1976-VIL-465-CAL-DT

Equivalent Citation: [1978] 113 ITR 143, 1977 CTR 175

CALCUTTA HIGH COURT

Date: 22.12.1976

BRITISH ELECTRICAL AND PUMPS PVT. LIMITED

Vs

INCOME-TAX OFFICER, ´B´ WARD, COMPANIES DISTRICT-I, CALCUTTA, AND OTHERS

BENCH

Judge(s)  : SALIL KUMAR DUTTA., H. N. SEN 

JUDGMENT

The judgment of the court was delivered by

SALIL KUMAR DATTA J.--This is an appeal against the judgment and order of Sabyasachi Mukharji J., dated May 14, 1976, discharging the rule obtained by the petitioner. The facts relevant are as follows: The petitioner, appellant (hereinafter referred to as "the company") duly filed its return along with its balance-sheet and profit and loss account for the assessment year 1969-70, showing an income of Rs. 2,61,307. D. K. Gupta, the Income-tax Officer, 'E' Ward, Comp. Dist. I, Calcutta, by his order dated November 29, 1969, assessed the total income of the company for the said year under section 143(3) at Rs. 3,13,059 disallowing various claims. On appeal, the Appellate Assistant Commissioner of Income-tax by order dated January 6, 1970, revised the total income to Rs. 2,92,208. The company thereupon became entitled to a refund of Rs. 11,026.04 and the same was given effect to by the Income-tax Officer. The company preferred an appeal to the Income-tax Appellate Tribunal against disallowance of the remuneration paid to the director for Rs. 23,000 and by its order dated September 29, 1972, the Appellate Tribunal allowed the remuneration, reducing the total income to Rs. 2,69,208 and increasing the refund to Rs. 12,650 and the order giving effect to the same was also served on the company.

It was alleged that at the time of the original assessment the company produced all its books of accounts and evidence relevant for the purpose and on full examination and satisfaction, the income was computed by the officer. There was, it was further alleged, no omission or failure on the part of the company to disclose fully and truly all material facts necessary for the assessment.

All on a sudden, on March 22, 1974, the company was served with a notice under section 148 issued by D. P. Majumdar, Income-tax Officer, 'E' Ward, C1, Calcutta, calling upon the company to deliver to him within thirty days of service a return in the prescribed form of its income for assessment year 1969-70 for reassessment by him. The notice recited that the said officer had reason to believe that the income of the company for the aforesaid assessment had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.

The company filed its return under protest and submitted through its representative that the notice was without jurisdiction as the condition precedent to the issue of the notice was not satisfied. By its letter of June 10, 1974, the company pointed out that the said officer had no such information in his possession on the basis whereof he could assume jurisdiction and in any event the material should be furnished or otherwise the notice should be cancelled.

Thereafter on June 18, 1974, the company moved an application under article 226 of the Constitution contending, in addition to the above contentions, that there was no omission or failure on its part to disclose truly and fully all primary facts necessary and material for assessment. Accordingly, the purported action was a roving and fishing investigation without any information or material as the basis of the alleged belief and thus a colourable exercise of power on mere change of opinion. The company accordingly prayed for issuance of appropriate writs quashing the impugned notice and directing the authority to withdraw and cancel the same.

On this application a rule nisi was issued on June 18, 1974, calling upon the respondents, the Income-tax Officer, 'E' Ward, Companies Dist. I, Calcutta, the Commissioner of Income-tax, West Bengal, Calcutta, as also the Union of India, to show cause why appropriate writs prayed for should not be issued. An interim order was passed staying further proceedings on the basis of the impugned notice.

A return to the rule was made by the respondents by filing an affidavit-in-opposition affirmed by B. G. Agarwal, the Income-tax Officer, 'B' Ward, Companies Dist. I, verified on April 5, 1976. It was stated therein that there was failure of the company to disclose fully and truly all materials facts necessary for the assessment for the assessment year 1969-70. The assessment was re-opened on the basis of fresh information as the concerned officer had reason to believe that certain income of the company had escaped assessment. The material averments in paragraphs 7, 9 and 10 of the said affidavit are set out as follows:

"7. The statements made in paragraph 7 of the said petition are not admitted. I say that the assessee failed to disclose truly and fully at the time of original assessment particulars regarding the nature of certain bills drawn by the petitioner-company in favour of Sri D. N. Bhattacharjee, a director of the petitioner-company, resulting in allowance in the original assessment of expenses which are for extra-commercial considerations and prima facie not allowable .......

9. With reference to the statements made in paragraph 9 of the said petition nothing is admitted save and except what appears from the records. It is further stated that no letter purported to have been addressed to the Income-tax Officer, 'E' Ward, Companies Dist. I, dated 10th June, 1974, is available from the records. I say that there was ample material in the possession of the Income-tax Officer on which he bad formed a reasonable belief that income chargeable to tax had escaped assessment. I further say that an anonymous petition was received in the income-tax department pointing out various irregularities in the accounts of the assessee which prima facie also led to the belief that the assessee's income has escaped assessment. Copy of the said petition would be produced at the time of the hearing of the matter to show the charges made in the said petition and that on going through the said petition and the records of the case the Income-tax Officer had prima facie reason to believe that income chargeable to tax had escaped assessment for the relevant assessment year.

