COMMISSIONER OF INCOME TAX Vs. BIHARIJI MILLS LIMITED

JUDGEMENT

(1.) A statement of case has been submitted by the Income-tax Appellate Tribunal, Patna Bench, under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter to be referred to as "the Act") and the following question of law has been referred for the opinion of this court:

(2.) THE assessee, M/s. Sri Bihariji Mills Ltd., is a public limited company. It derives income from milling business, house property and also earns interest from security, dividends and share in the firm of M/s. Marwari Hotel. THE assessment year out of which this reference arises is 1954-55. THE original assessment for the assessee of the year was completed on the 31st of January, 1959, on a total income of Rs. 1,43,738. Before the completion of the original assessment the Income-tax Officer issued a letter dated the 11th of December, 1958, to the assessee enquiring whether in a raid conducted by the Special Police Establishment on the 30th of August, 1953, six envelopes containing cash of Rs. 24,800 were found in the almirah of the company which sum was not accounted for in the books and whether the assessee had told the police that the said sum belonged to the ladies of the family. On the 18th of December, 1958, the authorised representative of the assessee replied denying discovery of any such money in its premises. THE two letters above-mentioned have been made annexures "A" and "B" respectively to the statement of the case. This amount of Rs. 24,800 was not included in the original assessment as being the assessable income of the assessee. Subsequently, the Income-tax Officer without any further materials initiated proceedings under Section 34(1)(a) of the Act and issued a letter to the assessee drawing its attention to the police raid on the 30th of August, 1953, and the discovery of the sum of Rs. 24,800 in an iron safe belonging to the mill and asked the assessee to show cause why penal proceedings should not be initiated for deliberately furnishing inaccurate particulars and for making a false statement. THE assessee offered an explanation which was not accepted by the Income-tax Officer and by an order dated the 30th of November, 1962, the assessee was reassessed under Section 34(l)(a) read with Section 23(3) of the Act. In the reassessment the aforesaid sum of Rs. 24,800 was included in the income of the assessee. Proceedings under Section 271(l)(c) of the Income-tax Act, 1961, were also started for levying penalty against the assessee after obtaining the approval of the Inspecting Assistant Commissioner. THE order of reassessment was challenged in appeal before the Appellate Assistant Commissioner, who affirmed the order of the Income-tax Officer. Both the matters relating to reassessment and the imposition of penalty under Section 271(1)(c) of the 1961 Act were pursued in two appeals before the Tribunal. THE Tribunal held that the initiation of the proceeding under Section 34(1)(a) was invalid and hence knocked off the reassessment order. THE Tribunal also set aside the order imposing penalty on the assessee. THE order of the Tribunal regarding the penalty matter was the subject-matter of Tax Case No. 1 of 1970, which has since been disposed of yesterday by this Bench. THE present tax case arises out of the reassessment proceeding under Section 34(1)(a) of the Act.

(3.) FROM the Income-tax Officer's letter quoted above, it is evident that the following facts were within the knowledge of the Income-tax .Officer, namely, (1) that a raid had been conducted by the Special Police Establishment, Ranchi, at the premises of the assessee; (2) that the assessee's books of account were seized by the police; (3) that the police found in the assessee's almirah six envelopes which contained cash of Rs. 24,800; (4) that the assessee had told the police that the cash belonged to the ladies of the family ; (5) that this cash of Rs. 24,800 was over and above the cash balance available in the assessee's cash books; and (6) that the source of the possession of this cash amount of Rs. 24,800 was not explained in the assessee's cash books. These facts being already within the knowledge of the Income-tax Officer and no further material forthcoming, either before the original assessment or even subsequent thereto, the finding of the Tribunal that there had been no escapement on account of any nondisclosure or concealment by the assessse cannot be held to be perverse. It is well settled that in order to confer jurisdiction to issue notice under Section 34(1)(a) of the Act, two conditions precedent have to be satisfied--firstly, that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed, and, secondly, he must also have reason to believe that such under-assessment had occurred by reason of omission or failure on the part of the assessee either to make a return of his income under Section 22 or to disclose fully and truly all material facts necessary for his assessment for that year. So far as the first condition is concerned, it is fully satisfied in the instant case for it cannot be said that the Income-tax Officer had no reason to believe that income, profits or gains chargeable to income-tax had been under assessed. But what is lacking here is the fulfilment of the second pre requisite condition. As has been held by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, 1961 41 ITR 191 (SC) although the use of the words "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year" postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment, yet what facts are material and necessary for the assessment will differ from case to case. In every assessment proceeding, the assessing authority would, for the purpose of determining the proper tax due from the assessee, require to know all the facts which help him in coming to the correct conclusion. FROM the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise, the assessing authority has to draw inference either of other facts or of the provisions of law applicable to the facts of a particular case. But once all the primary facts are before the assessing authority from whatsoever source such facts come within his knowledge, he requires no further assistance by way of disclosure. The same principle has been reiterated by the Supreme Court in the cases of Commissioner of Income-tax v. Hemchandra Kar, 1970 77 ITR 1 (SC) Commissioner of Income-tax v. Bhanji Lavji, 1971 79 ITR 582 (SC) and Commissioner of Income-tax v. Burlop Dealers Ltd., 1971 79 ITR 609 (SC) In the case of Hemchandra Kar the facts were that the assessee a Hindu undivided family, had encashed high denomination notes of the value of Rs. 19,000 following the demonetisation of such high denomination notes. On that very day five members of the family, namely, Hemchandra Kar, Jatindra Nath Kar, Atul Chandra Kar, Narendra Nath Kar and Bishnuram Kar, had also encashed such high denomination notes totalling Rs. 1,10,000. After the original assessment of the family and the five members mentioned above, reassessment proceedings were started and notices were issued calling upon the family as well as its members to explain the amounts so withdrawn. It was stated before the Income-tax Officer that the Hindu undivided family had only a sum of Rs. 19,000 whereas the other encashments were made by the five individual members of the family from out of their own personal funds. In the original reassessment proceeding this explanation was accepted and the Hindu undivided family was reassessed after including the sum of Rs. 19,000 only. Subsequent thereto, a second reassessment proceeding was started on the same facts by which the aforesaid sum of Rs. 1,10,000, purported to have been drawn by the five individual members, was also sought to be included in the assessable income of the Hindu undivided family. In that connection the Supreme Court was dealing with the validity of the initiation of the second reassessment proceeding and their Lordships held that when the first reassessment was made, the primary facts necessary for reassessment of the family were in the possession of the Income-tax Officer. These facts came into possession not by virtue of any disclosure made by the family but by discovery made otherwise. Yet, from the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of facts disclosed or otherwise, the assessing authority had to draw inferences. Having drawn the inferences once, the mere change in the opinion that the amounts withdrawn by the individual members may also be the income of the family, the Income-tax Officer could not vest himself with the jurisdiction to start a fresh reassessment proceeding. To use the language of the Supreme Court: