Dismissed

Union of India and Others v. Rai Singh Deb Singh Bist & Anr.

Supreme Court15 Dec 19721972 INSC 303 · [1973] 3 S.C.R. 1021972 INSC 303

Case brief

AI extract

What is this about?

The Supreme Court dismissed appeals against the Delhi High Court's order quashing reopening notices under s. 34(1)(a) of the Indian Income Tax Act, 1922. The Court held that the department failed to produce the requisite report and Board order, leading to an adverse inference that no valid material existed to confer jurisdiction.

What did the court decide?

The appeals were dismissed and the judgments of the High Court quashing the reopening notices were upheld.

What the court decided

Union of India and Others versus Rai Singh… — Civil Procedure and Limitation | Supreme Court (1973)

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102

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UNION OF INDIA AND OTIIERS

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WS. RAl SINGH DEB SINGH BIST & ANR. December 15, 1972 ,

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[K. s. HEGDB AND P. JAGANMOHAN REDDY, JJ.]

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Indian Iru:onu Tax Act, 1922~. 34(1) (a)-To confer jurisdiction to ilsue notice, l conditions hav~ to be &alis{ied (i) I.T.O. must luzve rtason to believe that tncome had been underauessed : (ii) He must /JQVe reason to believe that either asseuee has fdlled to make a return under s. 22 or he has omitted to disclose fully all material facts.

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The assessee in these appeals is an Hindu Undivided Family. The assessmer;Dt years in question ar~ ranged from 1942-43 to 1953-54. Tho assessee tiled its returns for these years in time. The assessee's account books showed considerable cash credits in the name of some relations of the second respondent, the Karta of the H. U.F. The I. T. 0. went into the ~uilneness of these cash credit entries. The contention of the assessee was substantially accepted either by the Appellate Assistant Commissioner or by the Revenue Appellate Tribunal. With regard to the assessment for the assessment years 1943-44 to 1949-50, the final assessment was made in pursuance of an agreement or settlement arrived between the assessee a;nd the Deputy Director of Inspection (Investiga· tion). Long after the assessments in question were finalised, the I. T. 0. issued notices to the appellants under s. 34 ( 1 )(a) of the Indian Income Tax Act 1922, seeking to reopen the assessments already finalised. The assessee challenged the validity of thes,e notices of the I . T. 0. The High Court allowed the writ petitions and quashed the impugned notices.

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The assessee alleged that there was no relevant material before tho I. T. 0. before he issued the notices under s. 31 (a) on the basis o~ which he could have reason to believe that any income had escaped assessment. In the writ petitions, the assessee called upon the I. T. 0. to produce the report made by him to the Central Board of Rev®Ue, as. well as the ~der of the ntral Bord of Revenue thereon. Despite this prayer, neither the Umon of India, nor the I. T. 0, produced the report made by the I . T . 0 . to the Central Board of Revenue under s. 34(1) (a) nor the order of the Central Board of Revenue.

Dismissing the appeal,

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HELD: (i) Before an_l.T.O. ca,r. issue a statuto'ry notice under s. 34(1)(a), he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to Income Tax have escaped assessment during those years. Further, before doing so, he must have recorded his reaSO!DS for acting under s. 34(1)(a) and the Central Board· of Revenue must have been satisfied on those reasons that it is a fit case for the issue of the notice. The recording of the reasons in support of the belief formed by the I. T, 0. and the sa t1sfaction of the Central Board of Revenue on the basis of the reasons rerorded by the I, T. 0. that it is a fit case for issue of notice under s. 34(1)(a) are extremely important circumst-.mces to find out whether the I. T . 0. bas jurisdiction to proceed under s.34(1)(a), [1040)

103

UNION v. 1W SINGH (H1gd1, /.)

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A Calcutta D/8counl Co. Ltd, v. I.T.O. Company District 1 Calcutta and Others. 41 I.T.R 191; ChhutlfJI7I(ll Rajpal v. S. P. Chalia &: On. 79 I.T.R, 603; Sheo~th Singh v. Appellate A.aristant Commissioner of Income Tax, Central, Calcutta&: Ors., 82 I.T.R. 1447 referred to.

