TMI Blog1988 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... rried on business at Ranchi under the same name. The late Lakshmi Narain as the karta of the family borrowed money from various persons for the purpose of business. The Raja of Udaipur (Madhya Pradesh) had advanced loans to the said family which was duly recorded in the books of the family. A partition took place in the family on April 3, 1954, and all the members were allotted properties in accordance with their respective shares. Thereafter, the late Lakshmi Narain, the petitioners along with late Ram Narain and five other persons constituted a partnership firm which took over and continued the business of the family under the name and style of Lakshmi Narain Ram Narain. The loan received from the Raja Saheb of Udaipur was shown as a liability in the books of the partnership firm and amounted to Rs. 6,52,135 (principal and interest). The aforesaid partition was duly recognised and accepted under the provisions of the Indian Income-tax Act, 1922, and the firm was assessed under the Indian Income-tax Act, 1922, as a registered firm. On December 28, 1954, an agreement was executed by and between the Raja Saheb of Udaipur and the late Lakshmi Narain, whereby the aforesaid loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated May 10, 1957, made under section 23(3) of the Indian Income-tax Act, 1922, assessed the deceased for the said assessment year 1955-56 in his individual capacity. The petitioners received a letter dated July 23, 1971, addressed to the legal heirs and successors of the late Lakshmi Narain alleging, inter alia, that on perusal of the agreement dated December 28, 1954, it appeared that the loan aggregating to Rs. 6,85,151 was assigned by the Raja Saheb in favour of the late Lakshmi Narain in consideration of special services rendered by the late Lakshmi Narain, and, therefore, the said amount having been received on account of special services rendered, it was taxable under the Indian Income-tax Act, in the previous year relevant to the assessment year 1955-56. The said amount having escaped assessment, respondent No. proposed to initiate a proceeding under section 147 of the Income-tax Act, 1961. By the aforesaid letter, the petitioners were given an opportunity of being heard against the proposed initiation of proceedings under section 147 of the Act. The petitioners submitted their reply and objections to the proposed initiation of proceedings by two separate letters dated A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56. In the premises, your petitioners sought an adjournment of the said hearing. Thereafter, from time to time, the hearing of the said matter was adjourned and pursuant to the enquiries made by your petitioners and inspection of the records allowed to your petitioners by respondent No. 1, your petitioners learnt, inter alia, as follows : (i) That the said purported proceedings and/or enquiry were initiated by respondent No. 1 pursuant to and in compliance with the directions contained in letter No. Inv(C)-1171/65/1603 dated April 23, 1969, of the Commissioner of Income-tax, respondent No. 4 herein, and letter No. Inv(C)-1171/65/364 dated June 16, 1971, of the Additional Commissioner of Income-tax, Bihar, Patna. Your petitioners called upon the respondents to produce the said letters dated April 23, 1969, and June 16, 1971, at the time of hearing of this application. Respondent No. 1 all along was of the view that the said loan did not constitute income of the deceased and could not be brought to assessment. In the premises, respondent No. 1, by his letter No. Con/69-70/273 dated May 8, 1969, and letter No. Nil dated June 18, 1971, expressed his doubt as to the taxability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposals were submitted to the Central Board of Direct Taxes for initiation of the said purported proceedings for the said assessment year. It also appeared that on March 27, 1972, the Commissioner of Income-tax, Bihar, approved the proposal for initiation of the said purported proceedings on alleged reply received from the Central Board of Direct Taxes. (iv) That, on the basis of the said alleged approval granted by the Commissioner of Income-tax as aforesaid, respondent No. 1, issued several notices all dated March 27, 1972, under section 148 of the said Act for the assessment year 1955-56 in respect of the deceased on your petitioners and respondent No. 7 separately. (v) That said notices dated March 27, 1972, under section 148 of the said Act issued by respondent No. 1 were never served at all and in accordance with (sic) on your petitioners and/or on any other legal heirs and representatives of the deceased nor were the said notices served upon respondent No. 7. It further appeared from the said inspection that the postal authorities did not serve the said notices and the said notices were returned by the postal department with the remark "unserved". It further appeared th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shmi Narain was made on May 10, 1957, in the status of an individual which was later on reopened for inclusion of the sum of Rs. 6,52,135 being the loan and the interest relinquished by the Raja Saheb of Udaipur in favour of Lakshmi Narain in consideration of special services rendered by late Lakshmi Narain. The petitioners were called upon to submit their objections, if any, to the proposed reassessment for the said assessment year. To this communication, the petitioners filed their objections dated January 23, 1979, raising various objections and disputing the legality and validity of the service of the said notices under section 148 of the Act. However, the petitioners received a letter dated December 16/17, 1980, from respondent No. 2 along with a draft assessment order, both