Sheo Narain Jaiswal vs Income Tax Officer

B.P. Singh, J.—In this writ petition, the petitioners have challenged the notices dated 27-3-1972, issued u/s 148 of the income tax Act, 1961 (''the Act'') relating to the assessment year 1955-56, purporting to reopen the assessment of the late Lakshmi Narain in respect of the aforesaid assessment year. The other reliefs asked for in the writ petition are consequential in nature. The petitioners herein are the heirs and legal representatives of the late Lakshmi Narain Jaiswal. Petitioner Nos. 1 to 6 are his sons while respondent No. 7 is his widow. Their case is that till April 1954, the late Lakshmi Narain was the member and karta of a joint HUF governed by the Mitakshara school of Hindu law. The said joint HUF was known as ''Lakshmi Narain and Ram Narain'' and all the sons and members of the families of the late Lakshmi Narain and Ram Narain Jaiswal were its members. The family carried on business at Ranchi under the same name. The late Lakshmi Narain as the karta of the family borrowed money from various persons for the purpose of business. The Raja of Udaipur (Madhya Pradesh) had advanced loans to the said family which was duly recorded in the books of the family. A partition took place in the family on 3-4-1954, and all the members were allotted properties in accordance with their respective shares. Thereafter, the late Lakshmi Narain, the petitioners along with late Ram Narain and five other persons constituted a partnership firm which took over and continued the business of the family under the name and style of Lakshmi Narain Ram Narain. The loan received from the Raja Saheb of Udaipur was shown as a liability in the books of the partnership firm and amounted to Rs. 6,52,135 (principal and interest). The aforesaid partition was duly recognised and accepted under the provisions of the Indian income tax Act, 1922 (''the 1922 Act'') and the firm was assessed under the 1922 Act as a registered firm.

On 28-12-1954, an agreement was executed by and between the Raja Saheb of Udaipur and the late Lakshmi Narain, whereby the aforesaid loan was released by the Raja Saheb in favour of the deceased. The release was made in consideration and recognition of special services and help rendered by the late Lakshmi Narain to the Raja Saheb and his natural father on several occasions including that of the adoption of the Raja Saheb by the Ruler of the Udaipur State. The case of the petitioners is that the late Lakshmi Narain really represented all the members of the erstwhile family of Lakshmi Narain and Ram Narain, and, therefore, the loan was released in favour of all the members of the erstwhile family known as ''Lakshmi Narain Ram Narain''. The loan was, thereafter, continued to be shown in the books of the partnership firm in the name of Raja Saheb of Udaipur and was not transferred in the name of the deceased. This had become necessary because there had been no ascertainment and apportionment of the shares of individual members in the said amount released by the Raja Saheb of Udaipur. Later on, when disputes arose between the late Lakshmi Narain and other members of the said erstwhile family as to their respective shares in the said amount, the matter was referred to a board of arbitrators consisting of three respectable persons. The arbitrators, by their award dated 19-3-1958, held and decided that the said amount of Rs. 6,85,151 (principal plus interest) should be distributed between the various members of the family in the manner indicated in the award. Late Lakshmi Narain was awarded a sum of Rs. 1,20,151 while Ram Narain was awarded a sum of Rs. 85,000. The other members were each awarded Rs. 40,000. After the award, consequential entries were recorded in the books of the said partnership firm.

The petitioners further contend that the late Lakshmi Narain was assessed to income tax in his individual capacity after partition of the family in the year 1954. His income included income from the partnership firm as well as rental income, etc. For the assessment year 1955-56, late Ram Narain filed a return of income on 12-8-1955, disclosing fully and truly all materials and primary facts necessary for the assessment. Respondent No. 1 (ITO) was duly intimated about the aforesaid facts in relation to the said loan of Raja Saheb of Udaipur and the agreement in respect thereof. The ITO, after considering all the materials placed before him, by an order of assessment dated 10-5-1957, made u/s 23(3) of the 1922 Act, assessed the deceased for the said assessment year 1955-56 in his individual capacity.

