with him, the Assessing Officer is of the view that it is not possible to, ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rate in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly : Provided further that where a person has paid or made satisfactory arrangements, for payment of all the amounts referred to in clauses (ii), (iia) and (iii) or any part thereof, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case. (6) The assets retained under sub-section (5) may be dealt with in accordance with the provisions of section 132B. (7) If the Assessing Officer is satisfied that the seized assets or any part thereof were held by such person for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eizure and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Assessing Officer. (10) If a person legally entitled to the books of account or other documents seized under sub-section (1) or sub-section (1A) objects for any reason to the approval given by the Chief Commissioner or Commissioner under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents. (11) If any person objects for any reason to an order made under sub-section (5), he may, within thirty days of the date of such order, make an application to the Chief Commissioner or Commissioner, stating therein the reasons for such objection and requesting for appropriate relief in the matter. (11A) Every application referred to in sub-section (11) which is pending immediately before the 1st day of October, 1984, before an authority notified under that sub-section as it stood immediately before that day shall stand transferred on that day to the Chief Commissioner or Commissioner, and the Chief Commissioner or Commissioner may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation, section 133A deals with the power of survey and section 133B deals with the power to collect certain information, etc. Section 132(1) of the Act provides that where the Director General or Director or the Chief Commissioner, or Commissioner or any such Deputy Director or Deputy Commissioner, as may be empowered, in this behalf by the Board, in consequence of information in his possession has reason to believe that any person to whom a summons/notice under sub-section (1) of section 142 was issued to produce or cause to be produced, any books of account or other documents, has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice ; or--any person to whom summons/notice, as aforesaid, has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act; or any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. The officers, i.e., the officers mentioned in sub-section (1) of section 131 are also possessed of the power of the civil court regarding discovery, production of evidence, etc., in relation to the judicial proceedings before them in regard to the assessment and there was no question of repetition of those officers performing judicial function in sub-section (1A) of section 131 of the Act, but the power under section 131(1A), is exercised notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority, for the purpose of the items enumerated in clauses (i) to (v) mentioned therein. But under the power of such search and seizure under section 132 of the Act, the concerned authority cannot exercise power as enumerated in clauses (a), (b), (c) and (d) of section 131(1) of the Act, on the basis of the reasons to believe consequent upon information in his possession in regard to the undisclosed income or property in regard to the income or property which is concealed or is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised officers" in section 131(1A) omitting the four categories of other authorities. The authorities mentioned are the authorities who, consequent upon information in his possession has reason to believe that the person to whom a notice/summons under section 132(1) of the Act was issued for production of books of account or other documents, omitted or failed to produce as required under the summons, and/or on the basis of the notice/summons so issued, such person will not or would not produce the books of account or other documents which will be useful for, or relevant to, any proceeding under the Act or the person in possession of any money, bullion, jewellery or other valuable article or thing represents either wholly or partly the income or property of the person for the purposes of the Act, has not been disclosed, then, the officers mentioned, can enter into the process of search and seizure and they are mentioned in section 131(1A) of the Act as they have formed the opinion having reasons to believe about the existence of things enumerated in clauses (a), (b) and (c) of sub-section (1) of section 132 of the Act. The matter relating to amendment in sections 131(1A) and 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approved valuer and from all this what comes out is that the assessment already made on the basis of the report of the valuer will be reopened though legally not permissible and in this context, reliance was placed in the case of Haji Abdul Gaffar v. ITO [1985] 154 ITR 1 (MP) where the court held that two conditions have to be satisfied before the Income-tax Officer acquires jurisdiction to issue notice under section 148 of the Act in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, i. e., (1) The Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee, (a) to make a return under section 139 for the assessment year, or (b) to disclose fully and truly material facts necessary for the assessment for that year. Reasonable belief that income has escaped assessment is the sine qua non for initiation of reassessment proceedings. Such a belief must be that of an honest and reasonable person based upon reasonable grounds an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is subordinate person from that of earlier opinion of Tahsildar in regard to agriculture income in respect of which, accepting the report, finding of correctness recorded about ten years earlier and it could not even otherwise fall within the category of non-disclosure of material facts by the assessee. In the written submissions dated February 9, 1998, filed by the respondents in paras. 