TMI Blog1980 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction of the Commissioner of Income-tax, West Bengal-III, had been obtained before the notice was issued. It was the case of the appellant that he had truly and fully disclosed all -material facts in the return filed by him for the assessment year 1962-63, and had produced all evidence in support of the return before the ITO at the time of hearing of the assessment proceedings. The ITO was satisfied and made the assessment accordingly. It was contended by the appellant that there was no material before the ITO, respondent No. 1, to form the reasonable belief that the income of the appellant had escaped assessment on account of the failure of the appellant to disclose truly and fully all material facts. The appellant challenged the said notice under s. 148 of the I.T. Act, 1961, as illegal, inoperative and void. It was contended that the ITO had no jurisdiction to issue the impugned notice. Respondent No. 1, who issued the impugned notice under s. 148, opposed the rule nisi issued on the writ petition of the appellant by an affidavit-in-opposition. In para. 11 of the affidavit-in-opposition sworn to-by the ITO concerned, it has been stated as follows: " With reference to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax for the said assessment year 1962-63 had escaped assessment and/or had been under-assessed. I, therefore, duly sent the proposal under section 147 of the Income-tax Act, 1961, to the Commissioner of Income-tax, West Bengal III, along with the letter dated 26th August, 1969. After obtaining the necessary approval of the Commissioner of Income-tax, West Bengal III, I duly issued the said notice under section 148 of the Income-tax Act, 1961, to the assessee for the said assessment year 1962-63. Before issuing the said notice I duly recorded my reasons. I shall crave leave to refer to the communications received from the Inspecting Assistant-Commissioner, Survey Range, Calcutta, confession made by the said Prahlad Roy Almal, assessment order of Prahlad Roy Almal for the assessment year 1962-63, and the letter dated 26th August, 1969, whereunder the proposal under section 147(a) was forwarded to the Commissioner of Income-tax, West Bengal III, Calcutta, at the hearing of this application. The learned judge came to the finding that there were sufficient materials before the Income-tax Officer for the formation of the reasonable belief for reopening the assessment for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons as recorded by the ITO. The appellant has, accordingly, challenged that the sanction of the Commissioner permitting the ITO to issue the impugned notice under s. 148 was granted without Jurisdiction and the impugned notice should be struck down on that ground alone. The material that has been relied on by the ITO in issuing the notice under s. 148 appears to be the confessional statement made by one Prahlad Roy Alma. It is apparent on the face of the statement made by the ITO in para. 11 of the affidavit-in-opposition that the assessment has been sought to be reopened on the ground that the sum of Rs. 63,000 entered in the books of account of the appellant for the assessment year 1962-63, as loan taken from the said Prahlad Roy Almal including a sum of Rs. 1,652.38 alleged to be the interest paid by the appellant on the said sum was a bogus transaction and the said Prahlad Roy Almal was dealing in name-lending business of fictitious loan transactions. The question whether such a confessional statement constituted a material for the formation of the belief by the ITO will be considered later.. Now, we are concerned with the: question whether the Commissioner was justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional statement of Prahlad Roy Almal can be said to be a relevant material justifying the ITO to issue the impugned, notice under s. 148. The confessional statement was not filed by the respondents in the trial court. Mr. Sengupta, learned counsel appearing on behalf of the respondents, has, however, produced before us a copy of the said confessional statement it appears that the statement made by the said Prahlad Roy Almal was recorded in the form of questions and answers. The statement is dated November 24, 1965. According to the said Prahlad Roy Almal, his father was a registered broker in gunny, hessians, etc., and he died on May, 16, 1965. His father also had a bank account in the United Bank of India till two or three, months before the date of the statement. The bank account was operated, by Prahlad Roy Alma1 even after his father's death. It is not clear from his statement how it was possible for him to operate the bank account standing in the name of his father. It was, however, alleged by him that he had been carrying on name-lending business since 1958-59. He did not maintain any books of account for such business. When he was asked to state the names and addresses of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingh Kanayalal. He also made a confessional statement on the basis of which the assessment was reopened. The Supreme Court, while upholding the majority view of the High Court striking down the notice reopening the assessment, observed as follows (p. 447) : " We may now deal with the first ground mentioned in the report of the Income-tax Officer to the Commissioner of Income-tax. This ground relates to Mohansingh Kanayalal against whose name there was an entry about the payment of Rs. 74, annas 3, as entered in the books of the assessee, having made a confession that he was doing only name-lending. There is nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan of Rs. 2,500 which was shown to have been advanced by that person to the assessee-respondent. There is also no indication as to when that confession was made and whether it relates to the period from April 1, 1957, to March 31, 1958, which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession it would not be unreasonable to assume that the confession was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction, the ITO will not be justified to reopen the assessment by a notice under s. 148. The belief that is referred to in s. 147 of the I.T. Act, 1961, must be supported by some evidence or material justifying the formation of such belief. In this connection, I may refer to the judgment of my Lord the Chief justice (as he then was), presiding over the appeal court in the case of Madnani Engineering Works Ltd. v. ITO (Appeal from Original Order No. 221 of 1970, disposed of on April 11, 1974). In that case, it was held that the ITO had no material justifying the formation of a reasonable belief in reopening the assessment. One of the questions that came up for consideration was whether, in the facts and circumstances of that case, the assessee could be said to have not disclosed fully and truly all material facts. My Lord made the following observations : An assessee who claims deductions for payment of interest in respect of any hundi loans is to make the claim only on the basis that the hundi loan is genuine and it becomes the duty of the assessee to establish the genuineness of the loan by adducing necessary evidence and producing relevant materials. The assessee is not presum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case before us, the notice under s. 148 was upheld to be legal and valid. In our opinion the facts in the case of Mahadeo Lai Tulsyan are different from those of the instant case. In that case, in the assessment proceedings for the subsequent year, namely, for the assessment year 1964-65 of the respondent-assessee, the loans from identical hundi merchants were found to be not genuine after investigation. The said hundi, merchants were found to be only name-lenders. In the circumstances, the notice under s. 148 was not issued by the ITO merely on suspicion or without relevant material justifying the issuance of such notice. That case is, therefore, of no assistance to the Revenue. Learned counsel for the respondents has also placed reliance on Bench of this court presided over by my learned Chief justice (as he then was in Biju Patnaik v. ITO [1976] 102 ITR 96 (Cal). In that case also, there was a confessional statement by the hundi merchants and it was held that the confessional statement was a relevant material for the formation of the reasonable belief by the ITO for reopening the assessment proceedings. In that case, the merchants concerned in their statement mentioned the n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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