TMI Blog1973 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... n thirty-five days of receipt of notice, a return in the attached form for the said year ending March 31, 1960. It was further stated that the notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Calcutta. The said notice is annexure "B" to the petition. In the assessment year 1959-60, as already stated, the respondent No. 1 completed the assessment of the petitioner under section 23(3) of the Act and computed the income of the petitioner at Rs. 23,590. At the time of this assessment the petitioner produced all books of account, documents and other evidence relevant for the purpose for the assessment year 1959-60, and the petitioner's representative had discussion with the Income-tax Officer regarding various points of assessment including sales effected by the petitioner. The Income-tax Officer on due consideration of the materials and on full satisfaction about the sources of income and the genuineness of the sales effected by the petitioner computed the income as stated above as will appear from the assessment order, annexure "A". At the time of this assessment there was no omission or failure on the part of the petitioner to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case on July 27, 1966. On that date also the petitioner appeared but no material was disclosed. The petitioner thereafter appeared on September 7, 1967, when he reiterated his demand and was informed that the case was fixed on September 22, 1967. Thereafter, it was refixed on September 30, 1967, and the petitoner having fallen ill prayed for an adjournment to which there was no reply. The petitioner in the circumstances apprehended that respondent No. 2 without disclosing the material would complete the assessment for the year 1959-60 and would take steps for recovery of tax on the basis of the illegal assessment. The petitioner contended that the action of respondent No. 2 was without jurisdiction as the condition precedent for the exercise of the jurisdiction by the Income-tax Officer under section 34(1)(a), as the notice purported to be, had not been satisfied. The petitioner further contended that there was no material before respondent No. 2 on which he could have reason to believe that the income had escaped assessment. It was further stated that respondent No. 2 was bound to disclose the material facts on which he had reason for such belief that the income had escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion precedent for exercise of such jurisdiction. It was stated that there were materials in possession of respondent No. 2 on which he had reasons to believe that the petitioner's income escaped assessment. It was further stated that the respondent No. 2 was not bound to disclose the said materials to the petitioner as the law does not lay down that the respondent-Income-tax Officer was bound to disclose the material on which he had reasons to believe that the income had escaped assessment. It was further stated that there was inordinate delay of six years in moving the application and the rule in the premises should be discharged. The petitioner filed an affidavit-in-reply reiterating the allegations and contentions made in the petition. It was denied that the cash credit for Rs. 30,000 in the name of M/s. International Traders appearing in the books of account was not genuine or that the said sum represented the concealed income of the assessee. The amount was advanced by M/s. International Traders to M/s. Green Engineering Works, a branch business of the petitioner during the relevant year for goods manufactured by the petitioner to be supplied to the said firm. In the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt did not feel inclined to exercise its jurisdiction for entertaining the application. The rule was accordingly discharged. The present appeal is against this decision. About the suppression of the material fact, viz., absence of any statement in the petition that the return was filed on September 14, 1964, under protest, it appears that in paragraph 6 of the petition the petitioner stated that he submitted the return under protest and this fact of the filing of return by the petitioner under protest has been admitted by the respondents. Somehow, the above statement in the petition was overlooked by the court at the time of passing the order under appeal. As to delay, the counsel for the petitioner Dr. Debi Pal (as he then was) and Mr. Sanjay Bhattacharjee, on the subsequent dates of hearing, contended that in the matter of issuance of a writ of prohibition, if the final order in a proceeding is yet to be passed, the question of delay is immaterial particularly when the question involved is one of jurisdiction of the Tribunal or authority and, if absence of jurisdiction is patent on the record, issuance of a writ of prohibition would be a matter of right. Mr. Bhattacharjee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y applying for it or are such as would render it unjust on the part of the court to interpose. If there is patent lack of jurisdiction, and the court is immediately satisfied that the inferior court or authority had exceeded its jurisdiction, the court will very readily interpose, though not of right nor of course, yet almost as a matter of course unless an irresistible case for withholding the writ is made out. Mr. Nanda Lal Pal, learned counsel appearing for the respondents, did not dispute the principle laid down in the decision in Madhavlal Sindhoo's case noted above. There may be cases where absence of jurisdiction is patent or apparent on the face of the proceeding and there may be cases also where the absence of jurisdiction is latent in the sense that it is not so apparent. He referred to the decision in P. C. Doshi v. Seventh Income-tax Officer, in which the court held, following the above principle, that though in case of patent lack of jurisdiction a writ will go though as a matter of course, in case where the defect is not apparent the court in its discretion may refuse the writ if the circumstances attending show that there is undue delay, insufficient materials, mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of the powers based on such illegal assumption of jurisdiction and the writ will issue almost as a matter of course and right. If, however, the lack or usurpation of jurisdiction is not patent on the face of record, but latent, that is, not apparent, and requires further examination of records and investigation of facts, and there is delay in applying for the writ, issue of writ in such circumstances will be discretionary with the court depending on misconduct, laches or acquiescence on the part of the applicant unless it would be unjust for the court to interpose. Mr. Bhattacharjee has contended that the jurisdiction of the Income-tax Officer to issue notice under section 34(1)(a) is dependent, when a return is filed, on the omission of the assessee to disclose fully and truly all materials in connection with the assessment. The assessee here, according to Mr. Bhattacharjee, disclosed fully and truly all material facts at the time of assessment producing evidence and documents necessary for assessment and gave explanation in regard to the disputed amount which was found satisfactory by the Income-tax Officer who on the basis thereof completed the assessment. It was, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d preceding three years. It will appear from the record, which, as required by us, was produced before us, that the case was refixed on September 22, following further information, then to September 24, 1964, and ultimately to November 26, 1964. No action was thereafter taken till June 4, 1966, and the case was refixed on July 27, 1966. The case was last fixed on September 30, 1967, when the petitioner prayed for adjournment on ground of illness. The present petition was moved on October 4, 1967, when the rule was issued. A review of the course of the reassessment proceeding indicates that though the petitioner had been throughout by filing petitions challenging the jurisdiction of the Income-tax Officer to issue notice under section 34 and pressing for disclosure of reasons thereof, the Income-tax Officer did not pass any order on the same nor indicate that he was not bound in law to disclose reasons for issue of such notice under section 34--the position taken in the affidavit-in-opposition in the rule by the respondents. No positive action was taken during the period from issue of notice or from November 26, 1964, to June 4, 1966, and even thereafter though the case was fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (iii) for any year, unless he has recorded his reasons for doing so......and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for issue of such notice...... Explanation.--Production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of the section........ Mr. Bhattacharjee has contended, firstly, that the conditions precedent for exercise of jurisdiction by the Income-tax Officer under the Act are : (i) omission or failure on the part of an assessee to make a return under section 22 ; or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. There is no dispute that the return was duly made resulting in the original assessment. As to the second condition reference was made to the decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, in which it was observed by Das Gupta J., representing the majority opinion, as follows : " The words used are 'omission or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts." The non-disclosure alleged in the above case was that the assessee failed to disclose the true intention behind the sale of shares which was really a trade in sale of investments. The court was of opinion that whether the sales of certain shares were by way of changing the investment or by way of trading in shares was to be decided on a consideration of circumstances including frequency of sales and the question of intention of earning profit was really an inference to be drawn by the authority from the material facts taken in conjunction with the surrounding circumstances. The court found that the sales of shares were disclosed and the memorandum of association of the assessee-company must have been shown to the Income-tax Officer and accordingly it was held that the condition precedent for exercise of jurisdiction under section 34 of the Act did not exist and the Income-tax Officer had no jurisdiction to issue notices under section 34 for the relevant years after the expiry of four years. It was finally observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147." The court was further of opinion that the Commissioner