Shyamlal Ghoshal vs Income Tax Officer

K.L. Roy, J.—The Petitioner carries on business under the name and style of M/s. Shyamlal Ghosal and he is one of the Directors of Jasodalal Ghosal (Pvt.) Ltd. The Petitioner''s year of account is the calendar year. The Petitioner''s assessment to income tax for the years 1955-56 to 1959-60 were completed by Sri S. N. Sen, income tax Officer ''A'' Ward, Companies District IV, Calcutta, more or less simultaneously in September 1959. The Petitioner''s wealth-tax assessment for the year 1959-60, for which the corresponding valuation date was December 31, 1958, was also completed by the aforesaid officer on February 29, 1960. It appears that during the course of the aforesaid assessment proceedings a statement of receipts and expenditure as also of assets and a reconciliation statement on balance as on December 31, 1958, was filed before the income tax Officer. In the first statement it was shown that 12 shares of M/s. Jasodalal Ghosal (P.) Ltd. were issued to Sm. Amita Ghosal, the wife of the Petitioner, during the year 1957 while 10 such shares were allotted to her in the year 1958. It was further stated that the source of the money invested by the said Sm. Amita Ghosal in the shares of M/s. Jasodalal Ghosal (P.) Ltd. was cash received as gift from the late Jasodalal Ghosal as also accrued interest on the amount of the said gift and dividends received from the said company and that the said Sm. Amita Ghosal was separately assessed in District II. It is alleged that at the bottom of the said statement an analysis of share held by Shyamlal Ghosal in M/s. Jasodalal Ghosal (P.) Ltd. was given which showed that out of 1,415 such shares held in 1958, 200 were sold to his son Swapan Ghosal in 1958 and a further 200 were sold to Sm. Amita Ghosal in 1957-58, and that the balance 1015 shares remained with him. The income tax assessments for the aforesaid four years were duly completed by the said S. N. Sen, while in the wealth-tax assessment for 1959-60 by the same officer the Petitioner''s statement that on December 31, 1958, he only owned 1015 ordinary shares in M/s. Jasodalal Ghosal (P.) Ltd. was accepted and the value of these shares was included in his total wealth. Both the income tax and the wealth-tax assessment of the Petitioner for the assessment years 1962-63 were completed by one T. V. Ramkrishna who succeeded Sri S. N. Sen as the income tax Officer, A Ward, Companies District IV. The income tax assessments of Sm. Amita Ghosal upto the assessment year 1961-62 were duly completed by the income tax Officer, J Ward, District II, Calcutta. For the assessment year 1962-63 the income tax Officer assessing Sm. Amita Ghosal was of the opinion that she did not have the capacity to possess the sum of Rs. 20,000 with which to purchase the said 200 shares in M/s. Jasodalal Ghosal (P.). Ltd. from the Petitioner in 1957. Two notices u/s 14 of the income tax Act, 1961, dated March 18, 1967, and March 8, 1967, were issued by Sri A. C. Ghosh, the income tax Officer, K Ward, Companies District IV, Calcutta, for the reassessment of the Petitioner''s income for the assessment years 1958-59 and 1962-63 respectively and were served on the Petitioner, as the said income tax Officer had reason to believe that the Petitioner''s income chargeable to tax for the aforesaid two years had escaped assessment on June 5, 1967, notices u/s 143(2) of the said Act in respect of the said two years were issued and served on the Petitioner. The Petitioner had, in the meantime, filed his returns for the assessment years 1958-59 and 1962-63 in response to the aforesaid notices u/s 148. Subsequently, by notices dated June 23, 1967, the Petitioner was required to produce before the income tax Officer the books of account, Bank pass book etc. in support of his returns for the aforesaid two years under Sections 142(1) and 143(2) of the said Act. Thereafter, various objections were raised by the Petitioner against the proposed re-assessment proceedings by his letters dated July 4, 1967, and July 11, 1967. The Respondent income tax Officer by his letter dated September 21, 1967, required the Petitioner to furnish the particulars in connection with the 200 shares in M/s. Jasodalal Ghosal (P.) Ltd. transferred by the Petitioner to his wife on May 30, 1956, in connection with the assessment year 1958-59. By his letter dated September 27, 1967, the Petitioner informed the Respondent income tax Officer that the aforesaid 200 shares were allotted to him by the said company on May 28, 1956, in consideration of the price for taking over the partnership concern of M/s. Jasodalal Ghosal and, as such, no cash payment was involved in the issue of these shares. The company also informed the Respondent income tax Officer by its letter dated October 30, 1967, that no cash transaction was involved in the allotment to the 200 shares allotted to Sm. Amita Ghosal. By his letter dated December 16, 1967, the income tax Officer informed the Petitioner of the reasons for his belief that the Petitioner''s income had escaped assessment and for re-opening the assessment for the year 1962 63, namely, that certain cash deposits in the Petitioner''s wife''s account with the Bank of Baroda Ltd. which could not be explained by the Petitioner''s wife in connection with her own income tax assessment and further that during the accounting year the Petitioner''s wife had purchased 141 shares of M/s. Jasodalal Ghosal (P.) Ltd. for Rs. 14,100 whose source, could not be fully explained by her. The letter further required the Petitioner to furnish details of the dividends received by his wife in relation to the shares purported to have been transferred to her by the Petitioner as well as those purchased by her subsequently. On December 23, 1967, two notices u/s 274/271 of the Act in respect of the aforesaid two assessment years were issued by the Respondent Income tax Officer requiring the Petitioner to show cause why penalty should not be imposed and proposing to refer the Petitioner''s case to the inspecting Assistant Commissioner. This Rule was obtained from this Court on January 16, 1968, when an interim injunction was also granted.