10. I say that the petitioner-company failed to disclose before the Income-tax Officer at the time of original assessment truly and fully all material facts necessary for that assessment. Subsequently, on the basis of some fresh information, the Income-tax Officer reopened the assessment under section 147, since on the basis of such information he had reason to believe that certain income of the petitioner-company escaped assessment. The Income-tax Officer did not assume jurisdiction under section 147 on the basis of a mere change of opinion as alleged."

The statements made in the aforesaid paragraphs 7 and 9 were stated to be true to the deponent's "information" derived from the records of the case which he verily believed to be true while those in paragraph 10 were submissions.

An affidavit-in-reply to this affidavit affirmed by Batuk Nath Bhattacharjee on behalf of the petitioner affirmed on April 21, 1976, was filed reiterating the allegations made in the petition of motion and denying allegations contrary thereto.

According to the learned judge the assessee could validly contend that there was no material to believe that there was failure or omission on its part to disclose fully and truly all material facts. But in the anonymous petition there might be some information of such nature which prompted the Income-tax Officer to examine the facts in a little more detail, to find out if certain allowances or certain expenditure had been allowed which should not have been allowed. Accordingly, it could not be said that there was no information or belief that the income of the assessee had escaped assessment and no further information was necessary to satisfy clause (b) of section 147 of the Income-tax Act, 1961. The challenge to the notice accordingly failed and the rule was discharged.

The appeal before us is against his decision.

Before we proceed to consider the respective contentions of the parties it will be proper at this stage to state that the recorded reasons for issue of notice under section 148 was disclosed before the trial court. The said reasons which form an extract of the order sheet of the case for the assessment year is as per copy supplied by the revenue and compared with the original is as follows:

"21-3-74. As per information in my possession, I have reason to believe that income of about Rs. 1,00,000 (approx.) has escaped assessment as a result of failure on the part of the assessee to disclose fully and truly all material facts at the time of original assessment. Therefore, the provisions u/s. 147(a) and 147(b) of the I.T. Act, 1961, are clearly attracted and sections 147(a) and 147(b) are consequently involved.

Issue notice u/s. 148 immediately.

Sd/- D. P. Majumdar, I.T.O."

In support of the appeal it was contended by Dr. Pal that in the return to the rule no affidavit was filed by the Income-tax Officer, D. P. Majumdar, who issued the impugned notice. Instead, the affidavit was affirmed by another Income-tax Officer who was not in any way connected with the proceedings. The only competent person who could vouch about the reasons for belief in consequence of information in his possession that the income had escaped assessment, was the officer who issued the notice and no one else. Accordingly, it was submitted there was no material before the court to examine if the conditions precedent existed for issuance of the impugned notice.

There can be little dispute that when a challenge is thrown about the existence of the conditions precedent for issue of notice under section 148, namely, as here, about existence of information and the reasons for belief that income had escaped assessment, in consequence thereof the officer concerned is the proper person to depose to the relevant facts. Even so, it does not mean as an invariable proposition that no other person is competent to disclose before the court the existence of such conditions precedent in respect of the notice as appearing from records. The Income-tax Officer under section 148(2) before issuing any notice under sub-section (1) has to record his reasons for doing so. The information as also the reasons for issuing notice will be in the relevant record. We accordingly do not find any fatal infirmity in respect of the affidavit on behalf of the revenue when the facts appearing from the records are merely disclosed to the court by an affidavit by another officer. Further, as we have seen, the rule was issued for issuance of a writ of certiorari for quashing the notice and all relevant records were called for the purpose. The respondents in pursuance thereof have produced the records for inspection of the court following the uniform and consistent practice in such cases and it will be for the court to inspect the record to examine if the conditions precedent for issue of notice which is always justiciable did in fact exist. Of course, it is desirable that such affidavit as far as possible should be filed by the officer concerned unless there are reasons for not doing so. Mr. Pal appearing for the respondents submitted that no objection, as it seems to be so, was taken on this ground in the affidavit-in-reply on behalf of the company or even at the hearing before the trial court, as otherwise the affidavit from the officer concerned could have been produced. Be that as it may, we do not consider the alleged defect in the affidavit to be of any serious consideration when we ourselves have looked into the relevant records.

Dr. Pal next contended that the affidavit-in-opposition disclosed that the information that the Income-tax Officer had before him was contained in an anonymous petition. Such petition being without any disclosed source had no authenticity and could not constitute information as contemplated in section 147, clause (b). Accordingly, there was no information on the basis whereof the Income-tax Officer could have reason to believe that income had escaped assessment. Reference was made to the decision in Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147, where the Supreme Court laid down that the words "reason to believe" in section 34(1A) of the Indian Income-tax Act, 1922 (similar to section 147, clause (b), of the Income-tax Act, 1961), must be the belief of an honest and reasonable person based upon reasonable grounds but not on mere suspicion, gossip or rumour. The anonymous letter, it was contended, was of the same category as mere suspicion, gossip or rumour.

