Calcutta H.C : Whether, on the facts and in the circumstances of the case, the IT authorities were justified in law in reopening the assessment of the assessee under s. 147(a) of the IT Act, 1961, in respect of the asst. yr. 1960-61 and whether the said proceedings were properly initiated within the time prescribed and in accordance with the law ?

Counsel Appeared

R.N. Bajoria, Advocate, for the Assessee

AJIT K. SENGUPTA, J. :

This reference under s. 256(1) of the IT Act, relates to the asst. yr. 1960-61. The question that calls for determination is whether the proceeding for reassessment under s. 147(a) of the Act was validly initiated or not. Shortly stated, the facts are that the original assessment of the assessee had been made by the ITO, Varanasi, who has also made a reassessment under s. 34(1)(b) of the Indian IT Act, 1922. But, later on, the ITO found, on the basis of a letter dated June 26, 1988, from an ITO in Calcutta, that certain investments amounting to its. 66,000 had been made by the assessee on September 26, 1959, in the name of the minor daughter, Smt. Tara Devi Maheshwari. The ITO , therefore, for the reasons given in his order, initiated proceedings under s. 147(a) of the IT Act and assessed two items of Rs. 66,600 and Rs. 11,930 as the assessee’s income from undisclosed sources.

Before the AAC, the assessee challenged the entire proceedings under s. 147(a) and also challenged the additions made by the ITO while completing the reassessment of the-assessee. The AAC found that the assessee’s daughter, Smt. Tara Devi Maheshwari, was born on February 2, 1942, and before she became major in 1960, returns of income were filed by her in respect of the asst. yrs. 1951-52 to 1955-56 on September 28, 1959, and those for 1956-57 to 1959-60 on December 20, 1959.

In these returns, it was shown that Smt. Tara Devi was deriving income from a partnership firm known as Hem and Co. and it was stated that the initial capital of Rs. 15,000 had come from the gift received from her grandfather, Shri P. D. Maheshwari, who had made a deposit in the name of the daughter of the assessee with the firm known as Nirmal Kumar Devkinandan. It was also shown in the returns that the lady had received gift of Rs. 10,000 on January 14, 1958, from her grandmother. The ITO found that there was no material or evidence to show the existence of a firm styled Nirmal Kumar Devkinandan. There was nothing to show that any such firm was in existence in the name of Hem and Co. as claimed by the assessee. No deed of partnership had been produced in the course of any of the assessments of Smt. Tara Devi. The ITO found that, from the assessment orders passed in the case of Smt. Tara Devi, it was found that no books of account were maintained by her in respect of the income offered by her for taxation for the asst. yrs. 195152 to 1960-61. The AAC also observed that there was no evidence about the existence of the firm styled Hem and Co. and also there was no material to show as to who were the partners of that firm. The AAC was of the view that the entire story of the receipt of gifts by Smt. Tara Devi and earning of income by her from pawn-broking and speculative transactions were cooked up to explain the source of investment of Rs. 66,600 in shares Mirzapur Electric Supply Co. Ltd. The AAC also found that there was no evidence to show that Smt. Tara Devi had actually carried on any business at any time in respect of which the assessment had been made and it could not be proved that she had earned any income. The AAC further observed that the assessee had not produced any evidence at the time of the original assessment about those investments. He held that these incomes actually belonged to the assessee. In the premises, it was held that the ITO was justified in reopening the assessment under s. 147(a) of the IT Act.

4. When the matter came before the Tribunal, it was contended before the Tribunal that the assessee had not failed to disclose any material relevant for assessment in respect of any income and, therefore, action under s. 147(a) could not be initiated. It was pointed out that the ITO had only received some information from the ITO assessing Smt. Tara Devi stating that there was no evidence in support of the income claimed to have been earned by the lady. According to the assessee, that information is totally erroneous. It was submitted that the approval of the CIT for reopening the proceedings had not been obtained after any careful application of mind to the facts of the case.

5. On a consideration of the facts and circumstances of the case, the Tribunal held that the proceeding under s. 147 had been properly initiated. The Tribunal set aside the order of the lower authorities and directed the ITO to make a fresh assessment.

6. On those facts, the following question of law has been referred to this Court: “Whether, on the facts and in the circumstances of the case, the IT authorities were justified in law in reopening the assessment of the assessee under s. 147(a) of the IT Act, 1961, in respect of the asst. yr. 1960-61 and whether the said proceedings were properly initiated within the time prescribed and in accordance with the law ?”

7. Mr. R. N. Bajoria, learned counsel appearing for the assessee, submitted that the ITO did not have any material before him while reopening the assessment. He had drawn our attention to the information which was received by the ITO concerned and the reasons recorded by him before initiating the proceeding under s. 147 of the IT Act which are reproduced below.