As the petition had been originally affirmed by Benulal Ghosal, the brother of the Petitioner, a preliminary objection as to the maintainability of the application was raised and I directed the Petitioner to re-verify the petition and the petition was, accordingly,, re-verified by the Petitioner on November 27, 1969. Similarly, as the affidavit-in-opposition had been affirmed by Arun Chandra Ghosh, the present incumbent to the post of income tax Officer, IK Ward, Companies District IV, who had made the statements in the said affidavit on the basis of information received from the assessment records. I directed Sri Sailendra Nath Sen, the income tax Officer who had made the original assessments, to file an affidavit as in view of certain decisions of this Court, such an affidavit as filed in this case would not be the proper mode of showing cause. In accordance with the aforesaid directions the said Sailendra Nath Sen had filed an affidavit affirmed on December 6, 1959. An affidavit in support of the petition has also been filed after the period of filing of such affidavit had expired by the leave of the Court by Sachindra Mohan Roy Choudhury, Chartered Accountant, who represented the Petitioner before the income tax Officer during the original assessment proceedings. In the affidavit affirmed by Arun Chandra Ghosh it has been stated that from the records it does not appear that any reconciliation statement of balance as on December 31, 1958, was filed in connection with the assessment year 1958-59, but such a statement was filed in connection with the year 1959-60. It is further stated that in the said reconciliation statement the receipt of Rs. 20,000 from the Petitioner''s wife as the sale proceeds of 200 shares was not shown and that such receipt was only disclosed by the Assessee in his statement filed in course of the reassessment proceedings. It is also stated that the alleged statement of wealth does not appear to have been filed at all. In the affidavit of Sailendra Nath Sen it is admitted that a reconciliation statement was filed, but such reconciliation statement was filed in connection with the assessment year 1959-60 and the receipt of Rs. 20,000 from Sm. Amita Ghosal was not shown in the said statement. It is further affirmed that in the said reconciliation statement no analysis of the shares of the Petitioner in M/s. Jasodalal GhosaT(P.) Ltd. as appearing at the end of such a statement annexed to the petition was included. The said Sailendra Nath Sen further states that during the assessment proceedings the Assessee did not claim to have received any money from his wife in the year 1957 on account of the sale of these shares and, as such, the question of the receipt of Rs. 20,000 as the price of these shares was not gone into by him or any evidence on that point was considered by him for the assessment for 1958-59. As the assessment for the years 1955 56 to 1959-60 were more or less completed simultaneously he accepted the statement of the authorised representative of the Petitioner that certain shares were sold during the relevant accounting years to Sm. Amita Ghosal and Sri Swapan Ghosal for valuable consideration. For the assessment of the Petitioner to wealth-tax for the assessment year 1959-60 he only included the price of 1,015 ordinary shares in M/s. Jasodalal Ghosal (P.) Ltd. on the basis of the return filed and the representation made by the authorised representative of the Petitioner. In the aforesaid affidavit of Arun Chandra Ghosh it is claimed that it was only when he was informed by the income tax Officer, J Ward, assessing Sm. Amita Ghosal for the assessment year 1962-63 that the said Sm. Amita Ghosal had no capacity to make -the payment of Rs. 20,000 as consideration for the transfer of the 200 shares in M/s. Jasodalal Ghosal (P.) Ltd. by her husband in October 1957 that he had reason to believe that the Petitioner''s income had escaped assessment for the year 1958-59. So far as the assessment year 1962-63 is concerned the fact that Sm. Amita Ghosal had purchased subsequently another 141 shares in the said company and also had made various deposits in her Bank account came to the knowledge of the Respondent income tax Officer from the income tax Officer assessing Sm. Amita Ghosal for that year. I have myself looked into the records of the original assessment proceedings and it appears that the records for all these.years are somewhat mixed up and apparently only one reconciliation statement and one statement of wealth was filed which had been put in the file ''for the assessment year 1959-60. It also appears from the said records that while the said statement explained the source of money invested by Sm. Amita Ghosal as the money received as gift from Jasodalal Ghosal arid interest from investment made of the money gifted and further dividends received from the'' said company, no analysis of the shares of the said company held by the Petitioner as appearing at the end of the reconciliation statement annexed to the petition was given. The statement found in the records has been signed by Sri S. M. Roy Choudhury and dated September 23, 1959.