The petitioners received a letter dated 23-7-1971, addressed to the legal heirs and successors of the late Lakshmi Narain alleging, inter alia, that on perusal of the agreement dated 28-12-1954, it appeared that the loan aggregating to Rs. 6,85,151 was assigned by the Raja Saheb in favour of the late Lakshmi Narain in consideration of special services rendered by the late Lakshmi Narain, and, therefore, the said amount having been received on account of special services rendered, it was taxable under the 1922 Act, in the previous year relevant to the assessment year 1955-56. The said amount having escaped assessment, respondent No. 1 proposed to initiate a proceeding u/s 147 of the Act. By the aforesaid letter, the petitioners were given an opportunity of being heard against the proposed initiation of proceedings u/s 147. The petitioners submitted their reply and objections to the proposed initiation of proceedings by two separate letters dated 17-8-1971, addressed to the Member, CBDT, New Delhi, and the ITO (respondent No. 1). Various grounds were urged in the aforesaid objections. The petitioners received intimation on 17-3-1972, from the CBDT by a latter dated 10-3-1972, whereby the CBDT declined to interfere in the matter. Thereafter, the petitioners received from the ITO (respondent No. 1) a notice dated 6-11-1973, u/s 142(1) of the Act for the assessment year 1955-56 calling upon the petitioners to appear before him and to produce books of account, papers and documents and to file a return for the said assessment year. The petitioners were surprised to receive such a notice since the assessment of the late Lakshmi Narain for the said assessment year had already been completed. No notice whatsoever u/s 34 of the 1922 Act or u/s 148 of the 1961 Act was ever served upon the petitioners, or anyone of them, in respect of the said assessment year. The petitioners, therefore, sought an adjournment and pursuant to the enquiries made by them and upon inspection of the records, discovered facts which went to establish that many things had happened behind their backs which rendered the initiation of proceedings as one without jurisdiction. The facts which came to the knowledge of the petitioners have been stated in paragraph 15 of the writ petition and they may be conveniently reproduced at this stage:

On or about November, 1973, your petitioners received from respondent No. 1 purported notice dated November 6, 1973, u/s 142(1) of the said Act for the said assessment year 1955-56 requiring your petitioners to appear before him and produce books of account, papers and documents and to file return for the said assessment year and fixing the hearing of the case on November 17, 1973. Your petitioners were surprised to receive the said notice dated November 6, 1973, inasmuch as the assessment of the deceased for the said assessment year 1955-56 had already been completed as aforesaid and was not pending. No notice whatsoever u/s 34 of the 1922 Act or section 148 of the 1961 Act was ever served by the respondents or any of them on the petitioners or any other legal heirs and representatives of the deceased for the said assessment year 1955-56. In the premises, your petitioners sought an adjournment of the said hearing. Thereafter, from time to time, the hearing of the said matter was adjourned and pursuant to the enquiries made by your petitioners and inspection of the records allowed to your petitioners by respondents No. 1, your petitioners learnt, inter alia, as follows:

(i) That the said purported proceedings and/or enquiry were initiated by respondent No. 1 pursuant to and in compliance with the directions contained in letter No. Inv(C) -1171/65/1603 dated April 23, 1969, of the Commissioner of income tax, respondent No. 4 herein, and letter No. Inv(C) -1171/65/364 dated June 16, 1971, of the Addl. Commissioner of income tax, Bihar, Patna. Your petitioners called upon the respondents to produce the said letters dated April 23, 1969, and June 16, 1971, at the time of hearing of this application. Respondent No. 1 all along was of the view that the said loan did not constitute income of the deceased and could not be brought to assessment. In the premises, respondent No. 1, by his letter No. Con''69-70,273 dated May 8, 1969, and letter No. Nil dated June 18, 1971, expressed his doubt as to the taxability of the said amount in the hands of the deceased and sought for instructions from his superior officers as to the initiation of the proceedings u/s 147 of the said Act for the said assessment year 1955-56. It further appeared that the Commissioner of income tax, respondent No. 4 herein, by his letter No. Inv(C) -1171/65/582, dated April 13, 1971, directed respondent No. 1 to submit a proposal for initiation of the said purported proceedings against the deceased u/s 147 of the said Act. Pursuant to the said instructions contained in the said letters dated April 23, 1969, June 16, 1971, and July 13, 1971, respondent No. 1 issued the said purported letter dated July 23, 1971. Your petitioners called upon the respondents to produce the said letters dated June 18, 1971, and July 13, 1971, at the time of hearing of this application.

(ii) That, after the submission of the said representations dated August 17, 1971, respondent No. 1 himself was of the opinion that the said amount could not be held to be income of the deceased and could not be brought to tax in the hands of the deceased. But, the Commissioner of income tax, Bihar, and the Inspecting Assistant Commissioner of income tax, Ranchi Range, Ranchi, required respondent No. 1 to initiate proceedings u/s 147 of the said Act against the deceased for the assessment year 1955-56 in respect of the said loan. The said instructions were contained in the D.O. letter No. IT-VI-10/71/65380, dated January 25, 1972, of the Commissioner of income tax, Bihar, to respondent No. 1 and letter No. J-26/66-67/Spl. Circle/914 dated January 1, 1972, of the Inspecting Assistant Commissioner of income tax, Ranchi Range, Ranchi, to the Commissioner of income tax, Bihar. Your petitioners called upon the respondents to produce the said letters dated January 25, 1972, and February 1, 1972, and letter dated January 28, 1972, of respondent No. 1 to the Commissioner of income tax, Bihar, at the time of hearing of the application.