On a review of the relevant cases, the Supreme Court in Kalyanji Mavji & Co. v. Commissioner of Income-tax [1976] 102 ITR 287 laid down the tests and principles which would apply to determine the applicability of section 34(1)(b) of the 1922 Act (in material portions similar to section 147, clause (b), of the Income-tax Act, 1961) to the following category of cases:

"(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions.

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority.

(3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment.

(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law.

If these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment."

It is thus obvious that information from an external source of any kind, which includes discovery of new and important matters or knowledge of fresh facts not present at the time of assessment, would satisfy the conditions of applicability of the relevant section.

An information anonymous is information from unknown authorship but none the less it constitutes information and not the less an information though anonymous. This is now a recognised and accepted source for detection of large scale tax evasion. Non-disclosure of the source of information by itself does not reduce the credibility of the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed whether it is mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or new and important matters not present at the time of assessment, which appears to be credible to an honest and rational mind leading to a scrutiny of facts indicating incorrect allowance of expenses such disclosure, it appears, would constitute information as contemplated in clause (b) of section 147. This is a change of opinion by the Income-tax Officer in consequence of information that has since come to his possession leading to his requisite belief which gives him jurisdiction to take appropriate action. Merely because, the information, the Income-tax Officer has, is without any disclosed source, there is no legal warrant to discard such information only on the ground that it is anonymous.

The records of the case at the bearing were brought to the court for its inspection. There is no dispute that the reasons for assumption of jurisdiction by the Income-tax Officer, as set out above, was before the trial court. This dispute, however, relates to the production of other records for inspection by the court. While the company contends that no other documents were produced before the trial court, the respondents' case is that the entire records were before the court. Be that as it may, in this court at the appellate stage, there is no impediment on the court to look into such records as the respondents were asked to produce at the hearing. To such inspection of records by the court the assessee-company has no objection, as the action of the Income-tax Officer in reopening an assessment finally made, as the authorities held, is always justiciable by the court. But it is strongly contended that if the court inspects any document or paper from the record, the assessee is also entitled to inspection of such document or paper at the same time. The reason is, as contended by Mr. R. C. Deb, that it is a fundamental basis of justice that the aggrieved party should be allowed to meet allegations against him before he is called upon to act to his prejudice. A disclosure to court alone and not the person aggrieved will introduce something unknown to judicial procedure. Reference was made to the observations of A. N. Ray C.J. in paragraph 116 in the decision of Additional District Magistrate, Jabalpur v. Shivakant Shukla, AIR 1976 SC 1207, in which the court observed that such procedure would preclude the parties from representing their respective cases. Since the satisfaction of the Income-tax Officer in taking action under section 147 is justiciable, the aggrieved party must be entitled to see for himself the information in possession of such officer to effectively represent that the conditions precedent for assumption of jurisdiction did not exist. Apart from the question of natural justice, which is also violated by the disclosure of the information to court only, the assessee should not be condemned without due opportunity to effectively challenge that the action leading to the issuance of notice was wholly without jurisdiction. On the ground that such procedure would not enable the court effectively to examine the conditions precedent for exercise of jurisdiction by the Income-tax Officer without the assistance of the assessee, the company has opposed the disclosure of any record to the court only.

In Rungta Engineering and Construction Co. Ltd. v. Income-tax Officer [1962] 44 ITR 315 (Cal), a Division Bench of this court observed:

"The Income-tax Officer is entitled to initiate proceedings under section 34(1A) if he in good faith has reason to believe the matters specified in section 34(1A)(i) and (ii) (similar to section 147(a) and (b) of the 1961 Act). He is not bound to disclose to the assessee the source of information upon which he came to entertain that belief. The working of section 34(1A) will be wholly impossible if we are to hold that the Income-tax Officer is bound to disclose the source of his confidential information or the name of the informant. The notice under section 34(1A) commences a quasi-judicial enquiry in which the assessee is entitled to appear and produce his evidence. In that enquiry, the Income-tax Officer will be bound to disclose to the assessee the material on the basis of which he seeks to find that the assessee's income to the extent of rupees one lakh or more has escaped assessment during the relevant years. Natural justice demands full disclosure of all the materials which the Income-tax Officer seeks to use against the assessee in course of that enquiry, so that the assessee has sufficient opportunity to meet the case made against him. That stage of the enquiry will arise in this case after the assessee files its return and produces its account books. It is not desirable that the assessee should be informed of those materials at this stage."