There seems to be some confusion as to the exact date on which the Assessee claims to have received the consideration for the 200 shares transferred to his wife. In the wealth statement filed at the time of the original assessment the receipt of Rs. 40,000 as share money is shown in the year 1958, while his wife had stated in her own assessment that the said shares were purchased in October 1957 and the Respondent income tax Officer in his letter to the Petitioner dated September 21, 1967, had stated that the Petitioner had transferred to his wife 200 shares in the said company on May 30, 1956, in reply to which the Petitioner had produced the records of the company showing the date of the issue of the said 200 shares to him as May 28, 1956, for consideration other than cash. So, it is not quite clear what is the exact date on which the Petitioner has purported to transfer the said 200 shares to his wife. In the petition itself it is stated that the Petitioner had sold 200 shares to his son Swapan Ghosal in 1958 and 200 shares to his wife Sm. Amita Ghosal in the year 1957-58. The alleged statement of balance annexed to the petition showing the receipt of Rs. 40,000 as the price of shares in the year 1958 is not found in the records of the original assessments. Further, during the course of the argument it has been assumed that the alleged transfer by the Petitioner to his wife was made during the calendar year 1957.

From the records produced before me at the time of the hearing of the application it would also appear that certain other statements were filed by Sri Roy Choudhury showing receipt of Rs. 20,000 in the accounting year 1957 in respect of the sale of the aforesaid shares which had not been disclosed in either of the affidavits affirmed by Sri Ghosh or Sri Sen.

Mr. Sen, the learned Counsel appearing for the Respondent, raised several contentions against the maintainability of this application. His first argument was that as the Petitioner had acquiesced in the exercise of jurisdiction by the Respondent income tax Officer in making the re-assessments for the aforesaid two years he would not be permitted to challenge the issue of the impugned notices. The Petitioner had not only filed his returns but also complied with the various notices u/s 143 and had also taken part in the penalty proceedings. The learned Counsel relied on the decision of the Supreme Court in PANNALAL BINJRAJ AND ANOTHER Vs. THE UNION OF INDIA AND OTHERS. (AND OTHER CASES)., for the proposition that acquiescence in the exercise of jurisdiction would debar the Petitioner- from relief even when the jurisdiction is challenged. But that said observation of the Supreme Court related to the jurisdiction of an income tax Officer to whom the Assessee''s case has been transferred u/s 5 (7A) of the income tax Act, 1922. Their Lordships observed that there was no fundamental right in an Assessee to be assessed in a particular area or locality. An objection to the jurisdiction of a particular income tax Officer must be raised u/s 64 before filing the return. I agree with Dr. Pal, the learned Counsel for the Petitioner, that the observations made in that case have no application in the present context. What was challenged before the Supreme Court was the jurisdiction of the income tax Officer to whom the Assessee''s file has been transferred and the Supreme Court observed that after acquiescing in the exercise of such jurisdiction by filing returns and taking part in the proceedings the Assessee could not subsequently object to that jurisdiction. I also agree with Dr. Pal that no amount of consent or waiver can confer jurisdiction where there is initial lack of jurisdiction.

