TMI Blog1989 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to defaulter bearing No. TRO-IV/121/A/88 dated May 31, 1988, issued by the Tax Recovery Officer under rule 2 of the Second Schedule to the Act dated May 31, 1988, which is at annexure "E" to the special civil application and that to quash and set aside the income-tax assessment order passed by respondent No. 3 dated March 5, 1986, for the dissolved firm of Jagatbhai Punjabhai for the assessment year 1980-81. The short facts of the case for the purpose of discussion are that the petitioner is one of the partners of the partnership firm called "Messrs. Jagatbhai Punjabhai". This firm consists of three persons by name Mr. Vikrambhai Punjabhai Palkhiwala, Mr. Jagatbhai Punjabhai Palkhiwala and Mr. Punjabhai Mohanlal Palkhiwala. The dispute relates to the assessment year 1980-81. On March 30, 1983, the Income-tax Officer passed an assessment order holding that the said firm has from unexplained investment interest income of Rs. 1,31,050 and an expenditure of Rs. 3,715. The Income-tax Officer determined the taxable income at Rs. 8,55,391. Aggrieved by this order, the petitioner herein filed Income-tax Appeal No. 323-1/4-G/assessment year 1980-81 for the firm of Messrs. Jagatbhai on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated March 5, 1986, is passed without giving an opportunity to the petitioner of being heard and the said order is ex facie contrary to the facts, the said order is required to be quashed and set aside and all consequential notices issued for recovery of the tax, such as notice of demand under rule 2 dated May 31, 1988 (annexure "E" to the petition), notice to recover Rs. 10,50,952 dated April 3, 1989 (annexure "B" to the petition), and notice under rule 73 of the Second Schedule of the Act dated April 12, 1989, to show cause why warrant of arrest should not be issued, are consequentially required to be quashed and set aside. The respondents have filed an affidavit-in-reply refuting all these allegations and asserting that the assessment order was legally passed after proper service of notice on the partnership firm and the petitioner is bound and liable to pay the tax dues, that the writ proceeding under article 226 is not maintainable inasmuch as the petitioner has effective and efficacious remedy by way of appeal, which remedy the petitioner has already resorted to and that there is no violation of any statutory provisions in issuing the notice under rule 73 of the Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rassessed and that such underassessment has occurred by reason of either: (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year; he can reassess such income. Thus, the abovesaid two conditions are conditions precedent for resorting to section 34 and there must also be satisfaction of the officer concerned that there are reasons to believe that the abovesaid conditions are not violated. Speaking for the majority view (Justice S. K. Das, Justice Das Gupta and Justice N. Rajagopala Ayyangar), Justice Das Gupta observed in the above-said decision as follows (at p. 207) : "Under section 34, both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. In proceedings under article 226, the High Court can investigate into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said certificate. Rule 73 of the Second Schedule to the Income-tax Act reads as follows : " 73. (1) No order for the arrest and detention in civil prison of defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied (a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Tax Recovery Officer, dishonestly transferred, concealed or removed any part of his property, or (b) that the defaulter has, or has had since the drawing up of the certificate by the Tax Recovery Officer the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. (2) Notwithstanding anything contained in sub-rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee concerned is informed under what rule the notice is issued and the said rule clearly spells out the ground on which the Tax Recovery Officer has to get satisfied. It is not as if this notice issued under rule 73 straightaway authorises the officer concerned to arrest and detain the assessee as if the reasons mentioned in rule 73(1)(a) and (b) are there for the officer to order the arrest and detention. The notice which is at annexure "A" to the special civil application clearly spells out that such notice is issued since the assessee has failed to pay the amount of arrears specified in the certificate. Such a show-cause notice, as we have stated above, is a procedure adopted by the Department and that is why rules 73(3), 73(4) and 74 make it clear that the Department is particular to have the defaulter present before the Officer to show cause. Rule 75 deals with the custody of the assessee, pending hearing. These rules have nothing to do with the power of the officer to arrest and detain the defaulter in civil prison but they are intended to see that the defaulter appears before the officer concerned for giving an explanation as to why an order of arrest and detentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha dated 11th December, 1970, when in reply to unstarred question No. 4289, the Minister for Revenue and Expenditure assured : "(a) and (b), suitable instructions (to the effect that where the income determined on assessment was substantially higher than the returned income, say, twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision of the appeals, provided there were no lapse on the part of the assessee) have been issued by the Central Board of Direct Taxes to all Commissioners of Income-tax in view of the recommendation made by the informal Consultative Committee of the Ministry." In this connection, Mr. Vakil also cited the decision in the case of Hindusthan Rubber Works Ltd. v. ITO [1971] 81 ITR 397. In that case, the Calcutta High Court observed (headnote): "Under section 220(6) of the Income-tax Act, 1961, the Income-tax Officer should keep a demand in abeyance 'so long as the appeal remains undisposed of'. The Income-tax Officer has discretion, for good reasons, not to grant any stay at all, he has also the power to impose such conditions as he considers necessary, for example, security might be required or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that, the Tax Recovery Officer served the notice of demand on August 23, 1988. The assessment order in this case seems to have been served on October 3, 1988. In the appeal, it is stated by the petitioner that the order for stay under section 220(6) has been prayed for. On this factual aspect, the petitioner submits that when a request has been made under section 220(6) and the same is pending, a notice under rule 73 is not justified. To complete the facts, it is seen that a stay petition filed by the petitioner was rejected. Taking into consideration all these aspects of the case, we do not find that there is anything in section 220(6) debarring the officer concerned from refusing grant of stay. The mere filing of an appeal or an application for stay in such an appeal will not ipso facto grant stay of further proceedings in a tax recovery matter. The decision cited above, Hindusthan Rubber Works Ltd. v. ITO [1971] 81 ITR 397 (Cal), does not take away the right of the officer concerned to reject the stay application. On the other hand, that decision only states that since the officer has granted the stay originally under section 220(6), he cannot, without sufficient-cause refuse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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