Bhim Singh Vs. Income-tax Officer, 'B' Ward and Ors. (13.05.1983 - PHHC) - Court Judgment

S.S. Kang, J.

1. Bhim Singh has filed this writ petition under Articles 226 and 227 of the Constitution of India for the issuance of a writ of certiorari quashing the notice dated March 24, 1975 (copy annex. P-3), issued by the ITO, ' B ' Ward, Rohtak.

2. The facts giving rise to this petition briefly stated are that Bhim Singh, petitioner, is a wine contractor and has been in this trade since 1952. He has his wine shops at different places. He has been an income-tax assessee since the commencement of his business and has been paying taxes regularly. His accounting year is from 1st of April to the 31st of March of the subsequent year and the relevant year for the purpose of this petition is the accounting year 1957-58, corresponding to 1st of April, 1957, to the 31st of March, 1958, relevant to the assessment year 1958-59. During this assessment year the I.T. authorities conducted a raid on the premises known as Purana Karkhana, Jind, and made intensive searches. Certain documents were seized in this raid. Bhim Singh, petitioner, and Shri Dwarka Dass, were the partners in this Purana Karkhana.

3. On May 25, 1966, the petitioner approached the Commissioner of Income-tax, Patiala-II, Patiala, respondent No. 2, with a disclosure statement of his escaped income along with that of his partners and offered to be taxed in accordance therewith. A copy of this petition for settlement has been appended as annex. P-1 to this petition. It is mentioned therein that for the assessment year 1958-59, the total profits of the petitioner along with the other partners was Rs. 99,994. On the basis of this offer, which was accepted by respondent No. 2, a communication dated 27th March, 1967, was addressed by him to the Income-tax Assistant Commissioner, Ludhiana, to levy tax in accordance with the various directions issued in the said letters. Copy of the same is annex. P-2. It was specifically directed that the profit of Rs. 99,994 for the assessment year 1958-59, be divided between the partners as under : Sarvshri:

Sarvshri :

Rs.

(i) Bhim Singh

6 annas

37,498

(ii) Sham Lal

4 ,,

24,998

(iii) Dwarka Dass

3 '

18,749

(iv) Radha Kishan

3 '

18,749

and that after excluding the profits already taxed, the balance amount should be assessed in the hands of the individual partners as their concealed income.

4. The assessments for the years 1959-60, 1960-61 and 1961-62 were made in accordance with the directions contained in annex. P-2 and the petitioner had paid full taxes in accordance with the demands created thereunder. It is averred in the petition that for the assessment year 1958-59, no assessment was made and the Department slept over the matter for the reasons best known to it. However, on March 24, 1975, a notice under Section 148 of the I.T. Act, 1961 (hereinafter called 'the Act'), has been issued to the petitioner for the assessment year 1958-59, and the petitioner has been required to submit a return within 30 days of the service of the said notice. A copy of this notice is annex. P-3. This notice has been issued to the petitioner as the partner of the firm of M/s. Bhim Singh Dwarka Dass.

5. The petitioner, instead of filing the return, moved an application on May 5, 1975, before the Commissioner and raised two points:

(i) That there was no firm of the name of M/s. Bhim Singh Dwarka Dass in the assessment year 1958-59 relevant to the accounting year 1957-58 ; and

(ii) that the notice has been issued after a period of 8 years and since the escaped assessment is much less than Rs. 50,000, the notice was bad in law because it was issued a long time after the lapse of eight years of the assessment year. The ITO had no reason to believe that there was escapement of the assessment of tax of more than Rs. 50,000.

6. When the petitioner did not receive any reply to his letter, he filed the present writ petition on September 19, 1975.

7. A written statement has been filed on behalf of the respondents. It has been averred therein that the averments-regarding the contents of the settlement petition were correct. Subsequent to the settlement petition dated 25th May, 1966, M/s. Bhim Singh Dwarka Dass of Jind approached the Department with another petition on March 21, 1967, signed by both of them. It was stated therein :

'We have submitted a settlement petition relating to the assessment years 1958-59, 1959-60, 1960-61 and 1961-62. In continuation of the same we are submitting that income-tax (including penalty) may be received from the applicants in proportion to their share which is 0-10-0 in the case of Bhim Singh and 0-6-0 in the case of Dwarka Dass and each of us will be liable to discharge the liability created in the said proportion. The Income-tax Officer may please be directed to issue separate challans in the light of the liability (including penalty) created against each of us under this settlement.'