The other argument of Mr. Sen against the maintainability of the present application is that there has been various untrue statements and suppression of material facts in the petition and as truest and fullest disclosures have not been made the application should be rejected in limine. Mr. Sen contended that the statements made in the petition are at variance with the annexures to the petition, as for instance, in para. 14 it has been alleged that no cash transaction was involved in the allotment of 200 shares to Sm. Amita Ghosal while in annex. A to the petition at p. 24, 200 shares are shown as sold to his wife and the source from which the purchase price was paid is disclosed. He next pointed out that while in the aforesaid annex. A to the petition an analysis of the shares of the Petitioner in M/s. Jasodalal Ghosal (P.) Ltd. appeared, no such analysis is found in the statement filed before the income tax Officer as appearing from the records though the statement filed has been signed by Sri Roy Choudhury, the Petitioner''s authorised representative. I am not very much impressed with this argument; As explained by Dr. Pal, the statement of the company only shows that the shares in the company were allotted to the Petitioner in consideration of his shares in the assets of the firm M/s. Jasodalal Ghosal (P.) Ltd. taken over by the company and, as such cash consideration was involved in the issue of these shares. Further, as I have already pointed out there seems to be quite a lot of confusion in the original assessment records as the assessments for five years were completed more or less simultaneously. Undoubtedly, in the wealth statement found in the records there is no analysis of the shares held by the Petitioner in the aforesaid company, but I am not quite sure whether such a statement containing such an analysis was filed or not before the income tax Officer in respect of the proceedings for the year 1958-59. Further, as in his affidavit Sri Roy Choudhury has solemnly affirmed that all the relevant materials regarding the transfer of shares were disclosed at the time of the original assessment I would not lay much stress on this part of Mr. Sen''s argument.

Dr. Pal advanced the usual arguments in support of his, contention that the issue of the impugned notices by the Respondent No. 1 was without jurisdiction as there were no reasons for his belief that the income for the aforesaid two years had escaped assessment due to any failure or omission on the part of the Petitioner to disclose truly or fully all material facts necessary for his assessment. Dr. Pal pointed out that the reasons given to the Commissioner for re-opening the assessments and the statements in para. 11 of the affidavit of Arun Chandra Ghosh show that it was from the assessment order of Sm. Amita Ghosal for the assessment year 1962-63 that the Respondent income tax Officer formed his belief that the income had escaped assessment. So, at the most, such belief was based on the said assessment order which would amount to ''information'' within Clause (b) of Section 147. As in this case the primary fact that 200 shares were transferred to his wife for consideration of Rs. 20,000 was disclosed at the time of the original assessment there was no failure or omission on the part of the Assessee which would lead the income tax Officer to the belief that any income has escaped assessment in respect of the transfer of the aforesaid shares due to any such omission or failure on the part of the Petitioner. So far as the notice for the assessment year 1962-63 is concerned, undoubtedly the Respondent income tax Officer would have been justified in issuing such notice u/s 147(b), but as in this case he had purported to issue the notice u/s 147(a) that notice must be held to be ultra vires.

Mr. Sen argued that the income tax Officer in making assessments accepted the Petitioner''s case of sale of shares to his wife for cash. Thereafter, he received information that the wife did not have the money to pay cash for these shares and on that information he had reason to believe that the alleged transfer was a benami transaction by which the Assessee had been enabled to bring out Rs. 20,000 out of his undisclosed income. On receipt of the information from the income tax Officer assessing the Petitioner''s wife for the year 1962-63 the Respondent income tax Officer scrutinised the assessment records and found that Rs. 20,000 had been claimed to have been received for these shares in the year 1958. He then made enquiries from the Petitioner who came out with the story that no cash was involved in the transaction. It is submitted that there has been a failure to disclose a material fact, namely, that the shares were not transferred for cash consideration. Mr. Sen, utilised the decision of the Supreme Court in Kantamani Venkata Narayana and Sons Vs. First Additional Income Tax Officer, Rajahmundry, for the proposition that if the income tax Officer has prima facie reason to believe that information material to the assessments has been withheld and that on account of withholding the information income liable to tax has escaped assessment, he would be entitled to proceed to make re-assessment and as in this case on the information received and on further scrutiny of the records the income tax Officer had prima facie reason to believe that the Petitioner''s income had escaped assessment he was justified in issuing the impugned notice. The observation of the Supreme Court relied on by Mr. Sen has been taken out of the context in which it has been made. What was argued in that case was that as the Assessee''s account books and statements of account were produced before the income tax Officer year after year and the income tax Officer had computed the income on the material furnished, no case for exercising the power u/s 34 was made out and in that context the Court observed that mere production of the account books was not enough and that on subsequent information the income tax Officer had reason to believe that the Assessee had suppressed the considerable increase in his wealth during the assessment years.