(iii) That, at the instance of an order under the directions of the Commissioner of income tax, respondent No. 1 submitted a proposal for obtaining sanction for initiation of proceedings u/s 148 of the said Act for the said assessment year 1955-56. The status of the assessee intended to be assessed was described in the said proposal to be ''HUF''. It further appeared that several proposals were submitted to the Central Board of Direct Taxes for initiation of the said purported proceedings for the said assessment year. It also appeared that on March 27, 1972, the Commissioner of income tax, Bihar, approved the proposal for initiation of the said purported proceedings on alleged reply received from the Central Board of Direct Taxes.

(iv) That, on the basis of the said alleged approval granted by the Commissioner of income tax as aforesaid, respondent No. 1, issued several notices all dated March 27, 1972, u/s 148 of the said Act for the assessment year 1955-56 in respect of the deceased on your petitioners and respondent No. 7 separately.

(v) That said notices dated March 27, 1972, u/s 148 of the said Act issued by respondent No. 1 were never served at all and in accordance with (sic) on your petitioners and/or on any other legal heirs and representatives of the deceased nor were the said notices served upon respondent No. 7. It further appeared from the said inspection that the postal authorities did not serve the said notices and the said notices were returned by the postal department with the remark ''unserved''. It further appeared that on March 30, 1972, an Inspector of the office of respondent No. 1 affixed the said notices at Ranchi Distillery, Lalpur, Ranchi. Your petitioners obtained copies of the said notices dated March 27, 1972, from respondent No. 1.

(vi) That the said notices dated March 27, 1972, were issued separately to your petitioners and respondent No. 7 describing them as legal heirs and representatives of the deceased. It was alleged in the said notices that respondent No. 1 had reason to believe that the income of the deceased in respect of which your petitioners were chargeable to tax for the assessment year 1955-56 had escaped assessment within the meaning of section 147 of the said Act, and, therefore, he proposed to reassess the said income for the said assessment year 1955-56 and hence, required your petitioners to deliver the return of income of the deceased in respect of which your petitioners were assessable to tax for the said assessment year. It was further alleged that the said notices were issued after obtaining'' the necessary approval of the Central Board of Direct Taxes.

According to the petitioners, without affording any opportunity to the petitioners of being heard in the matter, the ITO (respondent No. 1) made an order of assessment dated 31-12-1975, assessing the petitioners as legal heirs and representatives of the late Lakshmi Narain in the status of HUF. This order was made u/s 144 read with section 147(a) of the Act. The aforesaid order stated that after obtaining the sanction of the Board, notices dated 27-3-1972, were served on the petitioners on 30-3-1972, but no return of income was filed. By the aforesaid order of assessment, the ITO (respondent No. 1) held that the sum of Rs. 6,52,135 was the income of the late Lakshmi Narain, and, therefore, the sum had escaped assessment and was liable to be assessed for the assessment year 1955-56. However, pursuant to an application dated 26-3-1976, made u/s 146 of the Act, the ITO (respondent No. 1) by an order dated 26-3-1976, cancelled the said assessment order. By a letter dated 23-9-1978, issued by respondent No. 2, ITO, Special Ward-3, Circle-II, Ranchi, the petitioners were informed that the original assessment of the late Lakshmi Narain was made on 10-5-1957, in the status of an individual which was later on reopened for inclusion of the sum of Rs. 6,52,135 being the loan and the interest relinquished by the Raja Saheb of Udaipur in favour of Lakshmi Narain in consideration of special services rendered by late Lakshmi Narain. The petitioners were called upon to submit their objections, if any, to the proposed reassessment for the said assessment year. To this communication, the petitioners filed their objections dated 23-1-1979, raising various objections and disputing the legality and validity of the service of the said notices u/s 148. However, the petitioners received a letter dated 16-12-1980/17-12-1980 from respondent No. 2 along with a draft assessment order, both u/s 144B of the Act for the assessment year 1955-56, calling upon the petitioners to file objections, if any, to the said proposed draft assessment order whereby it was held that the said loan and interest thereon aggregating to Rs. 6,52,135 constituted income of the late Lakshmi Narain for the said assessment year which was liable to be assessed. The petitioners, thereafter, by their objections (annexures 15 to 15D), raised objections to the said reassessment proceeding and the draft assessment order. However, since they did not get any favourable response, they filed the instant writ petition for quashing the notice dated 27-3-1972, issued u/s 148 and the proceedings pursuant thereto. In the writ petition, the petitioners also challenged the legality and validity of section 144B which they challenged as being ultra vires the Act and articles 14, 19(1)(g) and 300A of the Constitution. The question of section 144B being ultra vires the Act and the Constitution, however, was not pressed before me.