26 and 28, it has been clearly stated by the department that the purpose of investigation/enquiry is to collect primary facts against the petitioners and to find out primary facts about the expenditure on construction. The admission of the department that it was to collect primary facts clearly follows that "it has no reason to suspect" and the entire exercise is devoted towards a fishing and roving enquiry, not otherwise permissible under the law, as it has been held by the Supreme Court in the case of Madhya Pradesh Industries Ltd. v. ITO [1965] 57 ITR 637, 641 (SC). Learned counsel for the petitioners next submitted that the hawala case of the Supreme Court has no concern, bearing or relevance for the issues pending adjudication in the present case. The Department in the preliminary reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst concealed income for which the Department has reasons to suspect, may not be entertained, as the assessee has got the remedy for redress, depending upon initial action to be taken. It has no substance. The petitioners are always free to approach this court and the petition under article 226 of the Constitution can be presented not only after the petitioner's rights have been invaded but also when they have been threatened with immediate peril. The very foundation of concealment of hawala money ceased to survive and even otherwise in the hawala case, allegations of disbursement of the amount are subsequent to the construction of the house. This argument is accordingly sans substance and is rejected. Now, the subsequent aspect which led to amendment of Writ Petition No. 2593 of 1997 and also, filing of the fresh Writ Petition No. 1723 of 1998 by Shri Ajay Singh relates to the notices dated March 31, 1998, issued under section 148(2) of the Act separately to Arjun Singh and Smt. Saroj Singh, the petitioners in Writ Petition No. 2593 of 1997 as well as the notice dated March 31, 1998, issued separately to Shri Arjun Singh as well as to Smt. Saroj Singh under section 17 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opinion which is impermissible under the law. The materials under the law which can be the basis for reason to believe should be such materials which are definite, precise, based on solid, factual foundation and not merely hearsay, gossip, surmises and conjectures. The Legislature acts by keeping in consideration the principles of law judicially propounded. The abuse of power is inevitable, if uncontrolled power is conferred. If the Government Department is given a blank cheque, the day will certainly come when they will overdraw. Thus, limitations on the exercise of power are put on the principle that the unbridled, uncontrolled and unlimited power will put an end to rule of law. On the said principle, Parliament did not give a blank cheque rather to the income-tax authorities to appropriate while exercising power under the Act. The powers which are given by Parliament to the public authority are given to them as it were upon the trust that it is not for the personal benefit of the official concerned but for the benefit of the public that of course is assumed upon which Parliament may grant such power at all, though the statute need not say so. It is a general principle (like t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in court, it ceases to be mere, administrative action as it is for opening or reopening the assessment already done and the vice or violation of principles of natural justice on account of omission to communicate the reasons to believe is not expiated. The following purpose about the requirement of reasons to believe under section 147 of the Act can be propounded as hereunder as the exercise thereunder is after the close of the assessment proceedings and in the present case, after reference under section 144A of the Act : ... that the assessee, the aggrieved party, in the proceeding before the Assessing Officer acquires knowledge of the reason and in a proceeding before the High Court or Supreme Court, since there is no right of appeal or revision, it has an opportunity to determine that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant and the obligation of reason to believe and conveyed to the party concerned operates, as a deterrent against possible arbitrary action by the quasi-judicial or the executive authority invested with judicial powers. The phrase "reasons to believe" is much stronger both in int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly this, the reports of the materials on which reasons to believe are founded, should also be disclosed in the counter affidavit as per the requirement of law laid down in Rajeshwari Birla (Smt.) v. WTO [1979] 119 ITR 629 (Cal), and in the present case, the Department failed to disclose any such cogent and definite material which could be the basis for reason to believe as per the requirement of law. The materials should be in existence at the time of the formation