Decided on January 21,1965

Hirday Narain Yogendra Prakash Appellant
Income -Tax Officer, A -Ward, Bareilly Respondents


- (1.)A Hindu undivided family carried on business under the name and style of Messrs. Hirday Narain Yogendra Prakash at Bareilly. The family suffered partition, and an application under section 25A of the Income -tax Act, 1922, was allowed by the Income -tax Officer who recognised the partition with effect from November 19, 1949. The erstwhile members of the family entered into a partnership for carrying on the business hitherto belonging to the family. This business was carried on by the partnership under the same name and style. The partnership firm (hereinafter referred to as 'the assessee') was registered under section 26A for the assessment year 1951 -52. Certain changes were effected in the constitution of the firm, and for the assessment year 1953 -54 an application was made by the reconstituted firm for registration under section 26A. The Income -tax Officer, however, made an order on February 5, 1955, refusing to recognise these changes and declined, therefore, to grant registration. An appeal by the partnership firm was allowed by the Appellate Assistant Commissioner on February 4, 1956, and he directed registration of the firm under section 26A. The order by the Income -tax Officer granting registration was made on February 9, 1956. The Income -tax Officer had already commenced assessment proceedings for the assessment years 1953 -54 to 1956 -57. These proceedings were being taken by him simultaneously. The proceedings for all those assessment years were still pending before him when, according to the assessee, the Income -tax Officer was informed that the assessee desired to disclose a sum of Rs. 1,00,000 for assessment in the four assessment years, 1953 -54 to 1956 -57, the entire sum to be distributed equally between the four assessments. The assessee alleged that negotiations in this behalf continued for some time between it and the Income -tax Officer, but that finally it was decided that the entire amount of Rs. 1,00,000 should be offered for assessment for the assessment year 1953 -54 as income from business. That some negotiations of this nature were in fact taken is apparent from a letter dated February 24, 1956, from the Income -tax Officer to the assessee. On March 2, 1956, the assessee filed an application before the Income -tax Officer in the proceedings for the assessment year 1953 -54 proposing the inclusion of the sum of Rs. 1,00,000 as income from business and stating that this amount was being duly introduced in the accounts of all the partners of the firm in the relevant accounting year. On March 28, 1956, the Income -tax Officer made an assessment order for the assessment year 1953 -54, but in that order he made no reference to the negotiations, which have been alleged by the assessee, nor did he refer to the application dated March 2, 1956. He did include the sum of Rs. 1,00,000 in the total income assessed by him, but he justified that addition on the basis that the amount represented the sum by which the assessee had inflated the claim for expenditure in respect of three forests, the Nepal forest, the Bans Bassa forest and the Tanakpur forest, worked by it. Assessment orders were also made for the assessment years 1954 -55 to 1955 -56. The assessee appealed against the four assessment orders, but as these appeals did not relate to the dispute which has been raised before me, no further reference need be made to them.
(2.)THE assessee made entries on July 24, 1956, crediting the individual accounts of the six partners of the assessee with a sum of Rs. 16,666 -10 -8 the total of the sums so credited being Rs. 1,00,000. When the Income -tax Officer commenced proceedings for the assessment year 1957 -58, he made enquiries about the nature and source of this sum of Rs. 1,00,000, and on March 25, 1958, recorded the statement on oath of Yogendra Prakash, one of the partners. Yogendra Prakash stated that the sum of Rs. 1,00,000 had been kept in cash with Hirday Narain, father of the partners, that this sum, which had never been incorporated in the account books earlier, was introduced in cash on July 24, 1956, by crediting the accounts of the six partners equally, that it represented the accumulated income of several years in the past and did not represent any amount earned in the relevant previous year under assessment. He added that the sum had been offered for assessment for the assessment year 1953 -54 and pursuant to that order it had been introduced in the individual accounts of the partners. The Income -tax Officer did not accept the statement of Yogendra Prakash and included the amount of Rs. 1,00,000 as inflated expenses claimed for that year. The Appellate Assistant Commissioner, however, set aside the finding of the Income -tax Officer and after examining the account books of the assessee he found that a deposit of Rs. 1,00,000 had been made on the first page of the cash book for a newly started business at Raxaul, the first page covering transactions for the period November 1, 1955 to November 10, 1955, that the deposit was made in the name of Hirday Narain, that Rs. 58,750 was paid to the Government of Nepal as earnest money on account of forest contracts while the balance was utilised in the business of the assessee on subsequent dates but before July 24, 1956, and he deduced from these facts that the sum of Rs. 1,00,000 which had been introduced at the commencement of the year had been divided on July 24, 1956, among the partners. He directed the Income -tax Officer to make a fresh assessment after examining the account books and making further enquiries. The Income -tax Officer then recommended proceedings for the assessment year 1957 -58. During the pendency of those proceedings, he also issued a notice dated January 7, 1959, under section 34(1) for the assessment year 1956 -57.
The assessee challenged the validity of the notice by a petitioner (Writ Petition No. 224 of 1959) in this court but for some reason did not press it and it was accordingly dismissed. Meanwhile, on March 31, 1959, the Income -tax Officer included the sum of Rs. 1,00,000 as income from other sources in the assessment order for the assessment year 1957 -58. He took no further proceedings upon the notice under section 34 for the assessment year 1956 -57. The assessee claims before me that the proceedings were dropped while the case of the Income -tax Officer is that the proceedings under section 34 were filed. The assessee appealed against the assessment order dated March 31, 1959, for the assessment year 1957 -58, and the Appellate Assistant Commissioner directed the exclusion of the said sum of Rs. 1,00,000 from the assessment on the finding that as the sum had been introduced during the period November 1, 1955, to November 10, 1955, it fell for consideration for the assessment year 1956 -57. He also proceeded to examine the matter on its merits and gave various findings in this regard, but upon appeal by the assessee to the Income -tax Appellate Tribunal these observations and findings were deleted.

(3.)ON February 5, 1963, the Income -tax Officer issued a notice under section 148 of the Income -tax Act, 1961, for the assessment year 1956 -57 to the assessee. It is also stated that similar notices were issued to the individual partners of the assessee. On September 7, 1963, after proceedings consequent to that notice had been initiated by the Income -tax Officer, on objection was filed challenging the validity of the proceedings, and on December 26, 1963, an attempt was made to dissuade the Income -tax Officer from continuing the proceedings on the plea that they were invalid. The attempt was of no avail. On April 16, 1964, the instant petition under article 226 of the Constitution was filed. The assessee prays for certiorari to quash the notices issued under section 148 and for prohibition restraining the Income -tax Officer from proceeding further with the reassessment.

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