The learned counsel appearing on behalf of the petitioners submitted that in the instant case, the concerned ITO did not apply his mind and form his own belief that the conditions precedent for the assumption of jurisdiction u/s 147 were satisfied. He merely acted under the directions and instructions of his superior officer, namely, the Commissioner. From the material on record, it is clear that the ITO, on application of his mind, was of the view that the amount was not taxable at all and could not be brought to tax, but by reason of specific directions and/or instructions given by the Addl. Commissioner and the Commissioner he, in compliance with those directions and/or instructions, sent a proposal and issued notices u/s 148. If the ITO himself did not form the requisite belief, the purported proceedings were illegal, unjustified, unwarranted and without jurisdiction. The second submission urged on behalf of the petitioners was that the approval of the Commissioner and the Board was to initiate a proceeding u/s 148 against Lakshmi Narain Jaiswal, HUF. The recorded reasons dated 4-12-1971, and the alleged approval thereupon was for reopening the assessment of the said HUF. The notices u/s 148 had been issued by the ITO upon the legal heirs of Lakshmi Narain Jaiswal, in the capacity of individual, otherwise, the notices could not have been served upon the legal heirs. If the approval of the Central Board had been obtained to initiate proceedings against the said HUF, the purported notice could not be issued against the individual. In any event, even if it be assumed that in March 1972, a fresh proposal was sent to the Commissioner and fresh approval was given by the Board to reopen the assessment against; the individual, there were no fresh reasons recorded for proceeding against the individual nor were any such reasons disclosed when they were called upon to do so. There were, therefore, no recorded reasons on the basis of which the approval to reopen the case of the Individual could be granted.

Thirdly, it was submitted that on the facts of the case, the ITO could not have any material, nor could he have any reason to believe that the late Lakshmi Narain Jaiswal had any income chargeable to tax which had escaped assessment. In fact, in his letter dated 28-1-1972, the ITO expressed his doubt and difficulties in bringing the said amount to tax. Lastly, it was submitted that the notices u/s 148 were not served upon the petitioners in accordance with law. No genuine attempt was made to serve the notices upon the petitioners and the notice, therefore, by affixation was merely a sham and, in any case, not in accordance with law.

Before dealing with the submissions urged at the bar, I may observe that by order dated 30-7-1987, I had directed the respondents to keep all the records in connection with this case available in the Court. Mr. Debi Prasad, the learned counsel appearing on behalf of the respondents, had produced the relevant file and also produced some of the documents, though some others were not found in the file. I shall deal with those documents while dealing with the relevant submissions.

I will first deal with the last submission urged on behalf of the petitioners, namely, that the notices u/s 148 were not served upon the petitioners in accordance with law, and, therefore, the assumption of jurisdiction by the ITO was illegal. In paragraph 15(v) of the writ petition, the petitioners have stated that the notices dated 27-3-1972, u/s 148 were never served at all in accordance with law on the petitioners and/or any other legal heir and representative of the deceased, nor were the said notices served upon respondent No. 7. The records disclose that the postal authorities did not serve the notices and they were returned with the remark ''unserved''. Thereafter, on 30-3-1972, the Inspector of the office of the ITO (respondent No. 1) affixed the said notices at Ranchi Distillery, Lalpur. It was only later that the petitioners obtained copies of the aforesaid notices from the respondent No. 1. Since the aforesaid notices were not served lawfully, all proceedings, notices and orders pursuant thereto and thereunder were illegal, invalid, ultra vires and without any authority of law. In reply to the aforesaid averments in the writ petition, it has been stated in paragraphs 9 and 12 of the counter-affidavit filed on behalf of the respondents that the notices u/s 148 were served by affixture. The assessees did not co-operate in receiving the notices. The notices had been lawfully served by affixture by two Inspectors of the income tax Department. Their statements were also recorded by the ITO after such service. The affixture was made in the presence of independent witnesses. The notices sent by registered post were returned with the remark of the postal authorities ''addressee absent: returned to sender''. In such a situation, the notices were served in accordance with the provisions of the Code of Civil Procedure, 1908.

The learned counsel for the petitioners submitted that no genuine efforts were made to serve the petitioners by registered post. The petitioners are all residents of Ranchi and their addresses were known to the ITO. There was, therefore, no reason why they could not be served and why it became necessary to effect service by affixture. It is not disputed before me that the service of notice was effected by affixation on 30-3-1972. It was also not seriously disputed that the notices were attempted to be served by registered post, but the same could not be done and the registered covers were returned unserved. In these circumstances, I do not think it is possible for this Court, in exercise of the writ jurisdiction, to go into questions of fact as to what attempts were made by the respondents and what were the circumstances which did not make it possible for the respondents to serve notices by registered post. I am satisfied that the respondents did attempt to serve the petitioners with notices by registered post and since the notices could not be served in that manner, service was effected by affixture upon the premises belonging to the petitioners. Moreover, this is not a case where proceedings have, thereafter, continued without the knowledge of the petitioners. In fact, the assessment made ex parte u/s 144 on 31-12-1975, was reopened upon the application made by the petitioner u/s 146 by order dated 26-3-1976 (annexure-11). The petitioners were, thereafter, given opportunity of hearing by notices issued to them on 23-9-1978 (annexure-12 series). The petitioners made their detailed submissions in writing, vide annexure-13. Thereafter, draft assessment order was forwarded to the petitioners under annexures-14 and 14A dated 16-12-1980/17-12-1980, with liberty to the petitioners to raise objections, if any. The petitioners, thereafter, raised various objections as is evident from annexure-15 series. I, therefore, find no illegality in the proceeding for want of proper service of notice.

