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Petitioner: P. S. S. BOMMANNA CHETTIAR VS Respondent: COMMISSIONER OF INCOME-TAX, MADRAS
Court Name: Madras High Court Judge(s): K. Veeraswa mi, Ramaprasada Rao Title: P. S. S. BOMMANNA CHETTIAR vs COMMISSIONER OF INCOME-TAX, MADRAS Case No.: Cases Nos. 59 of 1962 and 206 of 1965 (References Nos. 38 of 1962 Date of Judgment:1965-01-05 Reported As: 1971 PTD 620 Result: question, allowed
JUDGMENT
JUDGMENT RAMAPRASAD RAO, J.-Tax Case No. 59 of 1962 is in relation to the assessment made by the revenue under section 34 of the Indian Income-tax Act, 1922, on the assessee and relates to the assessm ent years 1943-44 to 1947-48. Tax Case No. 206 of 1965 also relates to the same period, but concerns itself with the legality and propriety of the penalty levied on the assessee under section 28(1)(c) of the Act. The Tribunal, in each of the cases as above, submitted independent questions for being answered by this Court. The relevant facts are as follows :- The assessee was assessed as a Hindu undivided family. The assessee was mainly dealing in yarn and was manufacturing silk sarees as well. Assessments for the years under review were made under section 23(3) of the Act. On written information furnished by the assessee's pleader, one Mr. Ramamurti Iyer, that silver bars of the assessee were kept in his house for some time and that such property belonged to the assessee, action was taken by the Income-tax Officer under section 34 of the Act on the foot that he had information relating to sale of jewels fn some years, acquisition of properties fn some others and of bank deposits in yet others in the names of his mother-in-law and two wives. For the year 1943-44, the original assessment was completed on March 10, 1944, and he was assessed on an income of Rs. 53, 628. Notice under section 34 to reopen the assessment was given on December 11, 1950, and it was found that property of the value of Rs. 14,286 and jewels of the value of Rs. 13,178 were purchased from undisclosed money and hence an addition of Rs. 27,464 was made for this year. For the assessment year 1944-45, the original assessment proceedings were completed on February 25, 1947, and the assessee was assessed on a total income of RS. 42,459. On December 10, 1951, notice under section 34 was given and consequent upon such reopening, a sum of Rs. 38,775 as the value of the properties, a sum of Rs. 90,000 as
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bank deposits in the names of his relatives, a sum of Rs. 618 as and for acquisition of interest on securities, and a sum of Rs. 523 being the annual value of certain other properties were discovered to have been secured by the assessee during this assessment year and consequently a sum of Rs. 1,29,916 was added in the re-opening proceedings.. In the assessment year 1945-46, the original assessm ent of which was completed on February 25,1947, when the total income was reckoned at Rs. 74.318 was sought to be reopened by initiating notice under section 34 on December 11, 1950, resulting in a total addition of Rs. 49,267 consisting of bank deposits in the names of relatives, sale or acquisition of jewels of the value of Rs. 17,900, interest on securities to the tune of Rs. 84 and other properties of the annual value of Rs. 523. Even so, for the assessment year 1946-47, a total addition of Rs. 74,542 was added on the original assessment made on March 15, 1948, in the sum of Rs. 23,616 on proceedings initiated under section 34 of the Act on December 10, 1951. Here again, the additions consisted of the value of properties, bank deposits, interest on securities and the annual value of other properties secured from undisclosed sources. For the last assessment year 1947-48, three sums were added, namely, Rs. 10,800, Rs. 17,500 and Rs. 25,075. The original assessment for the year in question was completed on March 25, 1948. The re-opening of the assessment was done under section 34 on August 26, 1950, and June 4, 1953, and the escaped income consisted of sale considera--petition for purchases of properties, bank deposits in the names of relatives, interest on securities and annual value of other small properties. The statement of the case in Tax Case No. 59 of 1962 sets out in detail the nature of escapement in each of the years under review. It is unnecessary to repeat them while answering the question under reference. We shall, however, succinctly refer to the relevant facts in each of the years so as to make this order complete. On the facts arising in the reference, the following questions f or our decision have been formulated by the Tribunal:-- R. A. No. 712:- (i) Whether the initiation of proceedings under section 34 for all the years was justified ? (ii) Whether the inclusion of Rs. 13,178 as the income of the assessee is lawful? And (iii) Whether the inclusion of Rs. 14,286 representing the value of part of the properties standing in the name of Thayammal Rukmini Ammal and Saraswathi Ammal as having been acquired from undisclosed sources of the assessee is lawful?" R. A. No. 713 of 1947-48. "Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by inclusion of Rs. 10,200 representing the deposits made by Thayammal in the bank as belonging to the assessee and as representing the income of the assessee is lawful?" R. A. No. 714 of 1944-45. "(1) Whether; on the facts and in the circumstances of the case, the supplementary assessment made by the inclusion of Rs. 38,775 representing the value of the properties purchased by Thayammal, Rakmini Animal and Saraswathi Ammal during the accounting year by treating the said investments as income of the assessee is lawful ? (2) Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 90,000 representing the deposits made by Thayammal, Saraswa thi Ammal and Rukmini Animal, and Rajaguni Animal in banks as belonging to the assessee and representing the income of the assessee is lawful?" R. A. No. 715 of 1945-46. "Whether on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 17,900 representing the sale proceeds of jewels as income of the assessee is lawful ?". R. A. No. 716 of 1946-47.
