CHOUTHMAL AGARWALLA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY an order of this court dated the 14th February, 1961, in Civil Rule No. 4(M) of 1960, the Income-tax Appellate Tribunal was asked to refer the following two questions of law for decision :

(2.) THE facts as disclosed in the statement of the case are that the Hindu undivided family, styled "Bhimaraj Chouthmal", whose karta is Chouthmal Agarwalla, was assessed for the year 1946-47, the corresponding accounting year being 2002 R.N., as Hindu undivided family, for Rs. 29,761. Notice under section 34 was subsequently issued on the ground that by reason of non-disclosure of certain material facts the income for the year has escaped assessment. THEreafter, the Hindu undivided family was reassessed under section 23(3) of the Income-tax Act. An appeal was filed against the aforesaid assessment, but the order was ultimately upheld by the Appellate Tribunal. THE case of the department was that the department came to know subsequently that a sum of Rs. 1,18,000, for which a draft was purchased in the name of Chouthmal Agarwalla, was deposited in the Hindu undivided family bank account on the 19th March, 1946, in the Imperial Bank of India at Dibrugarh. This fact was not disclosed to the income-tax authorities when the Hindu undivided family was assessed for the assessment year 1946-47. THE department has now come to the conclusion that the source of this amount of Rs. 1,18,000, with which the bank draft was purchased, had not been disclosed by the assessee and thus the assessee was assessed to income-tax for the sum of Rs. 60,000 as the estimated profit.

(3.) THE case of the assessee was that a sum of Rs. 1,33,000 was taken by Chouthmal to his home town in Rajasthan as there was fear of Japanese invasion in the year 1942. This sum was kept there and Rs. 15,000 out of the said amount was spent and when the situation eased Rs. 1,18,000 was brought back to Dibrugarh and credited in the account of the Hindu undivided family, to the credit of Chouthmal, mother of Loknath, and Mahadevi Agarwallini. That this amount was brought to Dibrugarh and was credited in the names of various persons in the account books of the Hindu undivided family is apparent from the entries in the account book itself. That these credit items form part of the sum of Rs. 1,18,000 brought from Jaipur to Dibrugarh is also evident from the copy of the ledger account of Chouthmal Agarwalla as also in the books of Bhimraj Chouthmal of Dibrugarh. It cannot, therefore, be said that the primary facts were not disclosed at the earlier stage and that it is a case of failure on the part of the assessee to disclose the material facts. THEre is no material to show that the Income-tax Officer could reasonably believe that the failure to disclose the fact that the sum of Rs. 1,18,000 was deposited in the bank account of the Hindu undivided family resulted in under-assessment. In the absence of any such material, the condition precedent to issue any notice under section 34 of the Income-tax Act did not exist and the entire proceedings consequent upon the issue of such notice are invalid in law. In our opinion, therefore, the Income-tax Officer was not justified on the facts and in the circumstances of the case to issue notice under section 34(1)(a) of the Income-tax Act and thus the question No. 1 referred to us must be answered in the negative.