The court made the above observation while meeting the attack on the ground of violation of the principles of natural justice. The appellant's counsel contended, we have indicated above, that since it is the settled law that the court had the jurisdiction to examine if conditions precedent for initiation of action under the law did in fact exist such scrutiny can only be made where the aggrieved party is also given adequate opportunity to present his case on the materials which is the basis of the impugned action. Such opportunity can only be had by the disclosure of the materials to the court as also to the aggrieved party when a challenge is thrown to the very existence of the conditions precedent for initiation of the action. Any procedure contrary to the above would be opposed to the fundamental concept of justice, as when a disclosure is only made to the court as in the present case. The decision in Rungta's case [1962] 44 ITR 315 (Cal), it is contended, did not consider this aspect of the question and in subsequent decisions, a different view was taken. Reference was made to the decision in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC) in which the court considered the report of the Income-tax Officer to the Commissioner for sanction for initiation of proceeding under section 34(1)(a) of the 1922 Act. The report was also obviously before the assessee as it was challenged by its counsel on the ground that there could be no omission to state the material facts in its failure to disclose the true intention behind the sale of shares as stated in the report and which contention was accepted by the court.

In this case, the court observed that the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction by issuance of appropriate writs when the assessee establishes that the Income-tax Officer had no material before him for believing at all that there had been such non-disclosure.

Relying on this authority in Daulatram Rawatmall v. Income-tax Officer Appeal No. 209 of 1959 decided on August 1, 1961 (unreported), H. K. Bose C.J. observed that, when existence of the conditions precedent to the exercise of jurisdiction under section 34 was directly in issue, the full disclosure of the materials on which the belief of the Income-tax Officer had been founded, became necessary, and had to be made and the assessee was thus given the fullest opportunity to establish before the court that the conditions precedent in fact did not exist. While approving the interpretation as to the objects under section 34 in Rungta's case [1962] 44 ITR 315 (Cal), it was observed that in appropriate cases the court will compel the Income-tax Officer to place before the court and the assessee all materials which prompted him to proceed under section 34(1A) of the Act and to determine the question whether such conditions precedent do in fact exist or not.

In the concurring judgment Debabrata Mukherjee J. observed that once the reasons are held justiciable they cannot be withheld from the assessee. It was further observed that where the court is persuaded that the conditions precedent for exercise of jurisdiction had not been fulfilled, i.e., no reasons existed for the belief that income liable to tax has escaped assessment and consequently none recorded, and no sanction of the Central Board of Revenue obtained, disclosure could not be resisted. But where disclosure would defeat justice as when there was the revenue's apprehension that the assessee's books of account might be destroyed or tampered with, it was in the interest of justice and fairplay (sic) and no abridgement of an indefeasible right not to order disclosure of documents produced.

The appellants also strongly relied on the decision in F.M.A. No. 280 of 1970 (Hindusthan Motors Ltd. v. T. N. Kaul) decided on March 25, 1971, in which the court was concerned with the legality of issue of notices for search and seizure of documents alleged to have been secreted in connection with proceedings under the Foreign Exchange Regulation Act, 1947. The court held that disclosure could not be prevented on the ground that disclosure might prejudice investigation and it was also held that there was little substance in the plea that disclosure would hamper investigation while the court also refused to look into the documents behind the back of the parties as such procedure would be contrary to the principles of natural justice.

The proceedings before the commencement of reassessment proceeding are only administrative in character and there is no requirement by law that there should be a disclosure of materials to the assessee at that stage. All that is necessary to give this special jurisdiction is that, (a) the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for believing that there had been some non-disclosure of material facts having material bearing on under-assessment, or (b) the Income-tax Officer should have, in consequence of information in his possession reason to believe that income has "escaped assessment". Such belief must be in good faith and not purely subjective or founded on mere suspicion, gossip, rumour or change of opinion but on evidence which prima facie supports such belief though adequacy of such evidence or grounds for arriving at the conclusion is not open to the court's investigation. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent the action of the Income-tax Officer in starting proceeding under section 34 of the Act (of 1922) is open to challenge in a court of law. This has been the uniform view taken by the courts, following earlier decisions, in S. Narayanappa v. Commissioner of Income-tax [1967] 63 ITR 219 (SC) and Madhya Pradesh Industries Ltd. v. Income-tax Officer [1970] 77 ITR 268 (SC) as also subsequent decisions.

In Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC), it was laid down that the Income-tax Officer is not required by the section to convene the assessee or to intimate to him the nature of the alleged escapement or give him an opportunity of being heard, before he decides operate the power conferred by the section. It is enough that the Income-tax Officer on the information which he had before him and in good faith considered that he has good ground for believing that he assessed at too low a rate. It was held in K. S. Rashid and Son v. Income-tax Officer [1964] 52 ITR 355 (SC) that the assessee is not entitled to a copy of the reasons recorded at the time of issue of notice under section 34.