8. From this letter, the Department inferred that Sham Lal was benamidar for Bhim Singh, whereas Radhey Kishan was benamidar for Shri Dwarka Dass. It was contended that it was as a result of the material seized by the Department in the raid of Purana Karkhana, Jind, that the settlement petition and its subsequent modifications were filed by the petitioner. It was further contended that it is clear from the subsequent letter dated 21st March, 1967, that not only the recovery but also the assessment had to be made against the petitioner and Dwarka Dass as partner in proportion to their shares of 10 annas and 6 annas, respectively, and demands were to be created accordingly. It was admitted that the assessment for the years 1959-60, 1960-61 and 1961-62 was made in accordance with the directions contained in annex. P-2 and the petitioner had paid the tax in accordance with the demands created thereunder. However, no return was filed by the petitioner with regard to the assessment year 1958-59 and the income of the assessee with regard to this year had escaped assessment in view of the failure of the assessee to file his returns. In the circumstances, the ITO recorded his reasons for initiating proceedings under Section 147 of the I.T. Act, 1961, in the case of the petitioner in the following words :

' A raid was conducted on the business premises of M/s. Bhim Singh Dwarka Dass, Jind, on 20-2-1963. In the course of search certain incriminating documents were seized which related to the assessment years 1958-59 to 1961-62. The seized documents, inter alia, included a price of paper which indicated that a profit of Rs. 99,994 was earned from liquor vendors at Panipat, Jind and Bond during the accounting year relevant to the assessment year 1958-59 and it was divided as under :

Rs.

Sri Bhim Singh

0-6-0

37,498

Sham Lal

0-4-0

24.998

Dwarka Dass

0-3-0

18,749

Radha Kishan

0-3-0

18,749

The firm consequently filed a settlement petition on March 21, 1967, through S/Shri Bhim Singh and Dwarka Dass, partners of the firm. Though in the original disclosure petition it was mentioned that the firm consisted of four partners, subsequently it was agreed that income-tax (including penalty) relating to the assessment years 1958-59 to 1961-62 may be recovered from only two of them (viz., S/Sh. Bhim Singh and Dwarka Dass) in the proportion of 10 annas and 6 annas, respectively (relevant extract enclosed). Accordingly the above income was to be assessed in the hands of the two partners. In order to assess the income of Shri Bhim Singh proceedings under section 148 for the assessment year 1958-59 were initiated. No return was filed in response to this notice and the order was passed under section 144. But in the ex parte assessment, the Income-tax Officer did not assess the amount of Rs. 62,496 representing share at 10 annas in the firm, M/s. Bhim Singh Dwarka Dass, Jind, which according to the settlement was to be assessed in the assessee's hands. This has as such escaped assessment and is now sought to to be assessed.'

9. It was further contended that since the escapement was of more than Rs. 50,000 and more than eight years had elapsed, the necessary approval of the CBDT was obtained. Thereafter, notice, annex. P-3, was issued. The receipt of the objection-petition from the petitioner has also been admitted. It was averred that from the supplementary settlement petition (annex. R-1) the concealed share of the petitioner's income worked out to Rs. 62,496 and not Rs. 37,498 as mentioned in the settlement petition. It was reiterated that no return was made by the petitioner in respect of the assessment year 1958-59 and an income of Rs. 62,496 had escaped assessment. Mr. Bhagirath Dass, the learned counsel for the petitioner, has argued :

(i) that there was no material before the ITO, respondent No. 2, to entertain a belief, much less a reasonable belief, that income exceedingRs. 50,000 had escaped assessment because of failure on the part of the petitioner to make a return under Section 139 of the Act; and

(ii) that the CBDT did not investigate the facts of the case and passed the order granting sanction to respondent No. 2 to reopen the assessment proceedings in a mechanical manner without applying their mind to the facts of the case.

10. These contentions have been controverted by Shri Ashok Bhan, the learned counsel for the Revenue. In order to appreciate the points in issue, it will be appropriate to have a look at the relevant statutory provisions at the very threshold;

' 147. If-

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or.........

he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).

148. (1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

'149. Time limit for notice.--(1) No notice under section 148 shall be issued,--

(a) in cases falling under Clause (a) of Section 147--......

(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year......'

11. It is clear from the above statutory provisions that if an assesseefails to make a return under Section 139 of the Act for any assessment year andby this act, the income chargeable to tax has escaped assessment for thatyear, then the ITO can assess or reassess such income after following theprocedure prescribed in Section 148 of the Act. This power is, however, hedged in, inter alia, by the condition that a notice under Section 148 of the Act will be issued after eight years only if the income chargeable to tax, which had escaped assessment, amounted to Rs. 50,000 or more. It is not disputed that the petitioner submitted a settlement petition to the Commissioner, Patiala. It was mentioned therein that in the accounting year 1957-58, a profit of Rs. 99,994 was earned by the petitioner and his three other partners, Rs. 37,498 fell to the share of Bhim Singh, petitioner. He did not file a return for the assessment year 1958-59 and ex parte proceedings under Section 144 of the Act were taken against him and he was assessed on, the best judgment assessment basis for income of Rs. 37,498. Bhim Singh, petitioner, and Dwarka Dass, his partner, addressed a letter dated March 21, 1967, to the Commissioner, in which they stated that income-tax (including penalty) may be received from them in proportion of their shares which was 10 annas in the case of Bhim Singh and 6 annas in the case of Dwarka Dass. Taking it to be an admission of Bhim Singh, the ITO, with the prior sanction of the Board of Direct Taxes, issued notice under Section 148 of the Act to the petitioner for reopening the assessment on the ground that the share of Bhim Singh comes to Rs. 62,496. So, the ITO formed a belief that because of the non-filing of the return by the petitioner, income of Rs. 62,496 had escaped assessment. The ITO in the facts could not reasonably come to the belief that there was an escapement of income of Rs. 62,496. Admittedly, the petitioner had been assessed at Rs. 37,498 by the ITO. This sum of money had not escaped assessment because of non-filing of the return. This had come to the notice of the ITO and the assessment had been framed on that basis. Of course, the remaining amount of Rs. 24,998 had escaped assessment because of the non-filing of the return. Admittedly, a notice under Section 148 of the Act had been issued after more than 14 years of the close of the assessment year. Because of the provisions of Section 149 of the Act, such a notice could be issued after eight years of the close of the assessment year if the amount of income that escaped assessment was Rs. 50,000 or more. Since this amount fell short of Rs. 50,000, the bar of Sub-section (1) of Section 149 of the Act will apply and this notice could not be issued.