The next argument of Mr. Sen is that if the income tax Officer has jurisdiction to issue the impugned notice u/s 147 it is immaterial whether the notice is purported to be issued under Clause (a) or Clause (b) of that section. It is not disputed that the information received by the income tax Officer from the officer making the assessment on the Petitioner''s wife entitles the Respondent income tax Officer to re-open the assessment u/s 147. Reliance was placed on a decision of the Madras High Court in the Presidency Talkies Ltd. Vs. First Addl. Income Tax Officer, City Circle II, Madras, it was observed as follows:

It is, therefore, in our opinion not necessary in the notice itself at the initial stage to indicate whether the action is to be confined to a period of eight years or four years. After all, the facts are investigated it will be open to the income tax Officer to make up his mind having regard to the findings reached by him whether the assessment should be restricted to eight years or four years.

Decision of this Court in P.R. Mukherjee Vs. Commissioner of Income Tax, West Bengal, was also cited in support of the above contention where Chakrabartti C.J. observed:

I am giving the illustration only for the purpose of pointing out that the income tax Officer cannot possibly be tied down to the section or the clause which he mentioned in the notice and if he be free to make an assessment provided there is some escaped or under-assessed income and provided that the time for making an assessment has not run out, it cannot be essential to the validity of the notice that a particular clause of section 34(1) should be specified.

But, both the aforesaid cases were dealing with a challenge to the notice u/s 34(1) of the 1922 Act on the ground of its failure to mention whether it was issued under Clause (a) or Clause (b). Chakrabartti C.J. pointed out that it was immaterial provided that the time for making the assessment had not run out. Once four years have elapsed since the end of the assessment year, a notice of re-assessment can only be issued for the omission or failure of the Assessee either to file a return or to disclose fully or truely all material facts necessary for this assessment. It is now well settled that it is not necessary to indicate in the notice itself whether it has been issued under Clause (a) or Clause (b) but has pointed out by the Supreme Court in the Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, that the jurisdiction of the income tax Officer to issue a notice u/s 34(1) of 1922 Act beyond the period of four years but before the expiry of eight years from the end of the assessment year would be conditional on his belief that income has escaped assessment due to the omission or failure of the Assessee either to file a return or to make a full and complete disclosure of all the material facts necessary for his assessment. More important to the point is the decision of the Andhra Pradesh High Court in ANNE NAGENDRAM AND BOMMA REDDI VENKAYYA AND CO. Vs. COMMISSIONER OF Income Tax A. P., where the income tax Officer after considering the cash credits appearing in the Assessee''s books accepted them and allowed the interest claimed. When subsequently it was discovered that the cash credits were false and not genuine, the High Court held that the provisions of Section 34(1) could be invoked because there would be a non-disclosure of material facts necessary for the assessment. Similarly, in Sowdagar Ahmed Khan (Deceased) (By his Legal representatives) Vs. Income Tax Officer, Nellore, the Supreme Court held that there was no substance in the contention that the income tax Officer had no jurisdiction to issue a notice u/s 34(1)(a) because the original assessment order showed that the cash credits were duly considered and accepted. The Assessee did not discharge his duty to disclose fully or truly all material facts necessary for his assessment for the relevant year merely by producing the books of account and other evidence. He had to bring to the notice of the income tax Officer particular items in the books of account or portions of document which were relevant. In Income Tax Officer, A-ward, Lucknow Vs. Bachulal Kapoor, the income tax Officer had issued a notice u/s 34(1) as he was of opinion that compromise decree for partition was collusive and the H.U.F. continued to exist. The Supreme Court held that if the case of the revenue was true--on which it did not express any opinion--and the-fact of the continuance of the joint family was kept back from the knowledge of the income tax Officer, it would be a clear case of the said family escaping assessment during the relevant year. Mr. Sen relied on that case for the proposition that even if the income tax Officer originally accepted the Assessee''s claim that the 200 shares had been transferred to his wife for cash consideration, if subsequently on information he has reason to believe that no cash consideration did pass he would be entitled to re-open the assessment u/s 147(a).