of the opinion in regard to "reasons to believe". At the time of initiation of proceedings under section 148 of the Act, as well as under section 17 of the Wealth-tax Act, only the reasons recorded under section 148(2) of the Act and section 17(2) of the Wealth-tax Act on the basis of cogent and definite material would be seen to ascertain whether the reasons to believe based on material exist or do not exist. The department cannot therefore justify or rely upon the additional materials for forming part of reasons to believe of the Assessing Officer in which regard references cited are : Mohinder Singh Gill v. --Chief Election Commissioner, AIR 1978 SC 851; M. S. Ramaraj v. CAIT [1981] 131 ITR 429 (Ker) ; Asa John Devin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of extreme importance constituting safeguards and not only the Assessing Officer has formed these reasons to believe in the most mechanical manner without application of mind as the sequence of events and the timings would conclusively demonstrate but the materials were also not made available to the Commissioner of Income-tax whose powers to grant sanction for reassessment process sought to be invoked. The two page letter/annexures enclosed with the format, would show that merely vague unspecific conjectures and surmises styled as "reason to believe" alone were forwarded to the Commissioner and not the alleged three reports on which the Assessing Officer is said to have based his reasons. The Commissioner had no opportunity to apply his mind to the actual materials and, accordingly, the sanction accorded by him is vitiated. The Commissioner acted, of course, mechanically in order to discharge his, statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th-tax Act. It could not be the material that some affidavit is obtained from the private valuer who is under the influence, thumb and control of the department or any report is obtained from the Patwari in the face of evidence and the certificate in regard to the agricultural income given by the Tahsildar, who is a gazetted and higher Revenue Officer, and which was accepted by the Inspecting Assistant Commissioner during the course of proceedings pending before him under section 144A of the Act, and also by the Assessing Officer and the same was not challenged by way of revision or otherwise during the span of about ten years. In view of the above discussion, the notices under section 148 of the Act and section 17 of the Wealth-tax Act cannot be allowed to sustain as they suffer from legal infirmity and they deserve to be quashed. The objection of the petitioners was that the notice dated March 31, 1998, under section 148 of the Act for the assessment year 1987-88 as well as the notice under section 17 of the Wealth-tax Act, dated March 31, 1998, for the assessment year 1987-88 issued to the petitioners in Writ Petition No. 2593 of 1997 and the petitioner in Writ Petition No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he end of the assessment year in question but it does not require for service of the notice within ten years from the end of the assessment year in question---R. K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163 (SC). So far as the legal position in regard to service of notice is concerned, the same is not res integra. The question regarding the factual position, whereon the question of jurisdiction hinges, is whether the notice, as alleged, was issued by registered post within ten years from the end of the assessment year 1987-88 which is sine qua non criteria. Here, in the present case, no material has been brought on the record that the notice was sent by registered post as alleged, on March 31, 1998. The annexures P-10 and P-11 indicate that the same were issued on April 1, 1998, and the respondents have failed to establish the fact by filing the postal receipt regarding the despatch of the notice by registered post to all the three petitioners in the two writ petitions, on March 31, 1998. It requires for drawing adverse inference and the case of the respondents cannot be accepted unless the same is proved beyond doubt by bringing cogent material in that regard, on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the notice through the income-tax inspector is also not in consonance with the requirement of section 282 of the Act as the same were not issued and served as if it were the summons issued by the court under the Code of Civil Procedure, 1908. Since the statement is made on affidavit that the notices were issued on March 31, 1998, by registered post, the sending of notices are accepted in the absence of denial. In continuation of the same context it was next submitted that the impugned notices issued under section 148 of the Act and section 17 of the Wealth-tax Act are wholly without jurisdiction and authority of law, in view of the prohibition contained in sections 147 and 149 of the Act as well as section 17 and 17(1A) of the Wealth-tax Act. The impugned notices under the Act, dated March 31, 1998, issued to all the petitioners, i.e., Shri Arjun Singh, Smt. Saroj Singh and Shri Ajay Singh, related to the assessment year 1987-88 and, so far as Shri Arjun Singh and Shri Ajay Singh are concerned, they are assessed to income-tax as well as to wealth-tax but so far as Smt. Saroj Singh is concerned, she was not assessed either under the Income-tax Act or the Wealth-tax Act. The no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more for that year." But, so far as the position of Smt. Saroj Singh is concerned, she was not an assessee for income-tax or