GURDAYAL BERLIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) : In this reference under s. 66(1) of the IT Act, 1922, the following question of law has been raised for the opinion of this Court : "Whether, on the facts and circumstances of the case, the assessment of the assessee under s. 34 (1)(a) of the Indian IT Act was in accordance with law?"

(2.) THE assessee is Gurdayal Berlia, Calcutta. THE assessment year is 1948-49 and the corresponding accounting year is 2004 Diwali. THE assessee had been carrying on business in Calcutta from before 1943-44. For the asst. yr. 1948-49 an assessment was made on the 30th Nov., 1950, on an income of Rs. 30,000 (rupees thirty thousand), the turnover being estimated at Rs. 4,00,000 (rupees four lakhs). This was done after the assessee had appeared in response to a notice under s. 23(2) and stated before the ITO that he had been doing business on a moderate scale and kept no accounts for his business at all. On such a statement being made, the case was enquired into by the ITO and, in the absence of any accounts or evidence in support of the return, the assessment was made under s. 23(3) on the basis of the enquiries made by the ITO.

(3.) IT was also contended that the subsequent assessment disclosed profits ranging between one per cent to four per cent and so there was no reason for concluding that the gross profit was seven and a half per cent. The AAC found that the original assessment having been made on a turnover of Rs. 4,00,000 (rupees four lakhs), which was much less than a single transaction of Rs. 6,00,000 (rupees six lakhs) with one Bombay party, there was obviously an under-assessment and s. 34 applied. On the main question as agitated by the assessee whether cl. (a) or cl. (b) applied, the AAC held that the assessee did not disclose his business activities in the year of account and so cl. (a) in this particular reassessment came into operation. IT was also held that the confirmation of the original assessment by the AAC did not debar the ITO invoking s. 34(1)(a) once again, if there were reasonable grounds justifying the same. As regards the assessment of net profits, it was found that the assessee kept quiet on this matter when the ITO assessed the profit at 7 1/2 per cent. and no point as to the correctness of this assessment was taken in appeal before the AAC. Accordingly, it was not open to him to protest against the rate being applied now. The finding made by the AAC was upheld by the Tribunal. The relevant portion of the decision is quoted below : "Having regard to the default under s. 22(2) and putting the Department on the wrong track as regards the existence of bank accounts and the dealings with the Bombay party, the assessee has, in our opinion, put himself within the pale of s. 34(1)(a). So far as the voluntary disclosure scheme is concerned, we are not concerned with it, that being a matter solely within the purview of the Revenue. But it is strange that even in a disclosure made ten months after the AAC had passed his order in February, 1951, the assessee kept silent about this Bombay transaction. There is also no doubt that the source for the payment of Rs. 7,340 out of Rs. 37,645 paid as income-tax has not been properly explained. In other words, he was content to have the turnover put at Rs. 4,00,000 though he knew very well that in any event it had exceeded Rs. 6,00,000 (the transactions with the Bombay party), if not more. There is thus no escape from the application of s. 34. IT has been urged with great emphasis that the ITO could take action only if he had reason to believe and he cannot act upon mere suspicion. We have already met this by saying that with the knowledge that the turnover was much more than Rs. 6,00,000 the assessee was content to keep quiet when it was put at Rs. 4,00,000 by the ITO and though it might be said that at the stage of assessment he was not aware of this estimate, he was aware of this in the appeal to the AAC and even then he chose to keep quiet. There is thus no substance in that objection.