Full Judgment Text
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PETITIONER:
CHHUGAMAL RAJPAL
Vs.
RESPONDENT:
S. P. CHALIHA & ORS.
DATE OF JUDGMENT21/01/1971
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SHAH, J.C. (CJ)
GROVER, A.N.
CITATION:
1971 AIR 730 1971 SCR (3) 342
1971 SCC (1) 453
CITATOR INFO :
F 1971 SC2451 (9)
R 1974 SC 478 (5)
RF 1976 SC1753 (3,9)
ACT:
Income-tax Act, 1961, s. 147, 148 and 151-Issue of notice
under s. 148-Assessment of escaped income-Requirement of s.
147(a) and (b) must be satisfied and reasons recorded before
the issue of notice under s. 148-Report to Commissioner
under s. 151(i) must disclose existence of grounds for issue
of notice-Commissioner must apply mind before granting
sanction.
HEADNOTE:
The appellant, a partnership firm, filed its return of
income for the assessment year i960-61 and subsequently
produced before the Incometax Officer its relevant books of
accounts and papers. It also produced before him the
statement showing various creditors from whom it had
borrowed on Hundis during the accounting year in question,
giving full names and addresses of the alleged creditors.
After enquiry the Incometax Officer made an assessment. On
June 3, 1966 the Income-tax Officer issued to the appellant
a notice under s. 148 of the Income-tax Act, 1961. The
notice was issued after four years but before 8 years of the
end of the original assessment year. The appellant
challenged the validity of the notice as well as the
proceedings taken on the strength of that notice in a writ
petition under Arts. 226 and 227 of the Constitution. The
High Court dismissed the petition. By special leave appeal
was filed in this Court. On direction given by the Court
the report submitted by the Income-tax Officer to the
Commissioner and the Commissioner’s order thereon were
produced. In the report it was said that it appeared that
the alleged creditors of the appellant were name lenders and
transactions were bogus; hence proper investigation
regarding those loans was necessary. Question No. 8 on the
report was whether the Commissioner was satisfied that the
case was fit for the issue of notice under s. 148. Against
this the commissioner had noted ’yes’. On these facts this
Court,
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HELD : Under s. 148 and s. 151(2) the Income-tax Officer
Must record his reasons for issuing the notice under s. 148.
There must be prima facie grounds for taking action under s.
148 Further before issuing such a notice the provisions of
cis. (a) and (b) of s. 147 must be satisfied. [447 B, E]
In this case the Income-tax Officer appears to have had a
vague feeling that the transactions were bogus and that the
alleged creditors were only name lenders. According to him
proper investigation regarding the loans was necessary.
That is not the same thing as saying that there ,are reasons
to issue notice under s. 148. [447 A-C]
In these circumstances it could not be held that the Income-
tax Officer had any material before him which could satisfy
the requirements of either cl. (a) or cl. (b) of s. 147.
Therefore he could not have issued a notice under s. 148.
Further the report submitted by him under s. 151(2) did not
mention any reason for coming to the conclusion that it was
a fit case for the issue of the notice under s. 148. The
Commissioner also mechanically accorded permission. Thus
the important safeguards provided in ss. 147 and 151 were
lightly treated by the income-tax Officer as well as by the
Commissioner. [447 F-448 B]
The appeal must accordingly be allowed.
443
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1311 of 1967.
Appeal by special leave from the judgment and order dated
January 17, 1967 of the Patna High Court in C.W.J.C. No. 952
of 1966.
M. C. Chagla, N. D. Karkhanis, S. P. Chowdhury, Bhuvanesh
Kumari, for the appellant.
S. C. Manchanda, R. N. Sachthey and B. D. Sharma, for the
respondent.
The Judgment of the Court was delivered by
Hegde, J. This is an assessee’s, appeal by special leave
against the judgment of the High Court of Patna dismissing
in limini its writ petition under Arts 226 and 227 of the
Constitution of India.
The assessee is having construction contracts under the
Railways as well as the Government. It is a partnership
firm. For the assessment year 1960-61, relevant to the
accounting year 1959-60, after the assessee submitted its
income-tax return, it was asked by the Income-tax Officer
during the income-tax assessment proceedings to produce
before him its books of account and the other relevant
papers. The assessee also produced before him a statement
showing various creditors from whom it had borrowed on
Hundis during the accounting year in question. In that
statement it gave the lull names and address of the alleged
creditors. After enquiry, the assessee’s total income was
assessed at Rs. 69,886/-. On June 3, 1966, the 1st
respondent (Income-tax Officer Ward ’A’,, Muzaffarpur)
issued to the assessee a notice under s. 148 of the Indian
Income-tax Act, 1961. The material portion of that notice
reads as follows
"Notice under s. 148 of the Income-tax Act, 1961.