wealth-tax and, as such, her case for the purposes of time limit for notice under section 148 is to be covered by sub-clause (iii) of clause (b) of sub-section (1) of section 149 of the Act, which is extracted below, in so far as it relates to the income-tax : "149. (1) No notice under section 148 shall be issued for the relevant assessment year, ---. . . (b) in any other case,-- (i) if four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (ii) or sub-clause (iii) ; (ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees twenty-five thousand or more for that year ; (iii) if seven years, but not more than ten years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year," And likew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years have elapsed from the end of the relevant assessment year. Here in the present case, four years have elapsed and, as such, under the said clause, no such notices were issuable but the requirement under sub-clause (i) of clause (a) of sub-section (1) of section 149 is subject to sub-clauses (ii) and (iii) and it has to be analysed whether the case of the petitioners falls under sub-clause (iii) of clause (a) of section 149(1) of the Act which says--if seven years but not more than ten years have elapsed from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year. The notice related to the period-assessment year 1987-88 and the ten years from March 31, 1987, are completed on March 31, 1997, whereas the notices impugned are alleged to have been issued on March 31, 1998. Likewise is the position of Shri Ajay Singh, provided the quantum of the amount which has escaped assessment from the assessment year 1987-88 amounts to or is likely to amount to rupees one lakh or more for that assessment year. In the impugned notice, neither it has been disclosed as to und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above, the impugned notices issued under section 148 of the Act and section 17(1) of the Wealth-tax Act are without jurisdiction and no action thereupon can be taken as the same are without jurisdiction for the reasons stated above. The next question raised was the non-setting of the material on the basis of which the belief was arrived at under sections 147 and 148 of the Act, in the counter affidavit and it was submitted by learned counsel for the respondents that in the counter affidavit, the facts and material were not disclosed as it would cause great prejudice to the interests of the Revenue and would presume the object of reopening of the assessment. Thereafter when the arguments were concluded, an application on behalf of respondents Nos. 1 to 6 (I. A. No. 2938-W/98) was moved before the court for taking certain facts and documents on the record. The respondents in the application I. A. No. 2938-W/98, have merely stated the belief but did not set out the material on the basis of which he has arrived at such belief and there was nothing on the basis of which the court could satisfy on the affidavit that he has reason to believe that there has been escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued as no assessment proceedings were pending and the assessment of the petitioner having been concluded and closed, the power under section 131 of the Act was neither available nor could be exercised, at that stage ; and, as such, the report, if any, is, therefore, void ab initio and in law it has to be treated as non est, though the same has not been brought on the record of the writ petition. The said report does not constitute reasons to believe whatsoever as the same is absolutely vague, utterly conjectural and speculative. The report could not be based on facts which might be misleading as regards cultivation of 11 years ago and there is no reasonable scientific, definite and objective method by which the said officers could have so ascertained the same after the lapse of long period of about a decade. This cannot be said to be a material whatsoever, as to what was the extent of cultivation during the previous year relevant to the concerned assessment year 1987-88, especially in the background that regarding it, at the time of original assessment for the year 1987-88, a report of the assessment done under section 143(3) read with section 144A of the Act was submitted where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been alleged that at least investment of Rs. 5 lakhs has been made in constructing the boundary wall, and the same has not been shown by the approved valuer in his report, which is false and baseless assumption of facts which do not exist at all and is therefore misleading. The petitioner categorically submitted that there is no boundary or compound wall whatsoever constructed around the house and the land appurtenant thereto and consequently, the question of its non-mention in the report of the approved valuer does not arise. Not only this, in the report, the valuer has specifically stated in annexure Form 01 against column No. 16 that no compound wall has been constructed and no boundary wall whatsoever was constructed around the house or land appertaining thereto. The Assistant Director of Income-tax (Investigation), Delhi, has assumed the existence of boundary wall without any basis whatsoever and the question of making any undisclosed investment in the construction of boundary wall does not arise, at all. The report of the Assistant Director of Income-tax (Investigation), the "reasons to believe" of the Assessing Officer and the affidavit before this court are therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax, Bhopal, as provided for in section 151 of the Act. In the affidavit filed by respondent No. 7, Shri D. C. Agrawal, in reply to the amended petition, in para. 2, it was stated that respondent No. 7, Shri D. C. Agrawal, neither directed nor proceeded nor prevailed upon any officer much less the Assessing Officer to initiate proceedings under section 147/148 of the Act and other allied provisions. The Assistant Commissioner of Income-tax, Bhopal, who recorded his satisfaction for initiating proceedings under section 147/148 of the Act, thus, did so independently after forming opinion in respect of the subject-matter and with the approval of the Commissioner of Income-tax, Bhopal, and so far as the action taken by the assessment wing at Bhopal is concerned, it is an independent action taken by the Commissioner of Income-tax, Bhopal. and his officers under the provisions of the Act' in view of the independent satisfaction recorded by them in their files, and these facts indicate that the Assistant Director of Income-tax (Investigation), Delhi, was instrumental in the initiation of the proceedings under section 147/148 of the Act. In para. 6 of the aforesaid application, the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the construction of the boundary wall and fencing in the previous year relevant to the assessment year 1987-88 does not arise and further the question of the registered valuer not disclosing the same also does not arise. The water pump, RCC work for overhead storage tank, filling up and levelling of the land for construction of the main building has already been dealt with in the approved valuer's report. As regards tubewell, there is absolutely no evidence that the same was dug and installed in the previous year relevant to the assessment year 1987-88. Further, there is no material to show prima facie any investment on filling and levelling of land other than that covered in the main building and also there is absolutely no material of any investment in the alleged filling and levelling of the land in the previous year relevant to the assessment year 1987-88 so also of the plantation. There are no servant quarters at all. The rear portion of the garage is being used as servant quarters. These are merely hearsay and baseless assumptions and therefore do not constitute material and so not amount to "reasons to believe" and there is no material regarding investment of more than Rs. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to time over a period of nearly ten years were planted by incurring only nominal expenditure, but there is absolutely no material whatsoever much less "reasons to believe" that the plantation worth Rs. 5 lakhs was done and that too in the previous year relevant to the assessment year 1987-88. Thus, it is clear that there has been total non-compliance of the provisions of section 147/148 of the Act and also the provisions of section 151 of the Act and section 17 of the Wealth-tax Act, in relation to approval. Both, the Commissioners of Income-tax and Wealth-tax have mechanically purported to grant approval for reassessment and his satisfaction is neither legal nor objectively based on relevant and full material, as is established that all relevant materials including reports were not even placed before nor did he have time to apply his mind independently and objectively, as it was done so without the delay for sending his approval as the file was sent to him on March 31, 1998, and the approval was given the same day and the file reached back the office of the Assessing Officer the same day. Learned counsel for the petitioners submitted that the point of difference in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase against Arjun Singh which after his discharge from the Case C. C. No. 16 of 1996, dated May 28, 1997, becomes non est and, as such, no proceedings on the basis of the said notice could be allowed to be proceeded with further. The issuance of the notices under section 148 of the Act and section 17 of the Wealth-tax Act to Arjun Singh, Smt. Saroj Singh and Shri Ajay Singh clearly establishes the non-bona fide on the part of the respondents as they did so after having realised after discharge of Arjun Singh from the hawala case, the Department would not be successful in carrying out the enquiry/investigation against Arjun Singh and therefore, the order was passed for reopening of the long closed and finalised assessment in respect of income-tax as well as wealth-tax. Thus, if the Department wanted to proceed on some objective material then, it has not been explained as to why it took such a long span of about ten years and if there was some such substance and material, the same could have been opened within four years and the quantum of limit for four years would not have come in the way of the Department as assessment could be opened for the greater amount during this limit of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment relating to the income-tax as well as wealth-tax and also proceeding against Smt. Saroj Singh who was neither assessed to income-tax nor wealth-tax as she was not assessable being the recipient of agricultural income. The hawala money transaction charge against Shri Arjun Singh related to the period April, 1988, to March, 1990, and August, 1990, and the wealth-tax assessment which included the house tax, was done on April 3, 1992, i.e., subsequent to the hawala case transaction of money charges and the reply of the respondent was that the Jain hawala case before the Supreme Court was a subsequent development and it vanished on discharge of