12. Faced with this situation, Mr. Ashok Bhan, the learned counsel for the Revenue, argued that the notice issued under Section 149 of the Act could not be quashed in exercise of the powers under art. 226 of the Constitution on the ground that it had been issued beyond the period of limitation, prescribed by law. He has placed strong reliance on a decision of the final court in Lalji Haridas v. R. H. Bhatt : [1965]55ITR415(SC) . He drew my pointed attention to the following passage from the judgment (head-note) :

'The jurisdiction conferred on the High Court under article 226 of the Constitution of India is not intended to supersede the jurisdiction and authority of the Income-tax Officers to deal with the merits of all the contentions that the assessees may raise before them, and so, it would be entirely inappropriate to permit an assessee to move the High Court under article 226 and contend that a notice issued against him is barred by time. That is a matter which the income-tax authorities must consider on the merits in the light of the relevant evidence.

The point that for the transaction in question other persons have already been taxed and that the order of assessment passed against the assessee being in the nature of a protective assessment should be set aside, ought to be raised before the Income-tax Officer and cannot be allowed to be urged before the High Court in a petition under article 226. '

13. It is apparent from the facts of Lalji Haridas's case : [1965]55ITR415(SC) that notice was issued to the assessee calling upon him to make a return of his income for the relevant year. He made a return in compliance with the notice. The ITO discovered such sums which were not treated by the assessee to be his income. The ITO was not satisfied with the explanation of the assessee. He passed an order of assessment. The assessee went up in appeal against that order. The appeal was partly allowed on grounds which are not germane to the present issue and the case was remanded to the ITO for a fresh decision on certain points. On remand the ITO required the assessee to appear before him and produce his evidence. Instead of complying with the requisition, the assessee filed a writ petition in the Gujarat High Court. The High Court summarily rejected the writ petition. The assessee went up in appeal to the Supreme Court. So, it was sought to be argued before their Lordships of the Supreme Court that the notice issued to the assessee, on the face of it, was invalid, because it was barred by time. Their Lordships did not allow this point to be raised because such a plea must ordinarily be taken before the ITO. In that case, the plea was not raised before the departmental authorities. Even before the High Court the plea had not been taken specifically. It was, in this context, that the observations made by their Lordships have to be understood. In an earlier decision in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) it was observed (p. 195):

' Though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the Constitution conferred on the High Courts the power to give relief it became the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief were refused without adequate reasons. '

14. The present case is squarely covered by the above-mentioned observations. There was no material before the ITO that Rs. 62,496 had escaped assessment because of the non-filing of the return. Because of the facts present before the ITO, he knew that the petitioner had been assessed at Rs. 37,498. He could not, therefore, include this amount to conclude that there had been an escapement of income of Rs. 62,496. In the facts and circumstances of the case, the ITO had no jurisdiction to issue the impugned notice and continue with the reassessment proceedings.

15. There is no merit in the second contention of Mr. Bhagirath Dass. The proceedings for grant of sanction for taking action under Section 148 of the Act are of administrative nature. The order passed by the Board of Direct Taxes has not been produced. In the absence of that order, it cannot be said that the members of the Board had not applied their mind to the facts and circumstances of the case.

16. After the close of the arguments in this case, I had asked Mr. Ashok Bhan, the learned counsel for the Revenue, to produce the file regarding the assessment year 1958-59. I wanted to satisfy myself as to whether the supplementary settlement dated March 21, 1967, submitted by Bhim Singh, petitioner and Dwarka Dass on the basis of which the ITO issued the notice under Section 148 of the Act was within the knowledge of the ITO, who framed the best judgment assessment. Despite a number of adjournments having been granted during the last about 31/2 months, the Revenue has not produced the file before me. In view of my findings above, I do not want to examine that aspect any further.

17. For the foregoing reasons, I allow this writ petition and quash the notice dated March 24, 1975 (annex. P-3), issued by the ITO, 'B' Ward, Rohtak, and the resultant proceedings. The respondents shall pay Rs. 200 as costs to the petitioner.