When, therefore, a challenge is thrown to the absence of requisite conditions precedent for issuance of notice, the court following the uniform and consistent practice looks into the relevant records for the purpose to see if there was any material at all before the Income-tax Officer for his belief that there has been all escapement of income on account of the failure of the assessee to disclose fully or truly all material facts or in consequence of information in his possession. The court will also scrutinise that the action has been taken purely on subjective satisfaction or the conclusion arrived at is bona fide and of a prudent or rational man and not merely based on gossip, rumour or change of opinion and the like and if there be any of such infirmities the proceeding would be quashed. To investigate these aspects by the court it is not necessary that the reasons and materials must be disclosed to the assessee and he should be heard before the High Court comes to its conclusion and the court is not to decide the adequacy or sufficiency of reasons. Unlike the cases cited above, at this stage no order prejudicial to the assessee is being passed except that he has to file a fresh return and produce the relevant books before the Income-tax Officer and appear in support of the return. This may undoubtedly be irksome or inconvenient to a bona fide assessee who may be put to unnecessary trouble and harassment. In view, however, of large scale evasion of tax which has shattered the economy of the country such inconvenience to even a bona fide assessee cannot be avoided, while disclosure of the reasons or materials beforehand might lead to destruction or tampering of relevant records to the loss of the national exchequer. It is also to be remembered that before reassessment, the Income-tax Officer concerned will have to disclose to the assessee the relevant materials on which his belief is founded and also suitable opportunity for explaining the allegations against him will have to be afforded to him. In this context, it cannot be said that such a procedure is opposed to the fundamental concept of justice since no order to the prejudice of the aggrieved party is being passed at that stage when the conditions precedent for assumption of jurisdiction is under scrutiny by the court. The decisions relied on do not lay down any contrary proposition and as we have already noted at that stage no order or decision prejudicial to the assessee is passed or call be taken. For these reasons, the disclosure of the materials to the appellant cannot be directed at this stage in the circumstances.

It is now to be seen if there was in fact any information subsequent to the assessment in the possession of the Income-tax Officer which could warrant the action taken by him. The assessment, as we have seen, was completed on January 8, 1969, by the Income-tax Officer and finally by the Tribunal on September 29, 1972, the assessment year being 1969-70. From the records produced before us it appears that on January 10, 1974, a letter was addressed to the Income-tax Officer, "E" Ward, Companies District I, Calcutta, by the Income-tax Appellate Commissioner, Survey Range, Calcutta, forwarding to him a carbon copy of an unsigned letter with a number of sheets containing statements of accounts as annexures, the original whereof was sent to other Governmental authority. This letter contained various allegations about irregularities in the accounts maintained by the appellant for a number of years including the assessment year we are concerned with. Reference was made therein in respect of the relevant year to entries in the books of accounts with specific reference and sufficient particulars in respect of specific sums which should not have resulted in allowance of expenses in the original assessment. This information from an external source came into the possession of the Income-tax Officer long after the original assessment and the conclusion thereon by the Income-tax Officer cannot be said to be purely subjective or a change of opinion or bare pretext, or based on gossip or rumour. It cannot also be said that there is no live link or rational connection between the information and the belief or that the information is too tenuous to warrant a support for the belief or that such conclusion could not be bona fide or that of a rational or prudent man. It is accordingly not possible to hold that the conditions precedent for assumption of jurisdiction by the Income-tax Officer was absent.

The appeal, as all contentions raised, accordingly fails and is dismissed. There will be no order for costs in the circumstances.

H. N. SEN J.--The facts leading to this appeal may be briefly stated as follows:

In respect of the assessment year 1969-70, the appellant-company had been assessed under section 143(3) of the Income-tax Act, 1961. On appeal initially before the Appellate Assistant Commissioner and then before the Income-tax Appellate Tribunal the appellant-company succeeded in bringing down the revised total income and the tax refundable rose up to Rs. 12,650. The company then asked the Income-tax Officer, "E" Ward, to issue a refund voucher. Some time thereafter, a notice purported to be under section 148 of the Income-tax Act, 1961, was served upon the appellant-company in regard to the assessment year 1969-70 alleging that the Income-tax Officer had reason to believe that the income chargeable to tax for the said assessment year had escaped assessment within the meaning of section 147 of the said Act and the appellant-company was called upon to submit its return of income for the said assessment year. The appellant-company submitted the return under protest asserting at the same time that it produced at the time of the original assessment all the evidence and other documents relevant or necessary to the proceedings for the said assessment year and the Income-tax Officer also made requisition and the representative of the appellant-company appeared before the Income-tax Officer and the assessment was completed after a full examination of the books of account and other documents. There was, therefore, no omission or failure on the part of the appellant-company to disclose fully and truly all material facts necessary for the assessment. The appellant-company further asserted that there was no information in the possession of the Income-tax Officer in consequence whereof he could form his reason to believe that the income chargeable to tax had escaped assessment during the relevant year.