under section 144B of the Act for the assessment year 1955-56, calling upon the petitioners to file objections, if any, to the said proposed draft assessment order whereby it was held that the said loan and interest thereon aggregating to Rs. 6,52,135 constituted income of the late Lakshmi Narain for the said assessment year which was liable to be assessed. The petitioners, thereafter, by their objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiate proceedings against the said Hindu undivided family, the purported notice could not be issued against the individual. In any event, even if it be assumed that in March, 1972, a fresh proposal was sent to the Commissioner of Income-tax and fresh approval was given by the Board to reopen the assessment against the individual, there were no fresh reasons recorded for proceeding against the individual nor were any such reasons disclosed when they were called upon to do so. There was, therefore, no recorded reasons on the basis of which the approval to reopen the case of the individual could be granted. Thirdly, it was submitted that on the facts of the case, the Income-tax Officer could not have any material, nor could he have any reason to believe that the late Lakshmi Narain Jaiswal had any income chargeable to tax which had escaped assessment. In fact, in his letter dated January 28, 1972, the Income-tax Officer expressed his doubt and difficulties in bringing the said amount to tax. Lastly, it was submitted that the notices under section 148 of the Act were not served upon the petitioners in accordance with law. No genuine attempt was made to serve the notices upon the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal authorities "addressee absent : returned to sender". In such a situation, the notices were served in accordance with the provisions of the Code of Civil Procedure. Learned counsel for the petitioners submitted that no genuine efforts were made to serve the petitioners by registered post. The petitioners are all residents of Ranchi and their addresses were known to the Income-tax Officer. There was, therefore, no reason why they could not be served and why it became necessary to effect service by affixture. It is not disputed before me that the service of notice was effected by affixation on March 30, 1972. It was also not seriously disputed that the notices were attempted to be served by registered post, but the same could not be done and the registered covers were returned unserved. In these circumstances, I do not think it is possible for this court, in exercise of the writ jurisdiction, to go into questions of fact as to what attempts were made by the respondents and what were the circumstances which did not make it possible for the respondents to serve notices by registered post. I am satisfied that the respondents did attempt to serve the petitioners with notices by regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Reliance was placed upon the judgments reported in CIT v. K. Adinarayana Murthy [1967] 65 ITR 607 (SC) and Marghabhai Babarbhai Patel v. R. M. Parikh, ITO [1970] 78 ITR 418 (Guj). The respondents did not dispute the legal proposition that if approval was granted for initiation of proceedings against the Hindu undivided family, the proceeding could not be initiated against the individual. The respondents, however, referred to the order sheet in the original file dated March 17, 1972, which discloses that there was a mistake in the description of the status of the assessee and "Hindu undivided family" had been mentioned instead of "individual". When this mistake was discovered by the Income-tax Officer, he sent another proposal on March 15, 1972 (page 75 of the original file) with the approval of the Commissioner. The approval of the Commissioner does not bear any date, but the Central Board of Direct Taxes granted approval to the said proposal. Thereafter, telegram was sent on March 25, 1972, which is at page 72 of the file. It, therefore, appears that when the proposal was originally sent for approval of the Board, a mistake had crept in, since the assessee was shown as Hindu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the Commissioner of Income-tax or the Central Board of Direct Taxes, must consider the recorded reasons and grant approval only after being satisfied with the reasons recorded by the Income-tax Officer and that the power could not be mechanically exercised treating it as a mere formality. In the instant case, however, it was contended that the reasons had already been recorded when the proposal was initially submitted on December 4, 1971. Those reasons hold good. There was a mistake in the status of the assessee when the proposal was sent earlier. The subsequent proposal sent by the Income-tax Officer was merely for the purpose of correcting the status of the assessee. Learned counsel for the respondents appears to be right in his submission. The Income-tax Officer had recorded his reasons while submitting the proposal for initiation of proceedings under section 148 of the Act on December 4, 1971. Though the reasons recorded justified reopening of the assessment of the late Lakshmi Narain for the assessment year 1955-56, by mistake the status of the assessee was shown as Hindu undivided family. This was an apparent error because the reasons suggest that there was a case for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 ITR 437 (SC). He then submitted that before issuing a notice under section 148 of the Act, the Income-tax Officer is obliged to record his reasons for doing so as provided under section 148(2) of the Act. The Commissioner of Income-tax or the Central Board of Direct Taxes, accordingly, as the case may be, must be satisfied on the reasons so recorded by the Income-tax Officer under section 