Income-Tax Officer, Muzaffarpur
Dated, the 3-6-1966.
TO
M/s. Chugamal Rajpal, Muzaffarpur.
Whereas (1) have reason to believe that your income
chargeable the income of 1960-1961 in respect of which you
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are assessable to tax for the assessment year 19 19 has
escaped assessment within the
444
meaning of section 147 of the Income Tax Act, 1961.
I therefore propose to re-assess the income for the said
assessment year and I hereby require you to deliver to me
within 30 days from the date of service of this notice a
return in the prescribed form of your income
The income assessable relevant to the assessment year 1960-
61
of
in respect of which you are assessable for the said
assessment year.
2. The notice is being issued after obtaining the
necessary satisfaction of the Commissioner of IncomeTax,
Bihar and Orissa, Patna.
Sd/- S. P. Chaliha
Income-Tax Officer,
Ward A, Muzaffarpur."
The assessee challenged the validity of that notice as well
as proceedings taken on the strength of that notice on
various grounds. As we are accepting the contention of the
assessee that the impugned notice is invalid inasmuch as it
did not comply with the requirements of s. 151(2) of the
Act, we have not thought it necessary to examine the other
contentions advanced on behalf of the assessee. In this
case the notice was issued after four years but before eight
years of the date of the original assessment.
Section 151 (2) of the Act reads
"No notice shall be issued under Section 148 after the
expiry of four years from the end of the relevant assessment
year, unless the Commissioner is satisfied on the reasons
recorded by the Income-tax Officer that it is a fit case for
the issue of such notice."
Section 148 prescribes :
"(1) Before making the assessment, re-assessment or re-
computation under Section 147, the Income-tax Officer shall
serve on the assesee a notice containing all or any of the
requirements which may be included in a notice under sub-
section (2) of Section 139 and
445
the provisions of this Act shall, so far as may be, apply
accordingly as if the notice were a notice issued under that
sub-section.
(2) The Income-tax Officer shall, before issuing any notice
under this section, record his reasons for doing so. "
Section 147 deals with income escaping assessment. At this
stage we need not refer to that section : We shall refer to
that provision at a later stage. Section 139(2) says :
"In the case of any person who, in the incometax Officer’s
opinion, assessable under this Act, whether on his own total
income or, on the total income of any other person during
the previous year, the Income-tax Officer may, before the
end of the relevant assessment year, serve a notice upon him
requiring him to furnish, within thirty days from the date
of service of the notice, a return of his income or the
income of such other person during the previous year, in the
prescribed form and verified in the prescribed manner and
setting forth such other particulars as may be prescribed."
(proviso is not necessary for our present purpose)
When this appeal came up for hearing on the last occasion,
as we found the affidavit filed by the Income-tax Officer to
’be vague and indefinite, we directed the learned Counsel
for the Department to produce before us the records of the
Incometax Officer to show that the, Income-tax Officer had
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complied with the requirements of s. 148 and s. 151(2) of
the Act. When the appeal was taken up for hearing on the
18th January 1971, only the report submitted by the Income-
tax Officer to the Commissioner and the order of the
Commissioner was produced. The order sheet recording the
reasons of the Income-tax Officer as required by s. 148(2)
was not produced. Hereinbelow we have sent out the report
of the Income-tax Officer as well as the order of the
Commissioner:
Report in Connection with the starting of proceeding" under
Section 147 of the Income-tax Act, 1951.
Name of District
Ward of Circle A Ward, Muzaffarpur
G. I.R. No. 303-C.
1.1. Name and address of the assessee
M/S. Chugamal Rajpal,
Muzaffarpur.
R.F.
2.Status
3. Assessment year for which notice under
s. 1 48 is proposed to be issued 1960-61.
446
4. Whether it is a new case or one in which re-assessment
(or recomputation)
has to be made Re-assessment
5. If a case of reassessment (or recomputation) the income
(or loss or depreciation allowance) originally
assessed/determined. Rs. 73,604/-
6. Whether the case falls under cl. (a) or (b)
of s. 147 147(a)
7. Brief reasons for starting proceedings under Kindly see
s. 147 (indicate the items which are Sd/- S. P. Chaliha.
I.T.O. 30-4-66
believed to have escaped assessment) A-Ward, Muzaffarpur.