In the writ petition filed, the company challenged the notice as being without jurisdiction and its ground of attack was that the conditions precedent to the issue of the notice had not been satisfied and there was no disclosure to the company about the reason to believe which was a pre-requisite for assumption. of jurisdiction. The appellant-company, therefore, contended that the Income-tax Officer purported to assume jurisdiction on a mere change of opinion on the basis of materials which were produced before him and which were duly examined and considered by him at the time of the original assessment and an attempt has now been made for starting a fishing and roving investigation unwarranted in law. While dismissing the application under article 226 of the Constitution of India, Sabyasachi Mukharji J. observed as follows:

"In this case possibly the assessee might validly contend that there was no material to believe that there was failure or ommission on the part of the assessee to disclose fully or truly all material facts. But in the anonymous petition there may be some information of such a nature which prompted the Income-tax Officer to examine the facts in a little more detail and then to infer whether there was escapement of income. In other words, the anonymous petition may be of such a nature which put the Income-tax Officer to re-examine to find out if certain allowances or certain expenditure had been allowed which should not have been allowed ......... It is true that an anonymous information may not be a safe or reliable guide for coming to the belief that there was failure or omission on the part of the assessee to disclose fully or truly all material or relevant facts ......... In the facts and circumstances of the case, in my opinion, it cannot be said that there was no information to believe that the income of the petitioner has escaped assessment. No further information was necessary to satisfy clause (b) of section 147 of the Income-tax Act, 1961. In the aforesaid view of the matter, the challenge to the notice must fail."

On behalf of the appellant-company it was urged that the learned judge erred in law in sustaining the notice as one under section 147(b) as there was no valid information in the possession of the Income-tax Officer in consequence whereof the assessment for the relevant year could be reopened and, in any event, the alleged information contained an anonymous petition was neither credible nor could operate or constitute as an information in law upon which the Income-tax Officer can form his reason to believe. It was further urged that on a challenge being thrown the Income-tax Officer is bound to disclose the materials on which he is said to have formed his reason to believe that income chargeable to tax had escaped assessment and without such disclosure the Income-tax Officer cannot assume jurisdiction to initiate any proceeding under section 147 read with section 148 of the Income-tax Act. The conditions precedent to assumption of jurisdiction not having been satisfied the burden lay upon the revenue to satisfy the court that the said conditions had been satisfied before assumption of jurisdiction to issue the notice.

In support of the contention that on a challenge being thrown, the Income-tax Officer is bound to make necessary disclosure of materials upon which he formed his reason to believe that income had escaped from tax, the learned counsel for the appellant-company relied principally upon the cases in Thanthi Trust v. Income-tax Officer [1973] 91 ITR 261 (Mad) and in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC) and Sales Tax Officer v. Uttareswari Rice Mills [1973] 89 ITR 6 (SC). The learned counsel for the revenue also relied upon the case reported in Thanthi Trust v. Income-tax Officer [1973] 91 ITR 261 (Mad) as an authority on the stage of the proceeding in which disclosure is a "must ". It was held in the abovementioned case that at the initial stage the action taken in issuing notice was merely administrative. No disclosure is warranted at that stage. The proceeding under section 147 actually commences as a quasi-judicial proceeding after the return and books of account are filed by the assessee. It is at that stage that the disclosure of materials should be made to give the assessee proper opportunity to place such further materials which might safeguard his interest from any further penalty. It was further held that where (as in the present case before us) the assessee challenges the jurisdiction to issue such a notice under section 148 and the disclosure is made to the court about reasons for such action, it is for the court to decide whether the challenge is well founded or not on the materials produced before the court. That was also the view taken by a Bench of this court in the case in Girindranath Paul v. Income-tax Offtcer [1975] 99 ITR 426 (Cal). The same view was taken in the case in Rungta Engineering and Construction Co. Ltd. v. Income-tax Officer [1962] 44 ITR 315 (Cal). The appellants' contention that the above decision stood modified by the unreported decision in the case of Daulatram Rawatmull v. Income-tax Officer (Appeal from Original Order No. 209 of 1959) does not bear scrutiny. While agreeing with the view taken by H. K. Bose C.J., Debabrata Mukherjee J., in his separate judgment, only expressed somewhat differently under different hypothesis.

The case in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC) does not lay down any new proposition. All that was laid down therein was that upon disclosure of material facts the assessment could be proceeded with even if challenged. The case in Sales Tax Officer Uttareswari Rice Mills [1973] 89 ITR 6 (SC) was a case under the Sales Tax Act and the question of disclosure of materials was decided on the ground of attack based on natural justice which was altogether different from the grounds of attack made in the case before us. Incidentally, I may state here and now that the preponderance of decisions on the subject is in accord with the view that all relevant materials which led the Income-tax Officer to form his reason to believe should be disclosed after return is filed and various books of account are produced by the assessee.

On a consideration of the case laws cited before us it is clear that the proper stage for full disclosure of all relevant materials had not yet reached and the contention put forward by the learned counsel for the appellant appears to be rather premature.

Before disposing of the above point raised by the appellant-company it may be stated that the other case, Addl. District magistrate Shivakant Shukla, AIR 1976 SC 1207, cited before us had no bearing on the subject. The case reported in AIR 1976 SC 1207, relates to a different matter where it was held that disclosure to court without disclosure to the person affected would introduce an element of arbitrariness and thus precluded both parties from representing their respective cases.