Shri Arjun Singh from charges. Learned counsel for the petitioners next addressed the court on the mala fides and the gross abuse of the statutory powers especially by respondent No. 7, Shri D. C. Agrawal, Assistant Director of Income-tax (Investigation), Delhi, who also moved an application for expunction of the allegations made against him in the writ petition, which application was dismissed by this court, wherein he stated that he has got the highest regard for the majesty of law and the judiciary including this court and has neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to which he submitted in his reply that he mainly submitted his status report about the investigation/enquiry including the present status of the writ petition pending before the Madhya Pradesh High Court to the Director of income-tax, Commissioner of Income-tax, Bhopal, and the Deputy Commissioner of Income-tax Bhopal. This is a normal procedure followed in submitting the enquiry by the investigation wing of the Department to the higher authorities and the assessing authority has to report about the progress of investigation/enquiry in such cases where enquiries are undertaken under section 131(1A) and also to obviate any point of limitation which may arise in the opinion of the Assessing Officer. He further submitted that the interim order of the High Court, dated February 10, 1998, and subsequent orders could not have protected limitation from expiring in respect of such other material available against the petitioners which did not form the subject-matter of challenge before the High Court in the case of the petitioners or other co-owner. It establishes that the material was supplied by Shri D. C. Agrawal to the Assistant Commissioner of Income-tax, Circle-I, Bhopal, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, B-ward, Bhopal, under section 143(3) of the Act and Smt. Saroj Singh since was not having income from the taxable source, i.e., other than agriculture, was not assessed. Likewise Shri Arjun Singh was also assessed to wealth-tax for the assessment years 1981-82, 1982-83,1983-84, 1984-85, 1985-86, 1986-87, 1987-88, 1988-89, 1989-90, 1990-91 and 1991-92 by the Assistant Commissioner of Wealth-tax, Additional Circle, Bhopal, on April 3, 1992, under section 16(3) of the Wealth-tax Act holding that the reference to the valuation cell was not necessary and also Shri Ajay Singh was also assessed to wealth-tax for the assessment year 1987-88 by the Wealth-tax Officer, B-ward, Bhopal, on September 28, 1987, under section 16(3) of the Wealth-tax Act and these assessments relating to wealth-tax not having been challenged by the Department in any forum available under the law, became final. The political status and rivalry time and again landed Shri Arjun Singh and his family members in trouble as he faced harassment when a public interest petition was filed in the High Court (M. P. No. 3909 of 1987) by his political rival Shri Kailash Joshi relating to the affairs of Churhat Children ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation of some crime in Crime Case No. RC-5(S)/91-SIU(V)/CBI, New Delhi, under section 120B of the Indian Penal Code, sections 3 and 4 Terrorist and Disruptive Activities (Prevention) Act, 1987, and section 56 read with section 8(1) of the Foreign Exchange Regulation Act, 1973, referred to as the hawala case which was directed against J. K. Jain but the Jain diaries led to involvement of the political leaders, inter alia, others on the basis of the names in the Jain diaries in abbreviated form, and the matter may not be hushed up in the said case measures were taken by filing final report PIL petitions (Criminal) Nos. 340-343 of 1993 (Vineet Narain v. Union of India, AIR 1996 SC 3386), in the Supreme Court alleging failure of the Government agencies in the performance of their duties investigating crime arising out of Jain diaries wherein the Supreme Court on January 30, 1996, passed an order at the stage when some charge sheets were filed before the Special Judge, Delhi, including Shri Arjun Singh (C. C. No. 16 of 1996) where charge-sheet was under section 120B of the Indian Penal Code, and section 5(2) read with section 5(1)(d) of the Prevention of Corruption Act, 1947, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cost of construction of the house and sources of investment in the house were raised before the sovereign body-Rajya Sabha by means of a question by one of the members and the same was replied to by the State Minister for Finance on March 10, 1992, which was to the following effect : "The High Court of Madhya Pradesh in its judgment dated 20th January, 1989, in the case of Kailash Joshi v. State of Madhya Pradesh had made certain observations regarding building constructed near Kerwa Dam, Bhopal, by the former Chief Minister of Madhya Pradesh, Shri Arjun Singh. The cost of construction and sources of investment in the said building were examined by the Income-tax Department in the course of relevant assessment proceedings and it was found that the sources of investment were satisfactorily explained and the cost declared in the return was also reasonable." In para. 13 of the preliminary reply filed on behalf of respondents Nos. 1 and 2, it was stated that the Jain hawala case before the Supreme Court is a subsequent development in point of time. It by itself indicates that the Department proceeded against the petitioners on the basis of the Jain hawala case and not on sati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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