DWARKA DASS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) By this petition under Article 226 of the Constitution of India, the petitioner challenges the issue of a notice under Section 148 read with Section 147 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), by the ITO. It has been prayed that holding the issue of the said notice to be illegal and without jurisdiction the same may be quashed and a writ of prohibition or in the nature of prohibition be issued to the respondents restraining them from taking any action under the impugned notice including making of reassessment of the petitioner's total income. It has also been prayed that the respondents be restrained from issuing any further notice under Section 142 or under Section 143 of the Act for the purpose of making reassessment and such other or further orders be passed as may be appropriate in the case.

(2.) The assessment year in question is 1962-63. According to the petitioner, it is a partnership firm carrying on business of commission agents in dry fruits, katha and kirana goods at Delhi. The firm and its partners are regularly assessed to Income Tax since 1962-63. The last completed assessment is for the assessment year 1972-73, The financial year of the firm for the relevant period is from October 24, 1960, to November 6, 1961. For the said year, the firm filed its return of income on July 9, 1962, before the ITO, District B-IX, declaring an income of Rs. 81,646. The income returned is said to have been duly supported by the balance-sheet and the trading and profit and loss account. During the assessment proceedings, the petitioner claims, it filed before the ITO details of all the expenditure debited to the profit and loss account, including the details of interest paid to creditors from whom loans had been taken by the firm. The loans taken by the firm were also disclosed along with the names of parties from whom the said loans were taken. Letters issued by creditors of the firm were also produced along with other relevant records. Repayment of loans, to the extent paid, was also disclosed. It is claimed that after thorough scrutiny of the accounts of the petitioner and evidence produced in support of the return, the ITO framed an assessment under Section 143(3) of the Act by an assessment order dated July 29, 1963. The ITO determined the total income of the firm, i.e., the petitioner, as Rs. 85,402 without taking any exception to the genuineness of any of the loans disclosed by the petitioner. He allowed full interest paid by the firm to its creditors and claimed it as expense in the profit and loss statement. On October 24, 1966, the petitioner received a notice dated October 6, 1966, under Section 148 read with Section 147(a) of the Act for the assessment year 1962-63, from the ITO, District III, Ward 'L', alleging that the ITO had reasons to believe that by reason of omission or failure on the part of the firm to disclose fully and truly all materials necessary for its assessment for the year 1962-63, income chargeable to tax has escaped assessment for that year. It is contended that the said notice did not give any indication as to what material in the possession of the ITO had persuaded him to formulate the reason for the belief postulated by the notice nor did the notice give any indication as to what income was alleged to have escaped assessment which the petitioner was required to declare for reassessment. The petitioner under protest submitted a return in the prescribed form on January 21, 1966, declaring therein the same total income as was declared earlier, viz., Rs. 81,646. Nothing further was heard from the ITO till August 2, 1969, and the petitioner presumed that since it had filed its return under protest, the ITO had reconsidered the whole situation. It was, however, under a wrong belief because it received a notice under Section 143 of the Act fixing a date for personal appearance. At the hearing the petitioner was called upon to produce evidence in support of a deposit of Rs. 10,000 appearing in the books of the firm in the name of Ghanshyam Dass Megh Raj. Evidence was produced but the ITO was not satisfied. He thereupon reassessed the total income of the petitioner by an order dated August 26, 1969, and added back to the total income originally assessed the said sum of Rs. 10,000 as income from undisclosed sources. Thus, the total income was reassessed at Rs. 95,402 instead of Rs. 85,402. On March-28, 1970, the petitioner received another notice under Section 148 read with Section 147 of the Act from the ITO alleging that he had reason to believe that by reason of omission or failure on the part of the firm to disclose truly and fully all material facts necessary for its assessment for the year 1962-63, the income chargeable to tax had, escaped assessment for that year. The petitioner-firm was once again called upon to file return of income in the prescribed form within 30 days of the receipt of the notice. This notice also stated that it had been issued alter obtaining the necessary permission of the CIT-II, respondent No. 2 herein. This is the impugned notice and a true copy of it filed on the record bears no date (annex, "G" to the petition). The petitioner once again submitted its return declaring its total income to be Rs. 81,646 under protest. A notice under Section 142(1) of the Act dated April 12, 1973 (annex."G-I" to the petition) was served on the petitioner. As the petitioner was of the view and contended that the ITO had no jurisdiction to issue the said notice under Section 142 or Section 143 of the Act it submitted a letter of protest dated May 30, 1973, and also called upon the ITO (respondent No. 1) to indicate the reasons inducing him to take action under Section 147(a) of the Act (annex. "H" to the petition). Not getting a satisfactory reply the petitioner has moved this court to quash the impugned notice under Section 148 read with Section 147 of the Act and all further proceedings in consequence thereof.

(3.) The petitioner challenges the impugned notice and consequent proceedings on the following grounds :