Before proceeding with the other point raised before us it is necessary to advert to certain facts affirmed in the affidavits filed by the respective parties. In paragraph 9 of the writ application under article 226 of the Constitution there was a reference to issuance of a letter dated 10th June, 1974 pointing out that there was no information on the basis of which the Income-tax Officer could assume jurisdiction even under section 147(b). In paragraph 9 of the affidavit-in-opposition from the side of the revenue it was specifically stated that no letter dated June 10, 1974, was available from the records. It was further stated therein that there was ample material in the possession of the Income-tax Officer on which he formed his reason to believe that income chargeable to tax had escaped assessment. Besides that an anonymous petition was received in the department pointing out various irregularities in the accounts of the assessee which prima facie also led to the belief that the assessee's income had escaped assessment. Then it was further stated therein that on going through the said petition and the records of the case the Income-tax Officer had prima facie reasons to believe that income chargeable to tax had escaped assessment during the relevant year. About the letter dated June 10, 1974, addressed to the Income-tax Officer concerned there was no specific denial by any specific assertion in paragraph 9 of the affidavit-in-reply. As regards the various irregularities in accounts, the existence of which had not been specifically denied in the affidavit-in-reply, the only statement made in paragraph 9 of the affidavit-in-reply was that in any event the alleged irregularities in the accounts of the assessee cannot warrant reopening of assessment. Further-more, in paragraph 7 of the affidavit-in-opposition it was explicitly mentioned that the assessee failed to disclose truly and fully at the time of the original assessment particulars regarding the nature of certain bills drawn in favour of Sri D. N. Bhattacharyya, a director of the company, relating to allowance of expenses which are for extra-commercial consideration and prima facie not allowable. This was in effect a disclosure of a material fact upon discovery of which by inquiry or research into matters of record the Income-tax Officer sought to reopen the assessment.

The contention put forward by the learned counsel for the appellant for attacking the affidavit-in-opposition sworn by an Income-tax Officer other than the officer who made the original assessment or the officer who issued the notice under section 148 as wholly useless does not appear to be acceptable inasmuch as neither in the affidavit nor in the grounds of appeal was there any averment to suggest even that the affidavit-in-opposition was absolutely useless. Had there been any averment to indicate how the appellant took it the revenue could offer necessary explanation or to make arrangements to put in an affidavit sworn by the concerned Income-tax Officer. In the circumstances, the appellant cannot be heard to raise any such objection to or comments against the affidavit-in-opposition sworn by another Income-tax Officer of Company District I, from knowledge derived from records. It thus appears from paragraphs 7 and 9 of the affidavit-in-opposition that there was allegation about the assessee having failed to disclose fully or truly at the time of the original assessment particulars regarding the nature of certain bills and about receipt of an anonymous petition pointing out various irregularities in the accounts of the assessee and it was disclosed that all these prima facie led the Income-tax Officer to form his reason to believe that income of the assessee had escaped assessment. This undoubtedly amounted to disclosure of facts or nature of information which led the Income-tax Officer to form his "reason to believe".

The ground of attack made by the appellant-company in the appeal before us was not based upon a supposed violation of natural justice as it was in the case of Rungta Engineering & Construction Co. Ltd. v. Income-tax Officer [1962] 44 ITR 315 (Cal). The attack in the appeal before us is principally based on the ground that the conditions precedent to the assumption of jurisdiction for issuing the notice under challenge, had not been satisfied and that there was no valid information in consequence whereof the Income-tax Officer could have reasons to believe that there had been escapement of tax during the relevant year.

The learned judge sustained the notice under section 147(b) of the Income-tax Act, 1961. It was contended on behalf of the appellant-company that on the facts and circumstances of the case there was really no valid information in the possession of the Income-tax Officer in consequence of which he could have reason to believe that income of the assessee chargeable to tax had escaped assessment and as such the conditions precedent for issue of a notice even under section 147(b) had not been satisfied and unless such requirement was satisfied the Income-tax. Officer had no jurisdiction to issue notice under section 148. In this connection, it was further contended that information in an anonymous petition was no information at all as the source was not identifiable. Reliance was placed on the cases in Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), Madhya Pradesh Industries Ltd. v. Income-tax Officer [1970] 77 ITR 268 (SC), Income-tax Officer v. Lahkmani Mewal Das [1976] 103 ITR 437 (SC) and Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147 (SC), in support of the above contention as also the contention that the belief must be the belief of a reasonable man based upon direct or circumstantial evidence and that the reasons for the belief must have a rational connection with or a relevant bearing on the formation of the belief. In other words, there must be direct nexus or live-link between the material coming to the notice of the Income-tax Officer and the formation of the belief that there has been escapement of income chargeable to tax during the relevant year.