The next submission urged on behalf of the petitioners that there was no proper approval of the Board for initiation of proceedings u/s 148 must also be rejected. It was submitted that on 4-12-1971, the ITO submitted a proposal to assess Lakshmi Narain, HUF, giving his reasons therefore. A copy of the proposal submitted by the ITO was produced by the learned counsel appearing on behalf of the respondents and it appears at page 69 of the original file. The proposal was approved by the Commissioner on 14-2-1972. This was also produced by the learned counsel appearing on behalf of the respondents. It appears that the approval of the Board was granted later (perhaps on 8-3-1972). The contention of the petitioners is that the recorded reasons dated 4-12-1971, and the approval granted thereupon was for reopening the assessment of the HUF, but the notices u/s 148 had been issued upon the legal heirs of the late Lakshmi Narain in the capacity of individual. The submission was that if the approval of the Central Board had been obtained to initiate a proceeding against the said HUF, the purported notices cannot be issued against the individual. Reliance was placed upon the judgments in Commissioner of Income Tax Andhra Pradesh Vs. K. Adinarayan Murty, and Marghabhai Babarbhai Patel Vs. R.M. Parikh, Income Tax Officer, Ward-b, Petlad and Another, . The respondents did not dispute the legal proposition that if approval was granted for initiation of proceedings against the HUF, the proceeding could not be initiated against the individual. The respondents, however, referred to the order sheet in the original file dated 17-3-1972, which discloses that there was a mistake in the description of the status of the assessee and ''Hindu undivided family'' had been mentioned instead of ''individual''. When this mistake was discovered by the ITO, he sent another proposal on 15-3-1972 (page 75 of the original file) with the approval of the Commissioner. The approval of the Commissioner does not bear any date, but the Board granted approval to the said proposal. Thereafter, a telegram was sent on 25-3-1972, which is at page 72 of the file.

It, therefore, appears that when the proposal was originally sent for approval of the Board, a mistake had crept in, since the assessee was shown as HUF instead of individual. The learned counsel for the respondents explained that the reasons recorded were reasons for reopening the assessment of the individual and not of the HUF. The description of the assessee as HUF was a result of inadvertence and as soon as the mistake was realised, it was got corrected by sending a fresh proposal and obtaining fresh approval of the Board. It was contended on behalf of the petitioners that if a fresh proposal Wits sent on 15-3-1972, the ITO was obliged to record his reasons in support of his fresh proposal, but that has not been done in the instant case. It appears from the order sheet of this Court that the petitioners had raised this objection on 18-8-1987. The learned counsel appearing on behalf of the respondents submitted on that day that the reasons recorded may be in a separate sheet, but that was not in the file. He, therefore, took time to produce the aforesaid ''reasons'' in support of the proposal. Time was granted to him till 27-8-1987. On 2-9-1987, the respondents again prayed for more time to produce the ''reasons'', and they were granted time till 9-9-1987, to produce them. On 2-11-1987, the learned counsel for the respondents submitted that apart from the reasons already shown to the Court or apart from the recorded reasons which had been recorded in support of the earlier proposal dated 4-12-1971, there were no other ''reasons''. The petitioners, therefore, contended that the proposal made by the ITO dated 15-3-1972, did not contain reasons and hence, no approval could be granted by the Commissioner or by the Board in the absence of such reasons. He submitted that while granting approval, the Board must be satisfied with the reasons recorded by the ITO. The grant of approval was not a mere formality. In support of this, he relied upon the decisions in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, , Johri Lal (H.U.F.), Agra Vs. The Commissioner of Income Tax, , Union of India and Others Vs. Rai Singh Deb Singh Bist and Another, and Chhugamal Rajpal Vs. S.P. Chaliha and Others, .