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(ii) In the pr~CSent case, an affidavit was filed before the Court stating that the relevant records could not be traced from the file of the Ceptral Board of Revenue. Assuming th-at the concerneci records were mis'sing B from the tile of the Central Board of Revenue, the copy of the report made by the I. T. 0. and the Order received by him, must have been in the file of the I. T. 0. and reason was given for not produci!Dg those records. These circumstances give rise to an adverse inference that the records in question were not produced because they did not assist the department's case. Under the circumstanct:s, it is lllOt possible to come to the conclusion that the facts necessary to confer jurisdiction on the c I.T.O. to proceed under s. 34(1)(a) had been established. There is nothing to show on record that there was any relevant material before the I.T.O. before be issued the notices under s.34(1)(a). [lOSF]

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CML APPELLATE JURISDICTION: Civil Appeals Nos. 2392 to 2403 of 1969.

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Appeals by certificate from the judgment and order dated D September 9, 1968 of the Delhi High Court at New Delhi in Civil Writs Nos. 67 to 78 of 1968.

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S.C. Manchanda, B. B, Ahuja, S. P. Nayar and R.N. Sachthey for the appellants.

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N. D. Karkhanis, Rameshwar Nath and Seita Vaidialingam

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E for the respondents.

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The Judgment of the Court was delivered by

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HEGDE, J. These appeals by certificate arise from several writ petitions filed by the H.U.F. M/s. Rai Singh Deb Singh Bist and its Karta Thakur Mohan Singh Bist, challenging the validity of F certain notices issued under s. 34 ( 1) (a) of the Indian Income-tax Act, 1922 (in short the Act) by the Income-tax Officer, Central Circle I, Delhi. The High Court of Delhi allowed those wlit petitions and quashed the impugned notices. Hence these appeals.

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The assessee in these cases is an H.U.F. The assessment years G with which we are concerned in these appeals range from 1942-43 to 1953-54. The assessee filed its returns for these years in due time. The assessee's account-books showed considerable cash credits in the name of the brothers-in-law of the 2nd respondent, the Karta of the H.U.F. Those alleged creditors were living in Nepal. The account books also showed certain credit entries in H the name of Rana Anand Nar Singh, alleged to be in connection with expenses incurred by him for getting trees cut on behalf of the assessee. The assessee was a forest contractor. He had taken large tracts of forests for felling trees in Nepal. The Income-tax

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104

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SUPREME COURT REPORTS

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(1973] 3 S.C.R.

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Officer went into the genuineness of the cash credit entries st<mding in the name of the alleged creditors of the assessee as well as to the alleged amount due to one of them. The contention of the assessee was substantially accepted either by the Appellate Assistant Commissioner or by the Revenue Appellate Tribunal. With regard to the assessment for the assessment years 1943-44 to 1949-50, the final assessments were made in pursuance of an agreement or settlement arrived at between the assessee and the Deputy Director of Inspection (Investigation) New Delhi on October 18, 1954. Long after the· assessments in question were finalised, the Income-tax Officer issued notices to the appellants under s. 34 ( 1 ) (a) of the Act seeking to reopen the assessments already finalised. The validity of those notices is in issue.

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Before an Income-tax Officer can issue a statutory notice under s. 34(1) (a), he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income-tax have escaped assessment during those years. Further. before doing so, he must have recorded his reasons for acting under s. 34(1) (a) and the Central Board of Revenue must have been satisfied on those reasons· that it is a fit case for the issue of the notice. The recording of the reasons in support of the belief formed by the Income-tax Officer and the satisfaction of the Central Board of Revenue on the basis of the reasons recorded by the Income-tax Officer that it is a fit case for issue of notice under s. 34 (1 )(a) are extremely important circumstances to find out whether the Income-tax Officer had jurisdiction to proceed under s. 34 (1 )(a).

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In Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I. Calcutta and anr.(l) this Court laid down (1) that to confer jurisdiction under s. 34 to issue notice in re5pect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, two conditions had to be satisfied. The first was that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under assessed. The second was that he must also have reason to believe that such "under-assessment" had occurred by reason of either ( 1) omission or failure on the part of an assessee to make a return of his income under section 22, or (2) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period

(I) 41 I.T.R. 191.