True, the reason to believe should be there and such reason must be hold in good faith and should not be a mere pretence and it must also bear a link between the material coming to the notice of the Income-tax Officer and the formation of the belief on such material. The above principles are not in conflict with the materials appearing from affidavits as such materials appear to have led the Income-tax Officer prima facie to have reason to believe that income chargeable to tax had escaped assessment during the relevant year. Even such materials prima facie satisfied the requirment of being in possession of information in consequence of which the Income-tax Officer had reason to believe that income of assessee had escaped assessment. In the above view of the matter, the facts and circumstances of the case before us are not in conflict with the propositions mentioned above and, as held in C. Vasantlal and Co. v. Commissioner of Income-tax [1962] 45 ITR 206 (SC), the Income-tax Officer is not bound by any technical rules of evidence and it is open to him to collect materials even by a private enquiry to facilitate assessment.

Relying upon the case of Kalyanji Mavji and Co. v. Commissioner of Income-tax [1976] 102 ITR 287 (SC), the learned counsel for the revenue contended that, in the facts and circumstances of the case before us, the matter falls squarely within the extent and ambit of section 34(1)(b) of the Indian Income-tax Act, 1922, couched in language identical with those appearing in section 147(b) of the Act of 1961. This is because in that case the Income-tax Officer proceeded on the basis of information which came to him after the original assessment by discovery of fresh facts revealed during the assessment year 1958-59 and consisted of the conduct of the assessee by not adducing evidence in support of its plea that the amount was incurred for the expenses of the partnership business. It was, therefore, held that it was not a case of a mere change of opinion on the materials which were already on record. In the abovementioned case the Supreme Court held that the word "information" used in section 34(1)(b) is of the widest amplitude and includes a variety of factors. However wide it may be, it is not plenary because the discretion of the Income-tax Officer is controlled by the words "reason to believe". The Supreme Court again laid down certain tests and principles governing the applicability of section 34(1)(b) to the several categories of cases mentioned below:

"(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer;

(3) where the information is derived from an external source of kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment.

(4) where the information can be obtained even from the record of the original assessment from an investigation of the materials on record or facts disclosed thereby or from other enquiry or research into facts or law."

The Supreme Court then held that if these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment.

What constitutes "information" came up also for consideration of the court in the case in Bai Aimai Gustadji Karaka v. Gift-tax Officer [1975] 99 ITR 257 (Guj). It was a case under the Gift-tax Act, the provision for notice under section 16(1) of which was in identical terms as in section 147(b) of the Income-tax Act, 1961. It was held that "information" means instructive knowledge concerning the matter bearing on the assessment received from an external source after the original assessment and it must be capable of arousing or suggesting ideas or notions not before existent in the mind of the recipient so that he could form a reasonable belief that there has been an escapement of income from assessment to tax.

Basing his argument upon the Supreme Court case of Kalyanji Mavji & Co. [1976] 102 ITR 287 (SC), the learned counsel for the revenue quite correctly contended that non-disclosure of relevant or material facts relating to certain bills mentioned in paragraph 7 of the affidavit-in-opposition at the time of the original assessment avid subsequent discovery of such facts from the record of the original assessment by enquiry or research info facts would satisfy the third and fourth tests laid down by the Supreme Court and the Income-tax Officer had complete jurisdiction to reopen the assessment even on that score within the meaning of section 147(b) even apart from the information obtained from the anonymous petition regarding various irregularities in the accounts maintained by the assessee-company. The learned counsel for the revenue again contended that existence of irregularities in the accounts of the assessee-company hot specifically denied in the affidavit-in-reply would undoubtedly be "information" within the meaning of section 147(b) and the tests laid down by the Supreme Court that it may come from an external source of any kind. Information derived from an anonymous petition as detailed in paragraph 9 of the affidavit-in-opposition must, therefore, be held to be "information" within the meaning of the above test laid down by the Supreme Court in consequence whereof the Income-tax Officer had possibly reinforced his reason to believe derived from enquiry or research into facts appearing from the record of the original assessment. Rightly, therefore, the learned judge came to the conclusion that it could not be said that there was no information before the Income-tax Officer upon which he formed his reason to believe that there had been escapement of income from assessment to tax. Merely because such information was contained in an anonymous petition the same cannot go out of consideration. The changing and diverse society of ours with complex commercial activities has ushered into existence different facts of taxable income. In order to check avoidance of tax under cloak of different baffling propositions revenue administration maintains vigilance through numerous sources and gets information from such source. Anonymous petition is one such potent source of information and the administration is obviously benefited by such information when they are verifiable by enquiry or investigation or research into facts as contained therein. In the changing society of ours, where there is a tendency to avoid assessment to tax, anonymous petitions are always a potent source of information and utilisation of such information very often serves the purose of revenue administration. The learned judge, therefore, was justified to say that it cannot be said that there was no information upon which the Income-tax Officer could form his reason to believe that there was escapement of income from assessment to tax.

All the points raised on behalf of the appellant-company, therefore, fail. The appeal, therefore, fails and is dismissed as proposed.

 

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