8.Whether the Commissioner is satisfied that Yes
it is a fit case for the issue of notice under Sd/- K.
Narain
section 148. 13-5-66
Commissioner of Income-tax,
Bihar and Orissa, Patna
9. Whether the Board is satisfied that it is aSecretary,
Board of Revenue.fit case for the issue of notice under s.
148.
During the year the assessee hasshown to have taken loans
from various parties of Calcutta. From D.I.s Inv. No. A/P/
Misc.(5)D.I./63-64/5623 dated 13-8-65, forwarded to this
office under C.I.T. Bihar and Orissa, Patna’s letter No.
Inv. (Inv.)15/ 65-66/1953-2017 dated Patna 24-9-65, it
appears that these persons are name lenders and the
transactions are bogus. Hence proper investigation
regarding these loans is necessary. The name of some of the
persons from whom money is alleged to have taken on loan on
Hundis are:
1. Seth Bhagwan Singh Sricharan.
2. Lakha Singh Lal Singh.
3. Radhakissen Shyam Sunder.
The amount of escapement involved amounts to Rs. 100,000/-.
Sd/- S. P. Chaliha, 30-4-66.
Income-tax Officer,
A-Ward, Muzaffarpur."
In his report the Income-tax Officer does not set out any
reason for coming to the conclusion that this is a fit case
to issue notice under s. 148. The material that he had
before him for issuing notice under s. 148 is not mentioned
in the report. In his report he vaguely refers to certain
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communications received by him from the C.I.T., Bihar and
Orissa. He does not mention the facts contained in those
communications. All that he says is that from those
communications "it appears that these persons (alleged
creditors) are name lenders and the transactions are bogus".
He has not even come to a prima facie conclusion
447
that the transactions to which he referred are not genuine
transactions. He appears to have had only a vague feeling
that they may be bogus transactions. Such a conclusion
’does not fulfil the requirements of s. 151(2). What that
provision requires is that he must give reasons for issuing
a notice under s. 148. In other words he must have some
prima facie grounds before him for taking action under s.
148. Further his report mentions : "Hence proper
investigation regarding these loans is necessary In other
words his conclusion is that there is a case for
investigating as to the truth of the alleged transactions.
That is not the same thing as saying that there are reasons
to issue, notice under s. 148. Before issuing a notice
under s. 148, the Income-tax Officer must have either
reasons to believe that by reason of the omission or failure
on the part of these assessee to, make a return under s. 139
for any assessment year to the Income-tax Officer or to
disclose fully and truly all material facts necessary for
his assessment for that year, income chargeable to tax has
escaped assessment for that year or alternatively not-
withstanding that there has been no omission or failure as
mentioned above on the part of the assessee, the Income-tax
Officer has in consequence of information in his possession
reason to believe that income chargeable to tax has escaped
assessment for any assessment year. Unless the requirements
of clause (a) or (b) of s. 147 are satisfied, the Income-tax
Officer has no jurisdiction to issue a notice under s. 148.
From the report submitted by the Income-tax Officer to the
Commissioner, it is clear that he could not have had reasons
to believe that by reason of the assessee’s omission to
disclose fully and truly all material’ facts necessary for
his assessment for the accounting year in question, income
chargeable to tax has escaped assessment for that year; nor
could it be said that he as a consequence of information in
his possession, had reasons 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 cl. (a) or cl. (b) of s. 147. Therefore he could not
have issued a notice under s. 148. Further the report
submitted by him under s. 151(2) does not mention any reason
for coming to the conclusion that it is a fit case for the
issue of a notice under s. 148. We are also of the opinion
that the Commissioner has mechanically accorded permission.
He did not himself record that he was satisfied that this
was a fit case for the issue of a notice under s. 148. To
Question No. 8 in the report which reads "Whether the,
Commissioner is satisfied that it is a case for the I issue
of notice under section 148", he just noted the word "yes"
and affixed his signatures thereunder. We are of the
opinion .that if only he had read the report carefully, he
could never have
448
come to the conclusion on the material before him that this
is a fit case to issue notice under s. 148. The important
safeguards provided in sections 147 and 151 were lightly
treated by the Income-tax Officer as well as by the
Commissioner.. Both of them, appear to have taken the duty
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imposed on them under those provisions as of little
importance. They have substituted the form for the
substance.
In the result this appeal is allowed, the order of the High
Court is set aside and the impugned notice quashed. The
Respondent No. 2 shall pay the costs of the appellant both
in this Court and in the High Court.
G.C. Appeal allowed.
449