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"(1) Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 12,094 representing the value of the properties purchased by Rukmini Animal and Saraswathi Animal by treating the acquisition of the properties as represent--ing the income of the assessee is valid ? (2) Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 30,000 representing the deposits by Thayammal in the bank as belonging to the assessee and representing the income of the assessee is lawful?" R. A. No. 717 of 1947-48 "Whether, on the facts and in the circumstances of the case, the supplementary assessment made under section 34 by the inclusion of Rs. 20,000 representing the deposits made by Thayammal in the bank as belonging to the assessee and as representing the income of the assessee is lawful?" For the year 1943-44 additions were made on the ground that the amounts expended for the purchase of properties and amounts realised by sale of jewels should be deemed to be the undisclosed income of the assessee. In March 1942, jewels worth about Rs. 12,000 were sold and a consolidated entry regarding such transactions was made in the account books on March 28, 1942. Though these jewels were reported to be the jewels of the two wives of the assessee and though these ladies had folios in the books, the moneys realised by the sale of the jewels were not brought to their account. Similarly, the source of purchases of certain properties during the assessment year under review was not clearly explained. It was pleaded that the mother-in-law of the assessee invested certain amounts belonging to her and from and out of such investments the properties were purchased in the names of the wives of the assessee. It was also suggested that the mother-in-law was carrying on money-lending business of her own and this also constituted the nucleus for the purchase of the properties. The Income-tax Officer rejected the version and held that the mother-in-law had no requisite financial resources for making the investments and the moneys invested both in land and in bank deposits in the years 1943-44 and 1944-45 came from the assessee. On the Appellate Assistant Commissioner rejecting the theory put forward by the assessee as regards the source of the purchase price of the properties and the investments, the Tribunal considered at length the story of the assessee. They found it impossible to believe that the wives sold jewels in order to provide funds to the assessee. In fact, they were of the view that, when according to the mother-in-law of the assessee the wives of the assessee were duly provided for with enough and more funds and properties, there seems to be no necessity or reason for the housewives to sell jewels as if they were in impecunious circum--stances and in order to provide funds for the business of their husbands. They characterised the entire transaction as ringing in untruth. Attention is pointedly drawn to the receipts given by the assessee himself in the case of the sale of jewels. They advert to the claim of Thayammal, the mother-in-law of the assessee, that she was doing cotton business of her own and find that it is for the first time in March 1952, such a version is put forward by her. They were not impressed with the posse of witnesses examined in the case and pointed out that the witnesses were speaking about the alleged money-lending activities of the family, but there is no whisper about the cotton business. The account books said to have been kept by the family was subjected to expert examination both by the Government examiner of disputed documents and by an expert of the choice of the assessee and after adverting to the material entries therein and the manner of such entries, the Tribunal found that the account books produced by the family cannot be said to be those kept in the ordinary course of business. At this stage it is convenient to refer to the story put forward by the assessee as regards bank deposits as well: It is alleged that such bank deposits discovered during the assessment years commencing from 1944-45 to 1947-48 did all emanate form the mother-in-law of the assessee and for this purpose the alleged opulence of the mother-in-law was greatly stressed. Reliance was
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placed on the money-lending business and the cotton business of Thayammal. The Tribunal, in a very detailed and considered order of theirs, found that the account books pro--duced by Thayammal cannot be countenanced and, in fact, quoted a particular instance in 1944-45 to discredit the entire theory as regards the opulence of Thayammal. During the year 1944-45 there was a credit for Rs. 350 in the name of Thayammal on December 11, 1943. A debit for this amount also appears in the account books. No explanation whatsoever had been forthcoming as to what Thayammal did with her funds from 1935 to 1941 when the deposits started and the purchases of properties were made. Malli Chettiar, one of the witnesses, definitely states that Thayammal was not keeping accounts. We are not satisfied that a proper explanation was at any time offered before the revenue or the Tribunal for accepting the story put forward by the assessee that the deposits in the course of years and the purchase of properties in each of the assessment years were made from funds other than those belonging to the assessee. Rightly, therefore, for the year 1943-44 the Tribunal rejected the contention that a sum of its. 14,286 was provided for by Thayammal for the purchase of properties during the accounting year. Even so, we are not satisfied that there was