·..!""~'--	'-'-----""- · - · .,,...,. :.---~~~·:=-=--:. .: :.._::;;::..·-- :.:--.- :...-- ._,..- .-··-··.... UNION_V.RAISINGH(Hegde,J.)_ 105	I.:
A B c	of fouryarsbuwithi!ltheperiod of eight years fromtheend of theyearm questton. . . In_ChhugamalRajpal_v. S._P. Chalihaandors.(l),_thisCourt ruledthatbeforeanIncome-tax Officercanbesaidtohavehad reasontobelievethatsome income had escaped assessmentbe shouldhavesome relevantmaterial before him from whichheculd havedrawntheinferencethatincome has escaped assessment. His vaguefeelingthattheremighthavebeensome escapeofincome fromassessmentisnotsufficient.ThisCourtalso took the view thattheCentralBoardofRevenue before reaching its satisfaction thatthecase wasafitonetobeproceededunders.34(1)(a)must have examinedthereasons givenbytheIncome-tax Officerand arrivedatitsownconclusion;andthatitis not permissible forit toactechanically.Thesameview was again takenbythis Courtrn_Sheo Nath Singh_v.Appellate Assistant Commissionerof Income-tax(Central )Calcuttaandors.(2)...	' I [•- !·i: : _:,· (·. ......... ' '
D E F G 11	Intheinstantcase,theassessee allegedinhis writ petitionsthat therewasnorelevant material beforetheIncome-ta.Officer before heissued noticesunders.34 ( 1)(a)onthe basisofwhichhe couldhavebadreasontobelievethatany incomebadescaped assessment. I nthewrit petitions the assessee calleduponthe IncomtaxOfficer toproducethe reportmadebyhimtothe Cent- ralBoardofRevenue as well astheorder of the CentralBoardof Revenuethereon. Despite this prayer, neither the UnionofIndia northeIncome-taxOllkercared to producethereportmadeby theIncome-tax .OfficertotheCentralBoardof Revenue under s.34(1)(a)ortheorderofthe CentralBoardofRevenue. Be- forethehearingofthewritpetitions commenced,theassessee again appliedtotheCourttocalluponthe UnionofIndiaandthe Income-taxOfficertoproducthose documents.Inresp?nseto thatapplication,anaffidavitwas filed beforetheCourtstatingthat therelevant recordscouldnotbetraced fromtheIile of the Cent- ralBoardofRevenue. Assumingthattheconcerned records were missingfromthefileoftheCentralBoardofRevenue, the copy ofthereportmadebytheIncome-tax Officerand. the orderre· cei'edbyhimmusthavebeeninthe file of the Income-ta."tOfficr. Noreason was given fornotproduc.ing;thoserecrds.Thesecu- cumstances give risetoanadver.;e mference ag:un.st the depart- ment.WearcconstrainedtocometotheconclusiOn.thatthee cordinquestion werenotproduced because they.d1.dnotaSStt thedepartment'scase. Undl.!r these circumstances, ItISnotpoSSi- bletocometothe conclusionthatthe facts necessary toc)(fe) jurisdictionontheIncome-taxOfficertoproceed under s.34(1 a hadbeenestablished. (I)79I.T.R. 603. (2) f/21.7F.1<1.

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i -.

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108 SUPllBME COUllT UPOlTS (1973] 3 S.C.L All that was said on behalf of the department was that someA time in the year 195S, the assessee sold Jargo tracts of land to two of his brothers-in-law for a sum of Rs~ .47 lakhs but~ reality that property was not worth that amount. We do not know whether there was any basis for this conclusion. As seen earlier the cash credit entries were brought to the notice of the Income-tax Officer before the relevant assessment orders were passed. He had an 8 occasion to investigate into them.. It is not necessary to go into this question more deeply in view of the fact that there is nothing to show that there was any relevant material before the Incometax Officer before he issued the notices under s. 34(l)(a) to have reason to believe that as a result of the assessee's failure to state in its return truly and fully any fact, any income had escaped c assessment. In the result these appeals fail and they are dismissed with costs-one hearing fee. S.C. Appeals dismissed.

Union of India and Others v. Rai Singh Deb Singh Bist & Anr.

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Union of India and Others v. Rai Singh Deb Singh Bist & Anr.

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