The respondents did not dispute the position that while approving the proposal made for initiation of proceedings u/s 148 the approving authority, whether it is the Commissioner or the Board, must consider the recorded reasons and grant approval only after being satisfied with the reasons recorded by the ITO and that the power could not be mechanically exercised treating it as a mere formality. In the instant case, however, it was contended that the reasons had already been recorded when the proposal was initially submitted on 4-12-1971. Those reasons hold good. There was a mistake in the status of the assessee when the proposal was sent earlier. The subsequent proposal sent by the ITO was merely for the purpose of correcting the status of the assessee. The learned counsel for the respondents appears to be right in his submission. The ITO had recorded his reasons while submitting the proposal for initiation of proceedings u/s 148 on 4-12-1971. Though the reasons recorded justified reopening of the assessment of the late Lakshmi Narain for the assessment year 1955-56, by mistake, the status of the assessee was shown as the HUF. This was an apparent error because the reasons suggest that there was a case for reopening the assessment of the individual. The loan, according to the petitioners, had been released in favour of the joint family and not Lakshmi Narain. The plea of the department appears to be that since the loan had been released for services rendered by the late Lakshmi Narain, it was taxable as the income of the late Lakshmi Narain and not as the Income of the HUF. With a view to correct the error, the ITO made another proposal giving the correct status of the assessee whose assessment was sought to be reopened and obtained the approval of the Board. The reasons, obviously, were the same as those recorded in support of the proposal dated 4-12-1971. It appears that, by mistake, the status of the assesses had gone unnoticed and the whole purpose of making another proposal was only to correct the status of the assessee. The ITO was not making out a new case against another assessee, but merely sought to correct the status of the assessee which had been wrongly given in the earlier proposal.

I am, therefore, satisfied that the reasons recorded by the ITO in support of his earlier proposal must be treated as reasons in support of the later proposal dated 15-3-1972. The Board had applied its mind to these reasons and had given its approval thereafter. The objections of the petitioners are merely technical and the proceeding cannot be quashed on such ground.

I shall now deal with the main contention urged on behalf of the petitioners. The learned counsel for the petitioners referred to the provisions of sections 147 and 148 and submitted that for reopening of an assessment relating to the year beyond four years from the relevant assessment year, the ITO must have reason to believe that there has been escapement of income and that the said income escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment for that period or year. Both conditions are, conditions precedent for the assumption of jurisdiction u/s 148. He placed reliance upon Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , Income Tax Officer and Others Vs. Madnani Engineering Works Ltd., Calcutta, and Lakhmani Mewal Das''s case (supra). He then submitted that before issuing a notice u/s 148, the ITO is obliged to record his reasons for doing so as provided u/s 148(2). The Commissioner or the Board, accordingly, as the case may be, must be satisfied on the reasons so recorded by the ITO u/s 148(2) that it is a fit case for the issuance of the said notice: Johri Lal (HUF''s case (supra), Rai Singh Deb Singh Bist''s case (supra) and Lakhmani Mewal Das''s case (supra). The submission forcibly urged before me was that the ITO has to apply his mind and form his own belief that the conditions precedent for the assumption of jurisdiction u/s 147 are satisfied. It was submitted that in the instant case, the ITO concerned did not form his own belief but submitted a proposal on the direction of the Commissioner even though he was himself satisfied that there was no case for reopening the assessment under sections 147 and 148. The proceedings, therefore, pursuant to such a notice were clearly illegal, unjustified, unwarranted and without jurisdiction.

The respondents, on the other hand, contended that the position in law is well settled and did not seriously dispute the legal proposition as formulated by the learned counsel for the petitioners. He, however, submitted that though the ITO must apply his own mind and form the requisite belief, there was no bar to the facts being brought to his notice by anyone else, or to the higher authorities directing him to consider such matters as they deem fit. According to him, in the instant case as well, though certain directions were made by the Commissioner the requisite belief was formed by the ITO himself who gave his reasons for the proposal submitted by him u/s 148. He submitted that the Commissioner was within his right to direct any ITO to send a proposal u/s 147.

Having regard to the contentions of the parties, the facts as they emerge from the record, including the original file produced by the learned counsel for the respondents, may now be considered.