8. On June 26, 1968, the ITO assessing the assessee received the following communication from the ITO, B- Ward, District 1(2), Calcutta : “The above named assessee made an investment in shares in the name of his minor daughter. The value of the investment is Rs. 66,600. The date of investment is September 26, 1959. Shri Ramjilal Maheshwari got the assessments done for the years 1950- 51 and 1960-61 in the name of his daughter, Smt. Tara Devi Maheshwari (now Somani), just to explain the investment. I have examined the case and could find that her date of birth was February 2, 1942, and her marriage took place on November 22, 1962. ” I have concluded in my order that the investment in shares is the benami transaction of Sri Ramjilal Maheshwari who is an employee of Mirzapur Electric Supply Co. Ltd. The address of Sri Ramjilal Maheshwari as per my record is : “Kamal Niketan, Civil lines, Mirzapur, U. P. India. The file No. of Sri R. L. Maheshwari is V(A)/6616-m/D. You are requested to reopen the assessment for the year 1960-61 immediately, I shall send a copy of my order as and when required by you. An early reply is requested.”

9. The ITO thereupon submitted the following proposal to the CIT for reopening the assessment under s. 147(a) of the IT Act, 1961. “The assessee made investment in shares of Rs. 66,600 on September 26, 1959, in the name of his daughter, Smt. Tara Devi Maheshwari (now Somani). Tara Devi was a minor on the date of investment and voluntary returns were filed in her name with a view to explaining the investment as her own. Her marriage took place on November 22, 1962. The ITO, B-Ward, District 1(2), Calcutta, has now held that the investment in the name of Smt. Tara Devi was actually an investment of her father, Shri Ramjilal Maheshwari, in the benami of his daughter. The investment in the name of the daughter was not disclosed by Shri Maheshwari before the ITO, A- Ward, Varanasi, who assessed him for the asst. yr. 1960-61. The assessee has been under-assessed as he failed to disclose fully and truly the particulars of his income. The tax effect is estimated at Rs. 35,000.”

10. The CIT approved the proposal with the remark “Yes, I am satisfied”. The ITO, thereupon, issued a notice on July 23, 1968, to the assessee under s. 148 of the IT Act, 1961, stating that he had reason to believe that the assessee income chargeable to tax for the asst. yr. 1960-61 had escaped assessment within the meaning of s. 147 of the IT Act.

11. Mr. Bajoria contends that the ITO has only relied on the conclusion of the concerned Officer and not on any material on the basis whereof, he allegedly came to the finding that the investments made by the assessee in the name of his daughter are benami transactions. According to him that proceeding under s. 147(a) in the case of the assessee could have been initiated, had the assessee failed to disclose truly and fully all material facts necessary for his assessments. The assessee had not failed to disclose any primary fact. Some information has been received by the ITO from the file of the assessee’s daughter. There is no material to justify such information. Mr. Bajoria has relied on a decision of this Court in CIT vs. Dwarka Prosad Bazaz (1987) 63 CTR (Cal) 56 : (1987) 168 ITR 572.

12. In CIT vs. Lakhiram Ramdas (1962) 44 ITR 726, the Supreme Court was considering the validity of the decision of the Bombay High Court in refusing to direct the Tribunal to state a case under s. 66(2) of the Indian IT Act, 1922, on the following question (at p. 729) : “Whether, on the facts and in the circumstances of the case and having particular regard to the fact that the return and the statements accompanying the return furnished by the assessee during the course of the assessment proceedings for 1945-46 did not indicate such a large transaction as Rs. 1,10,000 by a single bank draft, the ITO was right in starting proceedings under s. 34(1)(a) on the receipt of the information about the above transaction, to make a reassessment for 1945-46 ?”

13. Before the Supreme Court, it was contended by the Revenue that the finding of the Tribunal that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment was based on surmises and conjectures and there were no materials on which the Tribunal could come to such a conclusion ; therefore, it has been argued that a question of law arose out of the Tribunal’s order and the High Court was wrong in summarily rejecting the petition made by the appellant under s. 66(2) of the IT Act.

14. The Supreme Court held as follows (at p. 730) : “We are unable to accept this argument as correct. First of all, it must be pointed out that the question which the appellant suggested should be referred to the High Court in his petitions under s. 66(1) and s. 66(2) of the IT Act is different from the question which is now raised by the learned advocate for the appellant. The question now raised for the first time before us by the learned advocate for the appellant is that the Tribunal had no materials on which to find that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and that the finding of the Tribunal was based on surmises and conjectures. That, however, was not the question which was suggested for reference to the High Court at the stage when the petitions under s. 66 were made. At that stage, the question suggested was whether, on the facts and in the circumstances of the case and having particular regard to the return made by the assessee and the statements accompanying it, the assessee did not indicate that he had obtained a bank draft for Rs. 1,10,000.”

