M VARADARAJULU Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THESE are two writ petitions for the issue of writs of prohibition prohibiting the respondent, Income-tax Officer, from continuing the proceedings in pursuance of his notice dated March 7, 1967, issued under section 148 of the Income-tax Act, 1961It is true that the department had not questioned the persons who were said to have advanced loans to the petitioner with reference to the particular loan transactions shown by him in his account books. But those statements were recorded from them generally about their business and their lending capacity. It is also true that some of them have claimed to have had genuine transactions also apart from the hawala transactions. It is, therefore, all the more important for the Income-tax Officer to have satisfied himself with reference to the particular transactions of the assessee before issuing the notice under section 148. There can be no dispute that any fact or circumstance which forms the reason for the Income-tax Officer to believe that there was an omission or failure to disclose fully and truly all material facts necessary for the assessment must relate to the assessee and in particular to the assessment year in question and not a general doubt based on general information not related to the particular case. If the initiation of the proceedings under section 147(a) is to be permitted on this vague and general doubt, it would be permitting the department to make a fishing or roving enquiry without a reasonable belief that the assessee had omitted or failed to disclose fully and truly all material facts necessary for the assessment. We, therefore, looked into the statements of those persons from whom the petitioner is stated to have borrowed money during the relevant assessment years 1966-61 and 1961-62 to find out whether there is any particular reference to the transactions they had with the assessee.

(2.) THOUGH, we did not find any special reference to the dealings with the assessee or the particular transactions noted in the account books of the assessee, at least in one instance a person, whose name finds a place in the list of persons given by the assessee who are said to have advanced loans to the assessee, had given a statement that he never had any genuine transactions with anybody, and that all the transactions in his name were hawala transactions. This statement shows that that particular individual could not have lent any money to the petitioner during the assessment years in question and that the entries in his name in the account books of the petitioner are all hawala transactions. This, in our opinion, is "some material" which could form some reasonable ground for thinking that there had been a non-disclosure of some material fact. In this connection we may usefully quote the following passage in the judgment of the Supreme Court in the leading case, Calcutta Discount Co. Ltd. v. Income-tax Officer "The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary 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 notices under section 34 of the Indian Income-tax Act, 1922 (now under section 148). Whether these grounds are adequate or not for arriving at the conclusion that there was a non-disclosure of the material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts." *The learned counsel for the petitioner then contended that the reports submitted by the Income-tax Officer to the Commissioner of Income-tax and the sanction of the Commissioner are not in strict compliance with sections 147, 148 and 151 of the Act.

(3.) THE Income-tax Officer after satisfying himself about the existence of the agreement allowed that sum. But, for the assessment year 1950-51, a similar claim for deduction of an amount paid under that financing agreement was disallowed on the ground that the agreement between the assessee and Ratiram Tansukhrai had merely been "got up as a device to reduce the profits received from H. Manory Ltd." THEreafter the Income-tax Officer issued a notice under section 34 of the Indian Income-tax Act, 1922, to reopen the assessment for 1949-50 and to assess the sum of Rs. 87, 937 alleged in the assessment as paid to Ratiram Tansukhrai. THEreafter, the Income-tax Officer also reassessed the income under section 34(1)(a) and added that amount in the assessment for 1949-50. THE Appellate Assistant Commissioner confirmed this order observing that the assessee had misled the Income-tax Officer into believing that there was a genuine agreement with Ratiram Tansukhrai. THE Appellate Tribunal held that the assessee had produced all the relevant accounts and documents necessary for completing the assessment and the assessee was under no obligation to inform the Income-tax Officer about the true nature of the transactions and allowed the appeal. THE Tribunal refused to state a case and a petition filed under section 66(2) was also dismissed by the High Court. THEreupon, the Commissioner of Income-tax filed an appeal to the Supreme Court.