The petitioners, in paragraph 15 of the writ petition, have stated that upon an inspection of the records allowed to them by respondent No. 1, they came to learn of various facts which are enumerated in sub-paragraphs I to IV of paragraph 15. Briefly stated, their case is that the proceedings and/or enquiry were initiated by respondent No. 1 pursuant to and in compliance with the directions contained in Letter No. Inv(C) -1171/65/1603 dated 23-4-1969 of the Commissioner (respondent No. 4) and letter No. Inv(C) -1171/65/364 dated 16-6-1971, of the Addl. Commissioner, Bihar, Patna. The relevant averments have been quoted in extenso in the earlier part of this judgment. In the file produced by the department the aforesaid two letters of the Commissioner and Addl. Commissioner are not to be found. Similarly, the report of the ITO to the Commissioner dated 18-6-1971, expressing his doubt and difficulty regarding taxability of the amount and asking for instructions as well as the assessment year for which proceedings were to be reopened in case the amount was considered to be taxable, was also not found. Letter No. Inv(C) -1171/65/582 of the Commissioner dated 13-4-1971, directing the ITO to submit a proposal u/s 147 in the case of the late Lakshmi Narain was also not found in the file. The proposal submitted by the ITO on 4-12-1971, as well as the approval granted by the Commissioner was produced before the Court and a copy thereof was also given to the counsel for the petitioners. The letter of the Commissioner bearing No. IT-VI-10/71/65380 dated 25-1-1972, has been annexed as annexure-B to the counter-affidavit filed on behalf of the respondents. But the most crucial document is the letter No. 1742 written by the ITO to the Commissioner referring to the correspondence exchanged on the subject and the circumstances in which he had submitted the proposal on 4-12-1971, for initiation of proceedings u/s 147. Since that document is crucial and the petitioners heavily relied upon the aforesaid letter, the letter is quoted in extenso:

"Sir,

Sub: Proposal u/s 147(a) for assessment year 1955-56 in the case of late Lakshmi Narain Jaiswal, Ranchi-regarding.

Please refer to Sri B.P. Sinha''s D.O.I.T.-VI-10/71/65380 dated January 25, 1972, on the above subject.

A copy of the award dated March 19, 1958, has already been sent, vide this office D.O. No. 443 dated June 28, 1971, addressed to Shri G.N. Kaul, A.D.I. However, a copy of the same is enclosed herewith.

A copy of the agreement dated December 28, 1954, was also sent to the Commissioner of income tax through the Inspecting Assistant Commissioner, vide this office No. Con/2064 dated February 11, 1969. However, a copy of the same is also enclosed herewith. Perhaps all these papers are placed in the disclosure file which is with the A.D.I., Patna.

As regards taxability of the amount, reference is invited to the earlier correspondence on the above subject. However, the facts in brief are stated as under.

The Commissioner of income tax, vide his letter No. Inv(C) -1171/65/1603 dated April 23, 1969, had asked for full particulars in respect of this loan of Rs. 6,85,151. My predecessor, vide his letter No. Con/69-70/273 dated May 8, 1969, addressed to the Commissioner of income tax through the Inspecting Assistant Commissioner discussed the facts of the case in detail and he was of the opinion that the amount cannot now be brought under assessment.

Thereafter, the Addl. Commissioner of income tax, vide his letter No. Inv(C) -1171/65-364 dated June 16, 1971, informed me that the amount of Rs. 6,85,151 was found to be taxable and directed me to submit a report about the ownership of the amount whether in the hands of Hindu undivided family or in the hands of late Lakshmi Narain in his individual capacity.

A detailed report on this point was submitted under this office letter No. nil dated June 18, 1971, wherein I had expressed my doubts and difficulties regarding the taxability of the amount and had asked for instructions as well as the assessment year for which proceedings were to be reopened in case the amount was considered to be taxable. Thereafter, I was directed, vide Commissioner of income tax''s letter No. Inv(C) -1171/65/582 dated July 13, 1971, to submit a proposal u/s 147 in the case of late Lakshmi Narain for this assessment year and, accordingly, the proposals for initiating proceedings u/s 147 were submitted in this case.

Yours faithfully Sd. D. Prasad, income tax Officer, Special Circle, Ranchi.

It will be seen that this letter dated 28-1-1972, was produced by the respondents and was contained in the original file. The authenticity of this document is not disputed and could not be disputed since it was produced from the file maintained by the respondents. This letter refers to the letter of the Commissioner dated 23-4-1969. It also refers to the letter of the ITO dated 8-5-1969, addressed to the Commissioner and expressing his opinion ''that the amount now cannot be brought under assessment''. The letter then refers to the letter of the Addl. Commissioner dated 16-6-1971, informing the ITO that the amount "was found to be taxable and directed me to submit a report about the ownership of the amount and in whose hand the amount was taxable". It, thereafter, refers to the detailed report dated 18-6-1971, wherein the ITO "had expressed my doubt and difficulties regarding taxability of the amount and had asked for instructions as well as the assessment year for which proceedings were to be reopened". It then refers to the letter of the Commissioner dated 13-7-1971, directing him to submit a proposal u/s 147 and the letter concludes by saying ''and accordingly, the proposals for initiating proceedings u/s 147 were submitted in this case''. This letter has great significance because the proposal u/s 147 had been made by the same ITO who is the author of this letter dated 28-1-1972. The letter refers to the correspondence exchanged between him and the Commissioner giving'' particulars of those letters, their numbers, etc. The aforesaid ITO was the best person to state as to whether he had applied his mind and formed the requisite belief, or whether he had sent the proposal u/s 147 merely on the dictates of the superior officers, even though he himself did not form the requisite belief. No counter-affidavit has been filed by the aforesaid ITO to contradict the averments made in the writ petition. The averments contained in paragraph 15 of the writ petition have not been denied or disputed in paragraphs 8 and 9 of the counter-affidavit, and, therefore, there is no dispute that the letter dated 16-6-1971, from the Addl. Commissioner to the ITO, the letter dated 18-6-1971, being the report of the ITO to the Commissioner and the letter dated 13-7-1971, of the Commissioner directing the ITO to submit a proposal u/s 147 do exist. This is also corroborated by the letter dated 28-1-1972, quoted above. Unfortunately, those letters have not been produced by the respondents and it was said that they are not traceable in the file. However, those letters have been referred to in the letter dated 28-1-1972, which has been produced from the file.

