BALADIN RAM v. COMMISSIONER OF INCOME-TAX, U.P

HELD : (i) The High Court had rightly observed in dealing with the J 952 assessment that there was no finding of the appellate tribunal that the share of income from the fi'rm was not known at the time when that the return filed the return was filed. by the assessee did not disclose the fact of partnership Raj Narain Durga Prasad it was no longer open to the assessee to urge that s. 34(1) (a) was not attracted, particularly when upon the assessee to show that the Income-tax Officer was aware of the income received from the firm. [804 G-H] In view of the admitted the burden (ii) It is now well"Settled that the only way in which income from undisclosed sources can be taxed is to take it as the income of the rele vant financial year. Therefore the investments made by the assessee in Sarpat and bamboo business between December, 1943 and February, 1944 were rightly taxed by the Income-tax Officer in the year 1944-45. The disclosure of the investments by assessee in the proceedings for 1945-46 cannot be treated as a disclosure for the purpose of assessment year 1944- 45. The plea that the revised assessment made in 1954 was not covered bys. 34(l)(a) could not therefore be accepted. [806 B.C] Se.ction 68 of the Indian Income-tax Act, 1961 which provides that amounts credited in the account books df the assessee and not satisfactorily explained by him should be treated as income of the 'previous year', does not alter the position under the old Act. Even under the new Act the position, except where the credits are found in the assessee's account books, is probably not different from that laid down in the cases under the old Act. [806 D-F] Commissioner of lncome-<tax, Bihar and Orissa v. P. Darolia &: Sons, 27 I.T.R. 515 and Bishan Dutt v. Commissioner of Income-tax, U.P. &: V. P. 39 I.T.R. 534, applied. E Jethmal v. Commissioner of Income-tax, 49 I.T.R. 633, approved. P. R. Mukherjee v. Commissioner of Income-tax, W~st Bengal, 30 I.T.R. 535, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 663 and 664 of 1966. Appeals by special leave from the judgment and order dated January 2, 1964 of the Allahabad High Court in I.T. Reference No. 244 of 1959. S.C. Manchanda and I. P. Goyal, for the appellant (in both the appeals) . D. Narsaraju, T. A. Ramachandran and S. P. Nayar, for the respondent (in both the appeals). The Judgment of the Court was delivered by Grover, .T. In these appeals by special leave the facts may be stated : The assessee at the material time was a Hindu Un ~ivided Family. The relevant assessment year is 1944-45 cor responding to the accounting year ending on Diwala Samvat 2,000 (October 28, 1943). On February 20, 1945 the Income F G H 8 02 St:PRE~fl: CUCl{T REPORTS [ 1969] 1 s.cR A B c tax Of~1ccr m,><.k an a"cssmcnt on a total income of Rs. 26,800 odd which comprised income from the share in the business of Kasi Iron Foundry and the income from the property. This order was revised under s. 34 of the Indian Income tax Act, 1922 In the revised assessment order the hereinafter called the Act. total income of the assessec was computed at Rs. 71,731. Jn this amount a sum of Rs. 40,000 was included as income from undisclosed sources. This assessment was challenged before the Appellate Tribunal and was set aside on the ground that !here had not been proper service of a notice under s. 34. A fresh notice under s. 34 was issued in October 1951. On October 16, 1952 a revised assessment order was passed and the total income of the assessce wa' computed at Rs. 85,817 which included a from undisclosed sources. On sum of Rs. 49,696 as income March 31, 1953 the Income tax Officer served on the assc~ee another notice under s. 34 in respect of the same assessment year 1944-45. On March 18, 1954 a revised assessment was made in which was included a sum of Rs. 32,000 as the.asscssee's income from undisclosed sources, being the alleged investment of assessee in the Sarpat and bamboo business prior lo February 18, 1944. The total income of the assessec was computed at Rs. 1,17,817. The income from undisclosed source which earn.: to be included in this computation amounted to Rs. 8 l,696. The as.sessee filed appeals against the assessment order dated October I 6, 1952 contending inter a/ia that there had been no escapement of any income and that in any case the first revised assessment dated October I 6. 1952 was barred by time under s. 34(1) (b) of the Act as the provisions of s. 34 (I)( a) did not apply. The second revised assessment was challenged on the ground. inter a/ia, that the Income tax Officer had no jurisdiction to issue the notice under s. :14 as the material facts necessary for making the assessment were fully and truly disclosed to the Income tax Officer F during the assessment proceedings for the year 1945-46. That· appeal was also dismissed. Thereafter the assessec appeals before the Income Tax Appellate Trihunal. Before the tribunal it was contended hy the assessee that the first revised assessment dated October 16, 1952 was barred by limitation and that the period of limitation was four years under s. 34 ( l )( b) revised and not eight years under s. 34 (I )(a). The second assessment was challenged on the ground that the Officer had no jurisdiction to issue a notice and make assessment It wa.' argued that the investment, expenditure under s. 34. and the profits earned from the business of Sarpat and bamboo had been duly· shown. As regards the first revised assessment thct tribunal held that the income of the asscssee from the firm Rajnarain Durga Prasad had escaped assessment by failure on the part of the assessee to disclose fully and truly !!II the fad!: necessary for making !he assessment and that the provisions of Income G E II D • • • A B c D E F G BA!,ADlN v. C. I. T. (Grover,/,). 