had mechanically accorded permission. The impugned notice was accordingly quashed. In Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax in considering the import of the words "reasons to believe in section 34(1A)", the court, following Chhugamal Rajpal, observed as follows : " There can be no manner of doubt that the words 'reasons to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure of material fact. Before we proceed further it would be convenient to look into the report of the Income-tax Officer to the Commissioner of Income-tax, West Bengal, for assumption of jurisdiction under section 34. The reasons have been set out in the affidavit-in-opposition in brief but, following the practice consistently observed by courts we called upon the respondents to produce the relevant record which was accordingly produced before us. The report is as follows : In the books of accounts for the assessment year 1959-60 there appear cash credits to the extent of Rs. 20,000 in the name of M/s. International Traders of 67, Ezra Street, Calcutta. At the time of the original assessment it was explained by the assessee that the above sum was advanced by the above party for goods to be supplied in the next year. Subsequent enquiries suggest that the above transaction is not a genuine one and the said sum represents the concealed income of the assessee which has escaped assessment. Hence action under section 34 is necessary. Sd. N. C. Addy, ITO, ' C ' Ward, Dist. I(2), Cal. The Commissioner's order thereon is : " I am satisfied on the reasons recorded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Officer had before him materials from which he had reasons to believe and accordingly came to the conclusion that the impugned transaction was not genuine, amounting to concealment of income leading to its escapement, which warranted the action taken on the satisfaction of the Commissioner. It would further appear that the satisfaction of the Commissioner in the instant case was not mechanical as he recorded his satisfaction on the reasons given by the Income-tax Officer stating that it was a fit case for issue of notice under the section. Mr. Bhattacharjee of course suffered from the handicap in that he had no opportunity to examine or even see the report or to consider the enquiry report which, it is stated by the respondents, the petitioner is not entitled to see and we have not been shown any authority laying a contrary proposition and the relevant law also does not appear to provide for the same. The court, of its own, following the uniform and consistent practice followed in such types of cases, has examined the records. We are satisfied about the existence of the relevant facts, namely, the local enquiry report and the report of the Income-tax Officer and the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a true disclosure of material facts by the assessee. If the Income-tax Officer has reasons to believe, on discovery of material facts, that the income escaped assessment on account of the omission or failure of the assessee to disclose fully and truly all material facts as the transaction explained by the assessee to be a genuine transaction is not so but a fictitious transaction, there will be no illegal assumption of jurisdiction by the Income-tax Officer in the circumstances as there was no true disclosure by the assessse as required. The assumption of jurisdiction in this state of affairs on the contrary will be in terms with the section as the disclosure of the primary or material facts by the assessee transpired to the Income-tax Officer, on discovery of further primary facts, to be not a true disclosure as required by law. In the Full Bench case, Lakhmani Mewal Das's case noted above, which was concerned with hundies, it was observed by A. K. Mukherjea J., speaking for the court, as follows : ".....the hundies could tend to show as if certain transactions had taken place but, in reality, the transactions never took place. In such a case, the discharged hundies are not evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee at the original assessment cannot stand in the way of reopening the assessment when the disclosure of the primary facts by the assessee at the time of assessment has been found to be prima facie untrue and there is no legal impediment against such action. It is again not a mere opinion or belief or suspicion in the mind of the Income-tax Officer that the impugned transaction might be "bogus", but it is, as his report indicates, a positive inference of fact on discovery of new fact and a prima facie conclusion that the impugned transaction of Rs. 30,000 was not a genuine transaction, in respect whereof the Income-tax Officer had reasons to believe that the income escaped assessment. Further, the report of the Income-tax Officer as appeals from the record, based on local enquiry which indicated that the firm alleged to have advanced the amount never existed at the given address. This was an honest and bona fide conclusion arrived at by the Income-tax Officer on a consideration of the relevant facts. The report of the Income-tax Officer and relevant facts here are materially different from the opinions of the Income-tax Officer which were under scrutiny in Chhugamal's case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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