In these circumstances, therefore, there appears to be no reason why the averments made by the petitioners on oath should not be accepted, particularly, in view of the contents of the letter of the ITO dated 28-1-1972. It is clear from the aforesaid letter that there was exchange of views between the Commissioner, Addl. Commissioner and the ITO concerned. It also appears that the ITO, vide his letter dated 8-6-1969, expressed his view that, in his opinion, the amount could not be brought under assessment. It also appears that the Addl. Commissioner held a view otherwise. It also appears that on 18-6-1971, the ITO, who had ultimately submitted a proposal u/s 147, also expressed his doubts and difficulties regarding taxability of the amount in question and asked for instructions. Thereafter, he received directions from the Commissioner vide letter dated 13-7-1971, to submit a proposal u/s 147 in the case of the late Lakshmi Narain for the assessment year 1965-56 and in obedience to the aforesaid direction, he submitted a proposal for initiating the proceedings u/s 147. I have, therefore, no doubt in my mind that the concerned ITO never formed the requisite belief. In fact, his view as also the view of his predecessor-in- office was that the assessment could not be reopened and that the amount in question could not be brought to tax. He was, however, over ruled by the Commissioner who directed him to submit a proposal and in obedience to the directions of the Commissioner, he submitted a proposal for initiating proceedings u/s 147. In these circumstances, I hold that the concerned ITO never formed the requisite belief that there had been escapement of income or that income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment for that year. According to me, the conditions precedent for the assumption of jurisdiction u/s 148 were not satisfied.

The learned counsel for the respondents vehemently urged that there is nothing in law which prevents a higher authority from giving instructions and advice from time to time to subordinate authorities. Such instructions cannot vitiate the judgment of the subordinate authorities. He submitted that very often ITOs, when they are in doubt, seek advice of a higher authority, such as the Commissioner, and they are guided by such advice and instructions as they receive from them. In the instant case, however, I find that this is not a case where the ITO was seeking any clarification or advice in regard to a matter where he had doubts. The ITO concerned as well as his predecessor had clearly expressed the view that there did not appear to be any reason to initiate proceedings u/s 147, but finding that the Commissioner was of the opposite view, he sought instructions in the matter. Pursuant thereto, by letter dated 13-7-1971, the Commissioner directed him to submit a proposal u/s 147. The learned counsel submitted that the Commissioner did not suggest the reasons which have been recorded for the proposal made by the ITO. That, to my mind, is not of much consequence. The ITO, contrary to his own belief, felt compelled to submit a proposal for initiation of proceedings u/s 147. The Commissioner and the Addl. Commissioner always held a view to the contrary, and, therefore, the ITO had no difficulty in following the line of reasoning advanced by them. He, therefore, recorded reasons in support of the proposal, even though he himself did not believe that those reasons justified the initiation of proceedings u/s 147. The requisite belief u/s 147 must be that of the ITO concerned and not of any other officer. If the ITO does not form his own belief, but merely acts at the behest of any superior authority, it must be held that the assumption of jurisdiction u/s 148 was bad for non-satisfaction of the conditions precedent.

I am, therefore, of the view that the proceedings initiated pursuant to the proposals submitted by the ITO dated 4-12-1971 and 15-3-1972, are bad in law. The notices issued u/s 148 on 27-3-1972, are, for the same reason, bad in law and the proceedings taken pursuant thereto, are invalid and of no consequence. The notices dated 27-3-1972 (annexures-8 to 8-F), as also proceedings taken pursuant thereto are hereby quashed.

In view of my above finding, I do not consider it necessary to go into the question as to whether there was any material on which the ITO could form his belief that the amount in question constituted the income of the assessee, namely, the late Lakshmi Narain. Since, I have come to the conclusion that the ITO did not form the requisite belief, it is not necessary to consider whether he could have, on the materials on record, formed the requisite belief. This writ petition is accordingly allowed and the notices dated 27-3-1972 (annexures-8 to 8-F), and the proceedings taken pursuant there to are hereby quashed. There shall be no order as to costs.