Decided on July 11,1967



- (1.) THE petitioner is a business man engaged in motor lorry transport. In respect of the assessment year 1958-59, he made a return of his income to the Income-tax officer, Kottayam who is the respondent in this case. His return showed the income from property as Rs. 465 and the income from business as Rs. 9,302 the total income being Rs. 9,767. The respondent rejected the petitioner's return, and made an assessment to the best of his judgment fixing the income as Rs. 715 from property Rs. 50,579 from business and Rupees 30,000 from other sources. He thus fixed the total income as Rs 81,294. The sum of Rs. 30,000 according to the order of assessment consisted of Rs 8,000 paid for purchase of a parkins engine, Rs. 15,000 paid for the purchase of a new lorry and Rs. 7,000 invested on building. The petitioner filed an appeal from the order of assessment to the appellate Assistant Commissioner of Income-tax, Trivrndrum who allowed the appeal in part. The Appellate Assistant Commissioner held that out of the sum of rs. 30,000 assessed by the respondent as income from other sources Rs. 26,722 alone related to the assessment year 1958-59 and that this amount should be added as undisclosed income from business. Accordingly he deleted the whole sum of Rs 30,000 assessed by the respondent as income from other sources, and determined the total income of the petitioner from business as Rs. 35. 947 The petitioner filed an appeal from the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal. The Tribunal further reduced the assessment and fixed the petitioner's business income at Rs. 13,201 by its order dated 2nd April 1962 The result was whereas the petitioner made a return of Rs. 9,302 as income from his business, the Appellate tribunal finally fixed it at Rs. 13,201 the addition being only Rs. 3,899 The income-tax Act 1922 (hereinafter referred to as the 1922 Act) was repealed and re-enacted as Income Tax Act 1961 (hereinafter referred to as the 1961 Act)Clause (d) to Section 297 (2) of the 1961 Act reads as follows: "297 (2) Notwithstanding the repeal of the Indian Income-tax Act 1922 (hereinafter referred to as the repealed Act ).-XXX X X (d) Where in respect of any assessment year after the year ending on the 31st day of March, 1940,- (1) a notice under Section 34 of the repealed Act had been Issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed; (ii) any income chargeable to tax had escaped assessment within the meaning of that expression in Section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 148 may, subject to the provisions contained in Section 149 or Section 150, be issued with respect to that assessment year and all the provisions of this act shall apply accordingly". By virtue of the above provision, the respondent issued a notice Ext. P-1 dated 21-2-1964 to the petitioner under Section 148 of the 1961 Act, proposing to assess his income believed to have escaped assessment for the year 1957-58. and calling upon him to submit a return in respect of the said income within 30 days of the service of the notice. Ext. P-1 reads as follows:-"whereas I have reason to believe that your income chargeable to tax for the assessment year 1957-58 escaped assessment within the meaning of Section 147 of the Income-tax Act. 1961. I therefore propose to the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of our income assessable for the said assessment year.
(2.) THIS notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax. Kerala. Eranakulam " on receipt of this notice, the petitioner wrote to the respondent by a letter, Ext. P2 dated 15th June, 1964, requesting the respondent to let the petitioner know the reasons for coming to the conclusion that his Income had escaped assessment, and to furnish him with the copy of the reasons recorded by the Income-tax officer and other relevant papers. The respondent replied to this letter by Ext. P-3 dated 15-2-1965. It is clear from Ext. P-3 that Ext. P-1 was Issued proposing to assess a sum of Rupees 22. 873, which, according to the respondent, escaped assessment in the assessment year 1957-58. The reasons for his belief are best stated in Ext. P-3 itself. He states in Ext. P-3:- "in appeal the A. A. C. held that the I. T. O's finding regarding income from undisclosed sources was substantially correct, but reduced the quantum to Rs. 26,772. The A. A. C. also correlated the income of rupees 26,772 from undisclosed sources in the addition made in the business income. So there was no separate addition under 'other sources'. The total income as fixed by the A. A. C was Rs. 35,947. The A. A. C. also found that the Investment of Rs. 26,772 were made in the earlier part of the Malayalam year 1132 M. E. i. e. before April 1957. However, he did not give any direction to consider this income for 195758 assessment Instead he telescoped this in the business income. The assessee further went in appeal before the Appellate Tribunal which reduced the total income to Rs. 13,916. But it did not express any opinion on the A. A. C. 's finding that there was concealment of income to the tune of Rs. 26,772. In view of the Tribunal's decision the net business-income assessed was Rs. 13,201 as against Rs. 9. 302 returned by the assessee. So the intangible addition sustained by the Tribunal is only Rs. 3. 899. Setting off this much against the quantum of unexplained investment of Rs. 22,873 made by the assessee in the financial year 1956-57. This really represents assessee's own income from undisclosed sources and it has escaped assessment " The petitioner, by a letter Ext. P-4 dated 28-2-1966, objected to the proposed assessment proceedings. He contended that the assessment for the year 1958-59 had become final by the order of the Appellate Tribunal, that the respondent was trying to assess an income, which the Appellate Tribunal deleted from the assessment by re-opening the assessment for the year 1957-58 and including it as an escaped income of the said year and that the said action was unwarranted. He also contended that, at any rate, the disputed income fell under Clause (b) of section 147 of the 1961 Act and not under Clause (a) thereof that, under Section 149 of the 1961 Act, no notice under Section 148 can be issued in respect of a case falling under Section 147 (b) at any time after the expiry of four years from the end of the relevant assessment year, and that, as Ext. P-1 has been issued after the expiry of the said period, the proceedings sought to be taken against him were without jurisdiction. The petitioner also filed a return of his income under protest. The respondent did not pay heed to Ext. P-4. which was followed by another notice Ext P-5, dated 28-2-1966, issued to the petitioner calling upon him to attend his office on 8-3-1966 with documents accounts and other evidence, on which he may rely in support of the return filed by him The petitioner has, therefore, filed this Original Petition to issue a writ of prohibition restraining the respondent from taking any proceedings pursuant to Exts P-1 and P-5, 2. The respondent has filed a counter-affidavit justifying the action taken by him against the petitioner. According to him, the sum of Rs. 26,772 found by the appellate Assistant Commissioner to be investments no1 brought into accounts of the petitioner in respect of the assessment year 1958-59 consisted of amounts invested by him during the earlier part of the account year 1132, which falls in the financial year 1956-57 It is not explained in the counter-affidavit that in view of the fact that the accounting year 1132 was the previous year of the petitioner for the assessment year 1958-59, how the amounts said to have been invested by him during the accounting year 1132, could be assessed as escaped income for the year 1957-58. The learned counsel appearing for the respondent has explained the position. He referred to Section 159 of the 1961 Act, and submitted that this Section deals with unexplained investments which are not recorded in the books of account of an assesses, if any, maintained by him for any source of income, and about the nature and source of which the assessee offers no explanation or the explanation offered by him is not satisfactory, and that it provides that such investments may be deemed to be income of the assessee of the financial year in which such investments were found to have been made. It was, therefore, contended by the learned counsel that the sum of Rs. 26 772 was assessable for the assessment year 1957-58 by virtue of above Section 65. As explained in Ext. P-3. a sum of Rs. 3,899 out of the aforesaid sum had been included by the Appellate Tribunal in the assessment for 1958-59. and it is the balance of Rs. 22,873 that was proposed to be assessed for the year 1957-58 as income which escaped assessment In other words if an income chargeable to tax under the 1922 Act escaped assessment within the meaning of that expression in section 147 of the 1961 Act. and the proceedings for the assessment of that income under the 1922 Act are not pending at the commencement of the 1961 Act action can be taken under the 1961 Act for assessment of the said escaped income. And if the escaped income consisted of unexplained investments falling under Section 69 of the 1961 Act such investments may be deemed to be income of the financial year during which the Investments were made, and assessed for the succeeding financial year.
(3.) THE petitioner's learned counsel contended that Section 69 of the 1961 Act had no application to this case and that it ran be applied only for assessment years commencing from the coming into force of the 1961 Act According to the respondent's learned counsel, the case fell under Sub-clause (ii) of Clause (d) of section 297 (2), and this sub-clause attracted the operation of the Sections 147 to 150 of the 1961 Act, and Section 147 attracted the application of Section 69 in respect of unexplained investments. It is not necessary for me to decide this question in view of the decision I take on the applicability of Section 147 of the 1961 Act to this case.;

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