803 • s. 34(1)(a) were attracted and therefore the period of limitation was eight years and not four years. With regard to the second revised assessment it was urged that all the materials necessary for making the assessment were before the Income tax Officer and by issuing a notice under s. 34 the Income tax Officer had changed his opinion and a mere change of opinion did not autho rise the Income tax Officer to take recourse to s. 34. The tribu nal disposed of the argument with regard to the second revised assessment in the following words : Income investment made by "The Income tax Officer who made the assessment for 1945-46 might have had all the accounts of the busi ness in Sarpat and bamboos before him and might have known the investments made by the assessee in that busi ne". The question for consideration is whether the Income tax Officer had reason to believe that by the failure on the part of the assessee to fully and truly dis close all the material facts necessary for the making of the assessment for the year 1944-45, income had es caped assessment. Surely, even if Officer had known that the assessee in that business were his revenue income, he could not have proceeded u/s 34 because the income could not have been assessed in the assessment year It could be assessed in the assessment year 1945-46. 1944-45. The income appearing by way of deposits in the Sarpat business could be assessed only as income from some undisclosed source and the previous year for income from undisclosed source for which the assessee had not elected any previous year would be the financial year. The investments were made in the financial year relevant for the assessment year 1944-45 and were not made in the financial year relevant for the assessment year 1945-46. The Income tax Officer had, therefore, no choice but to resort to section 34 of the Act." The tribunal, however, found as is apparent from its order dated March 21, 1957 that the unexplained investment which was really the income of the assessee from undisclosed source was Rs. 27,875 instead of Rs. 32,000. The tribunal called for a report on certain other matters with which we are not concerned and which were disposed of by subsequent order dated August 31, 1958. On a petition filed under s. 66(1) of the Act tribunal referred the following question to the High Court for decision : H ' "Whether on the facts and in tke circumstances of the case the revised assessments under section 34 dated 16-10-1952 and 18-3-1954 are legal and valid". • 8 04 SUPREME COURT REPORTS [1969] \S.CR • As regards the first revised assessment the High Court was of the view that even if the provisions of s. 34 ( 1 ){ b) were to apply the assessment could not be said to be barred by time nor could it be said to be barred under s. 34( 1) (aJ as the ass<:.sscc had failed to show that the Income t;,x Olliccr was aware that the assessee had received income from its share in the firnl. The question was consequently answered in the affirmative so far as the assessment order dated October 16, 1952 was concerned. The assessment order of March 18, 1954 was challenged before the High Court on the ground that there was no default on the part It was of the assessec attracting applicability of s. 34 (I)( a). noticed by the High Court that although the Income tax Officer had, during the proceedings for the assessment year 1945-46, made an enquiry about the in\'estments in Sarpat and bamboo business no action had been taken in those assessment proceed ings against the assessee but it could not be presumed that he had accepted the explanation of the assessce. Having held that the investment represented income from undisclosed source he was bound to treat it as income which accrued in December 1943 when it was invested, being the income during the financial year 1943-44 and therefore it had to be taxed in the assessment year 1944-45. The question referred was answered in the affirmative with regard to the assessment order of March 18, as well. respect of The argument of Mr. S. C. Manchanda th.~ assessment made in October 1952 is that there was no failure on It is submitted the part of the assessee to disclo;e nwterial facts. firm Raj that the share income of the assessee's son from the Jsiarain Durga Prasad could not be shown in the assessee's return as the accounting period of that firm closed on April 1 , 1944 which was well after the close of the previous year of the assessee which ended on October 28. 1943. Tt is said that neither income of the firm nor the share of the assessce\ son had been determined till then and it was not possible for the asscssee show the said income in his return. Moreover the Income tax Officer had knowledge of the asse.ssee's interest in the firm Ram narain Durga Prasad on May 12, 1947 when the assessment for the year 1945-46 was made. Thus the escapement. if any, has not resulted from any default or omission on the part of assessee. The High Court had disposed of this contenlion by observing that there was no finding in the order of the appellate tribunal that the share of the income from the said firm was not It was admitted known at the time when the return was filed. that the return filed hv the a.ssessce did not disclose assesscc enjoyed income from his share in that finn. Tt was no ionger open to the assessec to press this contention particularly when the burden lav utxm him to show that Officer was aware that the assessce received income from his shafe in that firm. Mr. Manchanda l1as not been able to persuade us Income • A B c D E F G II • BALAD!N v. c. I. T. (Grover, J.) 805 A II c D F G H to take a different view in the matter. The real challenge on be half of the assessee before us has been to the amount which was included as income from undisclosed source in the revised assess ment order made ill March 1954 being the capital which had been invested in the business of Sarp<)t and bamboos. This amount, as found by the tribunal, came to