So far as the- assessment year 1962-63 is concerned, Mr. Sen submitted that in this case the notice is within the period contemplated by Section 147(b) and it could not be impugned. Further, the form of Return prescribed under the income tax Act, 1961, required an Assessee to disclose the income arising to his wife or minor children under cls. (i) to (v) of Section 64 of the Act and, as such, the decision of the Supreme Court in V.D.M.R.M.M.R.M. Muthiah Chettiar Vs. Commissioner of Income Tax, Madras, that there was no obligation on an Assessee to disclose the income liable to be'' included in his assessment u/s 16(3) of the 1922 Act and that the Assessee could not be deemed to have failed or omitted to disclose fully or truly all material facts necessary for his assessment within the meaning of Section 34(1)(a) was no longer applicable. Section 64 of the present Act corresponds to Section 16(3) of 1922 Act. Dr. Pal pointed out that the requirement by an Assessee to disclose the income accruing or arising to his wife or minor children u/s 64 in his return was only introduced by an amendment to the Indian income tax Rules, 1962, made in 1965 and, as such, it had no application to the assessment years concerned in the present case and the aforesaid Supreme Court''s decision still held good so far as the assessment year 1962-63 is concerned I must accept Dr. Pal''s contention that mere failure to disclose any income deemed to accrue or arise to his wife by the Assessee u/s 64 would not attract the provisions of Section 147(a).

So far as the assessment year 1962-63 is concerned, clearly the issue of the notice can be sustained u/s 147(b), of the Act and the mere fact that in the notice itself it is pointed out that the sanction of the Commissioner had been obtained is immaterial. It is now well-settled that the form of the notice u/s 147 need not specify whether it is under Clause (a) or ''(b). If it is within the time prescribed it cannot be challenged.

So far as the impugned notice for the assessment year 1958-59 is concerned, though some sort of information must have been conveyed by the authorised representative of the Petitioner to the income tax Officer at the time of the original assessment there seems to be quite a lot of confusion as to what information was exactly conveyed. the wealth statement found in the records do not agree with the wealth statement disclosed in the petition. no statement showing the receipt of Rs. 40000 on account of the price of shares in the year 1958 is found in the records. if such receipt was in 1959-60 if the shares were actually transferred by the Petitioner to his wife in October. 1957 the relevant assessment year in which the receipt for such transfer could be considered is 1958-59 it is not clear whether any disclosure was made by the Petitioner that he received Rs. 20000 from his wife in consideration of the transfer of these shares in the year 1957. on the contrary, the wealth-tax assessment for 1959-60 shows that the shares were transferred during the year 1958 while the income tax officer making the original assessment seems to have been rather careless in making the original assessment seems to have been rather careless in making the assessments it does not appear that all the facts relating to the alleged transfer of these shares had been brought to his notice. when subsequently the Respondent income tax officer received information from the income tax officer assessing the Assessee''s wife that the Assessee''s wife did not have the means at the relevant time to have paid Rs. 20,000 in cash to the Petitioner in respect of these shares the Respondent income tax officer had reason to scrutinize the records of the original assessments and to find out whether there had been full disclosure by the Petitioner if on such enquiry he was satisfied that full disclosure had not been mad he would be justified in issuing the impugned notice. further as in this case the Assessee has not only filed his returns in respect of the impugned notices but has also complied with requirements under the Act for production of the books and other evidence on which he relies, I can see no reason why the impugned notices should be interfered with. In this view of the matter I would discharge the rule. The application would accordingly be dismissed. The interim order would be vacated. There will be no order as to costs. On the application of the Advocate for the applicant operation of this order is stayed for four weeks from date.