material before the Tribunal to dislodge the findings of the revenue that the amount of Rs. 13,178 representing the value of jewels came from the assessee. For the year 1944-45 the Tribunal had ample material to find that the purchase of the properties and the investments on fixed deposits on February 8, 1943, and June 16,1943, were made and ought to have been made from the funds of the assessee and not through funds belonging to third persons including Thayammal. As this Court exercises jurisdiction only in an advisory capacity in proceedings under section 66 of the Indian Income-tax Act, 1922, and as it, does not act as an appellate Court, we feel that we are justified in upholding the findings of fact of the Tribunal which are based on material, and indeed ample material. One other common question that was seriously urged by Mr. IC. Rajah Iyer, learned counsel for the assessee, is that the income-tax Officer was in error in having re-opened the assessment under section 34 of the Income-tax Act. This contention proceeds on the basis that when original assessm ents ::ere completed in the instant case in their respective years, the Income-tax officer had all the materials before him and if he -was not circumspect at that time so as to bring into the not of taxation various amounts which were indeed assessable and exigible to tax, he cannot, at a later stage, on the same material, re-open the assessment on the ground that some income of the assessee has escaped assessm ent. Indeed, the floodgates of investigation in the instant case were opened by a letter written to the department by an advocate of the assessee. On such information secured regarding the secret keeping of certain gold and silver bars at the residence of the advocate, which were later taken away by the assessee, a re-examination of the accounts and a probe into further details were called for. This resulted in the proceedings under section 34 and in the additions of income as stated above. The question which arises immediately for consideration is whether the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year, or to disclose fully and truly all material facts necessary for his assessment for that year, the income chargeable to tax has escaped assessm ent for that year. The contention of the learned counsel for the assessee is that in the instant case it cannot be said that the necessary limbs of section 34 have been satisfied in the case, for there was a totality of disclosure of the assets and income of the assessee even during the original proceedings. No doubt, as already stated, the investigation started on information secured through an advocate of the family who later turned hostile to them. But at that point of time it has to be considered whether the Income-tax Officer had reason to believe that there was no totality of disclosure or fullness of disclosure of material facts. The expression "reason to believe" appearing in section 34 has been the subject-matter of many
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judicial precedents. The ratio of such well-accepted authoritative pronouncements appear to be that if the Income-tax Officer acts as a reasonable and prudent man on the basis of information secured by him that there is a case for re-opening, then section 34 can well be pressed into service and the assessm ents re-opened. As a consequence of such re-opening, certain other facts might come to light. There is no interdict or a ban under section 34 for the assessing officer to taken into consideration such facts which come to light either by discovery or by a fuller probe into the matter and re-assess the assessee in default if circumstances require. A mere submission by the assessee that the entire account books were before the assessing officer even in the first instance is not always the necessary criteria to judge whether p re-opening under section 34 is possible. Each case depends on its own facts and circumstances. As seen from the narrative of facts earlier, the re-assessm ents fn the respective years under consideration were based on a just and a proper probe into the accounts, though, no doubt, the necessity for such reopening was based on material which might not form the basis or the sine qua non for the ultimate re-assessment. "The word `information' is, therefore, synonymous with knowledge or awareness, in contradistinction to apprehension, suspicion or misgiving. The words 'definite information' and 'discovers' in section 34 do not bear any rigid or narrow etymological meaning, but are to be interpreted in their broad and generally accepted sense. The only restriction in using the words 'definite information', which the framers of section 34 had in view, was to prevent the Income-tax Officers from making assessments blindly and officiously or on the basis of rumours, gossip or vague apprehensions. The Income-tax Officer is not called upon to discover the exact quality or quantity of the omission; it is sufficient if he finds that there has been some omission and it is immaterial if it is greater or smaller than he had supposed it to be. It is no less a discovery when the actual omission is of some different kind to the supposed omission". "The rule of interpretation of fiscal enactments, that in case of doubt the construction most beneficial to the taxpayer should be adopted, is subject to the overriding rule against the impairment of obligation." "The mere production of account books at the time of the original assessment did not fasten knowledge upon the department as to the existence of any cash credits therein and the department was not estopped from discovering