Rs. 27,000 odd and had been invested in partnership with Ram Narain Durga Prasad for the business of the supply of Sarpat and bamboo to the Gov ·ernment, the investment having been made between December 8, 1943 and February 17, 1944. According to Mr. Manchanda no income from the aforesaid business could be shown in the return for the year 1944-45 because the business itself had been commenced after the close of the relevant previous year which ended on October 28, 1943. For the assessment year 1945-46, however, a sum of Rs. 1640 was assessed as the assessee's income in this joint venture. During the course of the assessment pro ceedings for the year 1945-46 the assessee is stated to have filed an affidavit before the Income tax Officer giving details in respect of the Sarpat and bamboo business. Mr. Manchanda has invited our attention to the definition of "previous year" as contained in s. 2 ( 11) of the Act at the relevant period and has pointed out that the Sarpat and bamboo business did not fall within the year up to which accounts had been made i.e. October 28, 1943. It was verily impossible, says Mr. Manchanda, to have shown in the return any amount relating to Sarpat and bamboo business. The method to be adopted in such a situation has now been settled In Commissioner of Income tax, by a long course of decisions. Bihar & Orissa v. P. Darolia & Sons( 1 ) the facts were that for the assessment year 194 7-48 the accounting year of the assessee was the Diwali year corresponding to November 4, 1945 to October 24, 1946. The Income tax Officer rejected the books of assessee and ascertained his income from the business at an esti mate for that year. He also added to this estimate certain cash credits in its acconnt books entered on the 22nd and 27th of November, 1945, as secret profits from undisclosed sources which It was found dates were after the end of the accounting year. that the amount included as secret profits from undisclosed source separate was not from the business of the assessee but from sources and no account was maintained by the assessee in respect of the amount nor had it exercised any option as regards the pre It was held that in the vious year with respect to that source. the assessee aforesaid circumstances the previous year of respect of its undisclosed source of income was the financial vear In Bishan Dutt v. Commissioner of ending on March 31, 1946. Income tax U.P. & V.P. (2) the previous year of the assessee for the assessment year 1945-46 in respect of his cloth business was Jul:f 4, 1943 to June 26, 1944. In the account books of that busi- (1) 27 I.T.R. 5!5. 1 Sup Cl/69-5 (2) 39 I.T.R. 534. 806 SUPREME cot:RT RF.PORTS [!969] i S.C.R· ness for that period a sum cf Rs. 9,800 appeared as credit in the suspense account on September 2, 1943. The Income tax Officer, in the absence .of a satisfactory explanation, held cl1i' amount to be income from undisclosed source. The view ex pressed by the High Court was that there being nothing to show that any accounts in respect of the undisclosed source of income existed or were maintained or that the asscssec exercised option under s. 2 ( 11) ( i) (a) in respect of such accounts, oniy cour.;e open to the department was to tax his income undisclosed source on the basis of the financial year being the previous year. On that basis the amount could be taxeu only for the assessment year 1944-45 and not for the assessment year I 945-46. On similar facts the Calcutta Hi~h Court expressed the same view in Jc1/1111al v. Commissioner of Income Tax( 1 ). By now it appears to he well settled and no decision even of a High Court has been citeu to the contrary that in such circumstances the only possible way in which such undisclosed income can be assessed or reassessed is to make the assessment during the ordi nary financial year. Mr. Manchanda has called our attention to s. 68 of Income tax Act. 1961 according to which where any sum is found credited in the books an assessec maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered hy him is not, in the opinion of the Income tax Officer, satisfactory the sum so credited may be charged to income tax as the income of the asscsscc of It is, however. obvious that even under the pro previous year. visions embodied under the new Act it is only when any amount is found credited in the books of an assessec that the section will apply. On the other hand if the undisclosed income was found to he from some unknown source or the amount represent; some concealed income which is not credited in his books the position would probably not be different from what was laid down in the v:orious cases decided when the Act was in force. The last argument of Mr. Manchanda is that attract the applicability of s. 34( 1) (a) of the Act the omission .and or the failure on the part of the assessec to disclose truly all material facts necessary for his assessment must be found to he wilful and deliberate. In support of his submi, sion he has relied on P. R. Mukhcrfre v. Commissioner of Income tax, West !Jengal(') in which it was ohserved that a person cannot he said to have omitted or faileu to disclose something wh.:in. of such thing. he has no knowledge and that a similar iniplication is carried by the word "uisclose" because one cannot he expected to disclose a ti1ing unless it is a matter which he know or knows of. Tt altogether unnecessary to decide whether this view is smtairl!tble in order - - · - - - - · - - (I) 49 J.T.R. 633. (2) :tO T.T.R. 5]5. A c I) E F G H .,. BALAnIN v. c. [. T. (Grover,!.) • 807 A or not. At any rate, in the present case, the assessee had failed fo show that he did not know and was not aware of the true posi tion in respect of the sum of Rs. 27 ,000 odd which was invested in the Sarpat and bamboo business. For all these reasons the appeals fail and are dismis~ed with B costs. G.C. Appeals dismissed. • - • •