148(2) of the Act that it is a fit case for the issuance of the said notice: Johri Lal (HUF) v. CIT [1971] 88 ITR 439 (SC), Union of India v. Rai Singh Deb Singh Bist [1973] 88 ITR 200 (SC) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). The submission forcibly urged before me was that the Income-tax Officer has to apply his mind and form his own belief that the conditions precedent for the assumption of jurisdiction under section 147 of the Act are satisfied. It was submitted that in the instant case, the Income-tax Officer concerned did not form his own belief but submitted a proposal on the direction of the Commissioner of Incometax, even though he was himself satisfied that there was no case for reopening the assessment under sections 147 and 148 of the Act. The proceedings, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t found. Letter No. Inv(C)-1171/65/582 of the Commissioner of Income-tax dated April 13, 1971, directing the Income-tax Officer to submit a proposal under section 147 of the Act in the case of the late Lakshmi Narain was also not found in the file. The proposal submitted by the Income-tax Officer on December 4, 1971, as well as the approval granted by the Commissioner of Income-tax was produced before the court and a copy thereof was also given to counsel for the petitioners. The letter of the Commissioner of Income-tax bearing No. IT-VL-10/71/65380 dated January 25, 1972, has been annexed as annexure-B to the counter-affidavit filed on behalf of the respondents. But the most crucial document is the letter No. 1742 written by the Income-tax Officer to the Commissioner of Income-tax referring to the correspondence exchanged on the subject and the circumstances in which he had submitted the proposal on December 4, 1971, for initiation of proceedings under section 147 of the Act. Since that document is crucial and the petitioners heavily relied upon the aforesaid letter, the letter is quoted in extenso: "Sir, Sub : Proposal under section 147(a) for assessment year 1955-56 in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer, Special Circle, Ranchi." It will be seen that this letter dated January 28, 1972, was produced by the respondents and was contained in the original file. The authenticity of this document is not disputed and could not be disputed since it was produced from the file maintained by the respondents. This letter refers to the letter of the Commissioner of Income-tax dated April 23, 1969. It also refers to the letter of the Income-tax Officer dated May 8, 1969, addressed to the Commissioner of Income-tax and expressing his opinion "that the amount now cannot be brought under assessment". The letter then refers to the letter of the Additional Commissioner of Income-tax dated June 16, 1971, informing the Income-tax Officer that the amount "was found to be taxable and directed me to submit a report about the ownership of the amount and in whose hand the amount was taxable". It, thereafter, refers to the detailed report dated June 18, 1971, wherein the Income-tax Officer "had expressed my doubt and difficulties regarding taxability of the amount and had asked for instructions as well as the assessment year for which proceedings were to be reopened.". It then refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer, vide his letter dated May 8, 1969, expressed his view that, in his opinion, the amount could not be brought under assessment. It also appears that the Additional Commissioner of Income-tax held a view otherwise. It also appears that on June 18, 1987, the Income-tax Officer, who had ultimately submitted a proposal under section 147 of the Act, also expressed his doubts and difficulties regarding taxability of the amount in question and asked for instructions. Thereafter, he received directions from the Commissioner of Income-tax, vide letter dated July 13, 1971, to submit a proposal under section 147 of the Act. In the case of the late Lakshmi Narain for the assessment year 1955-56 and in obedience to the aforesaid direction, he submitted a proposal for initiating the proceedings under section 147 of the Act. I have, therefore, no doubt in my mind that the concerned Income-tax Officer never formed the requisite belief. In fact, his view as also the view of his predecessor-in-office was that the assessment could not be reopened and that the amount in question could not be brought to tax. He was, however, overruled by the Commissioner of Income-tax who directed him to submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve that those reasons justified the initiation of proceedings under section 147 of the Act. The requisite belief under section 147 of the Act must be that of the Income-tax Officer concerned and not of any other officer. If the Income-tax Officer does not form his own belief, but merely acts at the behest of any superior authority, it must be held that the assumption of jurisdiction under section 148 of the Act was bad for non-satisfaction of the conditions precedent. I am, therefore, of the view that the proceedings initiated pursuant to the proposals submitted by the Income-tax Officer dated December 4, 1971, and March 15, 1972, are bad in law. The notices issued under section 148 of the Act on March 27, 1972, are, for the same reason, bad in law and the proceedings taken pursuant thereto, are invalid and of no consequence. The notices dated March 27, 1972 (annexures-8 to 8-F), as also proceedings taken pursuant thereto are hereby quashed. In view of my above finding, I do not consider it necessary to go into the question as to whether there was any material on which the Incometax Officer could form his belief that the amount in question constituted the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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