TMI Blog1984 (11) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings under section 34(1) of the Indian Income-tax Act, 1922 ? " The reference relates to the assessment of one P. K. Divekar, now deceased, for the assessment year 1947-48. The original assessment was made on March 19, 1952. On March 27, 1956, a notice was served upon the assessee under section 34(1A) of the Indian Income-tax Act, 1922, by the Income-tax Officer (Central), Bombay. It is not on record and its date is not known. On February 28, 1957, the Income-tax Officer made the reassessment order. In it he recorded that subsequent to the original assessment made on March 19, 1952, information was received that there had been escapement of income and action under section 34(1A) of the Indian Income-tax Act, 1922, was taken with the previous sanction of the Commissioner of Income-tax (Central). There was information that securities worth Rs. 3,00,000 were purchased by the assessee in the name of one Padmanabha Ganesh Patankar, the assessee's father-in-law, who had died in 1949. Patankar was merely an agriculturist paying land revenue of only about Rs. 200 per annum. The yield of his land was ascertained to be about seven khandis of paddy. He had two daughters, Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. " The Tribunal held: " We have examined above in detail the relevant facts on which much can be said on both sides. On balance, however, we are induced to hold that the consideration of Rs. 3 lakhs odd for the purchase of the Government loan was paid by the assessee in the name of Patankar. The facts before us can be individually explained away by the assessee. When, however, we take a collective view, we are inclined to reject the story of the assessee. We, therefore, uphold the order of the Appellate Assistant Commissioner on the point and dismiss the appeal." When this reference reached us on September 19, 1983, after hearing some arguments, we set out the facts, we reframed the first question in the manner stated above and we directed the Tribunal to give a decision upon the first question as reframed: We stated : " At one stage, we had considered whether we could apply our mind to this question without having the benefit of the Tribunal's views thereon. But, on further consideration, we think it advisable to follow the normal procedure and have the Tribunal's decision on this plea. On receipt of the decision on this plea, the High Court will go into the said q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 1953, regarding the purchase of securities by Shri Patankar. This was only an inference drawn by us ...... In July, 1953, the Income-tax Officer obtained a statement of wealth from the assessee. " The Tribunal does not state whether the Income-tax Officer who so came to know or who obtained the statement of wealth from the assessee was the Income-tax Officer (Central), who issued the notice under section 34(1A) of the Indian Income-tax Act, 1922, or the Income-tax Officer, Kolaba District, who dealt with Patankar's assessments. In March, 1954, the supplemental statement has stated that the Incometax Officer examined Manoramabai, wife of the assessee. The supplemental statement has noted that at the time of the finalisation of its draft, it was suggested on behalf of the assessee that the Income-tax Officer so mentioned was the Income-tax Officer, Kolaba, and this should be made clear. The Tribunal was unable to make the clarification because it appeared to it that both the Income-tax Officer, Kolaba, as well as the Income-tax Officer (Central) had made enquiries before the issue of the notice. On March 31, 1954, the solicitor (Mr. M. V. Jayakar) concerned with the drafti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the reassessment proceedings. In our opinion, the Income-tax Officer was fully justified. The materials placed would show that there was information that Shri Patankar had invested nearly Rs. 3 lakhs in the purchase of Government securities. Enquiries had been made regarding the economic status of Patankar. These enquiries were by the examination of the two daughters of Shri Patankar, the examination of the solicitor who drew the will and the Inspector's report on local enquiries regarding the economic status. On the basis of these enquiries, the Income-tax Officer came to a finding that Shri Patankar was not a rich man. Therefore, he could not have purchased these Government securities. These inferences drawn by him are contained in the report made by him to his superior. Given the facts and circumstances, he informed that the only person who could have purchased these Government securities would be the assessee. For drawing this inference, there was sufficient material. During his lifetime itself, the late Patankar had assigned the collection of interest to the assessee. Before making the purchase of the securities, he had made a will under which the assessee's wife would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that this was an important safeguard. The assessee took before the Appellate Assistant Commissioner the plea that the proceedings under section 34(1A) of the Indian Income-tax Act, 1922, had not been validly initiated. He reiterated the plea at least in his memo of appeal to the Tribunal. Neither before the Appellate Assistant Commissioner nor before the Tribunal did the Income-tax Officer (Central) produce the memorandum recording his reasons for reopening the assessment and seeking the Commissioner's sanction to do so., This memorandum is obligatory under the first proviso to section 34(1A). It is the primary evidence of the reasons which led the Income-tax Officer (Central) to form the belief that the assessee's income had escaped assessment and it must necessarily indicate the material upon which he had come to form such belief. Even after we sent the matter back to the Tribunal, the Revenue did not produce this memorandum. Nowhere upon the record is there even so much as a statement of the Income-tax Officer (Central) indicating the reasons for and the materials upon which he formed the belief that the assessee's income had escaped assessment. In the absence of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing in that statement, the summary of which by the Tribunal has been reproduced above, which could possibly have led the Income-tax Officer (Central) to form the belief that the assessee's income had escaped assessment. The Tribunal appears to have confused the Knowledge of the Incometax Officer, Kolaba, with the knowledge of the Income-tax Officer (Central). The enquiries into Patankar's economic status, through the examination of Manoramabai and local enquiries by an Inspector, were made by the Income-tax Officer, Kolaba. He drew the inferences that Patankar was not a rich man and could not have purchased the securities and communicated them in his report, not to his superior but to the Inspecting Assistant Commissioner (Central). There is nothing on record which indicates that the report made by the Income-tax Officer, Kolaba, to the Inspecting Assistant Commissioner (Central) or the annexures thereto were before the Income-tax Officer (Central) when he issued the notice under section 34(1A) of the Indian Income-tax Act, 1922. There was no warrant for the Tribunal's supposition that " under these circumstances, it is quite possible that the Income-tax Officer could be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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