15. The Supreme Court thereafter proceeded to hold as follows (at P. 731): “In our opinion, in the circumstances of this case, the question whether the assessee had or had not failed to disclose fully and truly all material facts necessary for his assessment was a question of fact and we are unable to accept the argument of the learned advocate for the appellant to the contrary.” (emphasis italiced in print, supplied)

16. In CIT vs. Kamal Singh Rampuria (1970) 75 ITR 157 the question which the Supreme Court was considering is as follows : “Whether, on the facts and in the circumstances of the case, the assessment made under s. 34(1) (a) of the IT Act was justified in law?”

17. By its judgment dated September 12, 1963, the High Court answered the question in the negative and in favour of the assessee. The relevant passage of the judgment of the High Court states as follows (at p. 161) : “. . . it appears to us that the ITO could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts as stated before …

18. On the background of the facts stated above, we are of opinion that the finding made by the Tribunal in this regard was not justifiable. It is undoubtedly true that the findings of fact made by the Tribunal cannot be interfered with by this Court, but we consider that a finding on a question of fact regarding the aforesaid matter is open to attack under s. 66 of the Act as erroneous in law, as we find that there is no evidence to support it, and it is perverse as it has been reached without due consideration of the several matters discussed above for such a determination.

19. We are, therefore, of opinion that there was no non-disclosure of material facts truly and fully as contended on behalf of the Department and, therefore, the question must be answered in the negative.”

20. The Supreme Court then proceeded to record the arguments of the Revenue (at p. 160) : “On behalf of the appellant, it was pointed out before the Supreme Court that the basis of the reasoning of the High Court was that there was no evidence to support the finding of the Tribunal that the ITO had reason to believe that there was any omission on the part of the assessee to disclose fully and truly all material facts necessary for the asst. yr. 1945-46. It was argued that, in doing so, the High Court answered a question entirely different from the one referred to it and, therefore, exceeded the jurisdiction conferred on it by s. 66(1) of the Act. In other words, the argument was that, in the absence of a question whether the finding of the Tribunal was based on no evidence or that it was perverse, the High Court exceeded its jurisdiction in examining for itself the materials in support of the Tribunal’s finding and acting as Court of appeal. In our opinion, there is justification for the argument put forward on behalf of the appellant.”

21. The Supreme Court held that it is not open to the High Court in such a reference to embark upon a reappraisal of the evidence to arrive at findings of fact contrary to those of the Tribunal.

22. We have already set out the question referred to us in this reference. The finding of fact has not been challenged by the assessee. The Tribunal, in holding that the proceedings under s. 147(a) of the Act were validly initiated, in fact, came to the conclusion that there was omission and/or failure on the part of the assessee to disclose fully and/or truly all material facts necessary for his assessment for the assessment year in question. In our view, the finding of fact having not been challenged as perverse, we cannot embark upon the question whether the ITO validly initiated the proceeding or not.

23. The decision relied on by learned counsel for the assessee in Dwarka Prosad Bazaz (supra) was decided on its own facts. It appears from the said judgment that the Tribunal, in that case, held for the reasons as recorded by the ITO that it was not clear how detection was made that the loans in question were fictitious and represented the assessee’s income from undisclosed sources. There was no nexus or link between the information of the ITO concerned and his belief that the income of the assessee had escaped assessment. On those facts, the Court held as follows (at p. 585) : “On the facts and in the circumstances of this case, it appears to us that the conclusion of the Tribunal that the ITO concerned did not have sufficient or valid reasons to come to the conclusion that the income of the assessee had escaped assessment on account of the assessee’s failure to disclose fully or truly all material facts is justified and does not require any interference from us. We also hold that the assessee was not given any opportunity whatsoever to make his representations in the reassessment proceedings by reason of the non- disclosure of the materials on the basis of which the Revenue proceeded. We note that in the recorded reasons, the ITO concerned did not even note that on the basis of the materials in his hands he had come to hold a belief that any income of the assessee had escaped assessment.”

24. But, in the instant case, as we have already indicated, the Tribunal, on the facts before it, found that there were materials before the ITO to hold that income had escaped assessment in the original assessment by reason of omission and/or failure on behalf of the assessee to disclose fully and truly all material facts and, accordingly, the proceedings under s. 147(a) were validly initiated within the time prescribed.

25. For the reasons aforesaid, we are of the view that, apart from the fact that the question referred to us is essentially a question of fact, even on merits, we are in complete agreement with the reasoning and conclusion of the Tribunal. We, therefore, answer the question in this reference in the affirmative and in favour of the Revenue.

26. There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.:

I agree.

[Citation :181 ITR 112]