any cash credits which had been overlooked in the original assessm ent proceedings ; section 34 covered such a case." "The belief must be held in good faith; it cannot be merely a pretence . . . . It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief. . . The Court is not concerned with the question whether the materials may be regarded by a Court, before which a dispute is raised, to be sufficient to sustain the belief entertained by the Income-tax Officer. The duty imposed by the Act upon the taxpayer is to make a full and true disclosure of all material facts necessary for the assessm ent ; . . " "Once a case is re-opened under section 34 of the Income-tax Act, the Income-tax Officer is not limited to the information which he had received and on the strength of which he had asked for a re-opening of the assessm ent and re-assessment of the assessee. If he were to discover other cash credits after issuing the notice, he is entitled to take them into account in the income of the assessee and to assess such income if it had escaped assessment earlier. The term 'such income' in section 34 refers to the entire escaped income, not only to that part of it with respect to which the Income-tax Officer had definite information, in consequence of which he had discovered the escapement." " . . Income which escapes assessm ent as a result of the lack of vigilance of the Income-tax Officer or due to inadvertence or negligence or to the perfunctory performance of his duties without due
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care and caution can well be within the ambit of section 34 (1)(b) provided the requirements of that section are satisfied." Kale Khan Mohammad Hanif v. Commissioner of Income-- tax ((1963) 50 I T R 1 (SC)) is authority for the view that in re-assessm ent proceedings under section 34 of the Income-tax Act, 1922, cash credits in the accounts of the assessee, which had been overlooked in the original assessment, can be brought to tax as representing income from undisclosed sources. The scope of the jurisdiction has been well brought out by Veeraswami, J., speaking for the Division Bench, in T. S. PL. P. Chidambaram Chettiar v. Commissioner of Income-tax ((1966) 62 I T R 774) as follows: "For invoking jurisdiction under section 34(1)(a) and initiat--ing action thereunder, it is not necessary that omission or failure on the part of the assessee and escapement of income from assessm ent should be found as a condition precedent. It is sufficient if the Income-tax Officer has reason to believe that income has escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of a particular year. The burden to disclose facts is primarily on the assessee and any information that the department may have will not dispense with the necessity of the assessee to discharge his duty." The following passage from Kantamani Venkata Narayana do Sons v. First Additional Income-tax Officer, Rajahmundry ((1967) 63 I T R 638 (SC)) is also instructive : "The assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessm ent of the relevant year by merely producing the books of account or other evidence. He has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that, from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment." The later analytical exposition of the law underlying reopening of assessment has been succinctly stated by the Supreme Court in S. Narayanappa v. Commissioner of Income-tax ((1967) 63 I T R 219 (SC)):- "Two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 of the Income-tax Act in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, viz., (i) the Income- tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under-asses--sed ; and (ii) be must have reason to believe that such 'under--assessment' had occurred by reason of either, (a) omission or failure on the part of the assessee to make a return of his income under section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are condi--tions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. If there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the Court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words; the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' in section 34 does not mean a purely subjective satisfaction on the part of the Income --tax Officer. The belief must be held in good faith ; it cannot be merely a. Pretence. It is open to the Court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant
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to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in Court of law." To sum up, the Income-tax Officer while exercising jurisdiction under section 34 had reason to believe that there was an escape--ment and he found as a matter of fact the casual connection between the materials and the primary facts found by him in the reopening proceedings and the escapement as such and there being sufficient nexus between the two, he had authority to act as he did and find as he concluded. The jurisdictional fact discovered and found by the revenue and ultimately sustained by the Tribunal has been so found by it within the framework of law and, there--fore, the revenue had ample jurisdiction to re-open the same. The assessee cannot barely take shelter on the theory that all the account books were before the original authority and-a little more of circumspection on his part should have brought to light the so-called primary facts laterly discovered by the re-opening authorities. This is a vain argument and without any substance. It is necessary that when an assessm ent is…
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