BORDUBI RICE FLOUR and OIL MILLS and Another vs INCOME TAX OFFICER and Others

J. N. SARMA, J. :

This writ application has been filed by two petitioners. Petitioner No. 1 is a firm which was formed and constituted by the deed of partnership dt. 20th April, 1968. It is stated that one of the partners, Mangatulal Chowkhani, retired and ceased to be a partner of the firm w.e.f. 5th April, 1979. It is further stated that thereafter a fresh deed of partnership dt. 12th December, 1979, was executed and another firm was constituted. The petitioner-firm has been submitting returns of their income and the return for the asst. yr. 1974-75 was submitted to the ITO, A-Ward, Tinsukia, on 17th September, 1974, showing a loss of Rs. 29,063. Thereafter on 2nd January, 1987, i.e., after a lapse of about more than 11 years, the petitioner-firm received a letter dt. 31st December, 1986, stating thereunder that it has come to the notice that an amount of Rs. 40,000 on 11th April, 1973, Rs. 40,000 on 1st May, 1973, and Rs. 30,000 on 1st June, 1973, appearing as credited in the books of account in the name of Prabhudayal Agarwalla are bogus entries and Prabhudayal Agarwalla is simply a name-lender and he had no capacity to give loan in such name and as such it was proposed to initiate proceedings under s. 147 of the IT Act, 1961. The petitioner was asked to show cause as to why the proceeding as proposed should not be initiated. The petitioner submitted a reply on 7th January, 1987, and thereafter a notice under s. 148 of the IT Act, 1961, was issued on 29th March, 1989, and that was received by the petitioner-firm on 1st April, 1989. The validity and legality of this notice is challenged in this writ application.

The rule was issued as far back as on 3rd May, 1989, and the notice dt. 29th March, 1989, annexure "VI", was stayed and thereafter this matter is being heard almost after eight years.

I have heard Sri J. P. Sarma, learned counsel for the petitioners, and Sri G. K. Joshi, learned counsel for the Revenue. Sri Sarma makes the following submissions :

(i) That notices to the partners of the firm registered in 1979 were not issued.

(ii) That there was no valid notice under s. 148 r/w s. 176(5) of the IT Act.

(iii) That the notice is barred by limitation.

Sri Sarma draws my attention to s. 147 of the IT Act, 1961 (as applicable in 1974-75), that section is income escaping assessment, and the section along with the Explanation thereto provides - "Production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso". As such he submits that the findings arrived at by the assessing authority that the amount of loan shown was a bogus entry cannot give jurisdiction to the ITO to initiate proceedings under s. 147. But this contention of Sri Sarma has been answered by the apex Court in the decision in M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, wherein the Supreme Court pointed out, inter alia, as follows :

"We are not persuaded to accept the argument of Mr. Sarma that the question regarding the truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of ss. 147(a) and 148 of the Act and is against the settled law laid down by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of s. 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie, now your hands are tied and you can do nothing. It would be a travesty of justice to allow the assessee that latitude".

Further, Sri Joshi has produced before me the records which show that reasons were recorded by the ITO to initiate the proceeding and it is settled law that this Court in exercise of writ jurisdiction cannot question that aspect of the matter and if any authority is required for this proposition of law one may have a look at the same decision at p. 477, wherein the Supreme Court has pointed out as follows :

"Since the belief is that of the ITO, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief".

Agarwal and Agarwal (Private) Ltd. and Another Vs. K.J. Mukherjee, Income Tax Officer and Another, wherein the Division Bench of this Court pointed out that the present case is squarely covered by s. 147(a) of the IT Act, 1961, meaning thereby that in the opinion of the ITO, there is reason to believe that income had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, and once it comes within the purview of s. 147(a), the period of limitation will be 16 years and not 8 years or 4 years as pointed out by Sri Sarma. So, the notice which was issued, cannot be deemed to be barred by time. Regarding service of notice on the legal representatives, Sri Joshi draws my attention to s. 176(3) of the IT Act. Sec. 176(3) provides that any person discontinuing any business or profession shall give to the ITO notice of such discontinuance within fifteen days thereof. That was not done in the instant case by the retiring partner. Further, Sri Joshi draws my attention to s. 184 of the IT Act. Sec. 184 provides for registration. On the retirement of the partner, the firm was reconstituted as alleged by the petitioner. There was necessity to get the firm registered as required under s. 184 of the IT Act. That was also not done. In this connection, Commissioner of Income Tax, Shilong Vs. Jai Prakash Singh, That was a case where out of ten legal representatives, notice was served upon only one. It was held that that would not invalidate the assessment. There is no necessity to go into that case inasmuch as under the provision as quoted above, there is no necessity whatsoever to serve any notice on the legal representatives as the original firm must be deemed to continue in the eye of law.

Accordingly, this writ application is dismissed. The stay order passed earlier shall stand vacated. I make no order as to costs.