Bombay High Court
Murlidhar Bhagwandas And Co. vs Commissioner Of Income-Tax on 15 September, 1989
Equivalent citations: [1990]181ITR319(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT T.D. Sugla, J.
1. The two questions revised in this reference at the instance of the assessee are :
"(1) Whether, on the facts and circumstances of the case, the Income-tax Officer was justified, for the reasons recorded, in reopening the assessment under section 148 ?
(2) Whether, on the facts and circumstances of the case, on reassessment, the Tribunal erred in law in adding the sum of Rs. 25,000 as different in the peak hundis and Rs. 10,584 for interest paid to 16 bankers whose names and addresses were furnished at the time of the original assessment ?"
2. The assessee is a registered firm. The assessment year involved is 1955-56 for which the previous year ended on October 26, 1954. The return of income was filed on August 23, 1955. During the original assessment proceedings, the assessee had filed certain statements including the addresses of 16 hundi bankers to whom interest over Rs. 400 had been paid during that year. certain other information, though called for, was not furnished by the assessee. The assessment was completed under section 143(3) of the Income-tax Act, 1961, without making investigation about the genuineness of the hundi loans or about the payment made by way of interest.
3. Subsequently, the Income-tax Officer noticed some material on which be founded his reason to believe that the assessee's income chargeable to tax had escaped assessment. After obtaining the satisfaction of the Commissioner of Income-tax as required under section 151 on February 17, 1964, he recorded reasons for initiating the proceedings for reopening the assessment proceedings under section 147(a). Such reasons are found recorded in paragraph 3 of the Tribunal's order as under :
"It is found on scrutiny that there are credits in the names of bankers who are well-known for passing havala entries. I have, therefore, reason to believe that these credits are not genuine and are really the assessee's own income from undisclosed sources, which has escaped assessment. Action under section 147(a) of the Income-tax Act, 1961, is therefore, necessary. The details were not disclosed before."
4. Notice under section 148 of the Income-tax Act, was served on the assessee. In response thereto, the assessee filed its return of income on January 25, 1964. As regards the Income-tax Officer's asking the assessee to prove the genuineness of hundi loans and interest payment, it was the case of the assessee that the matter being 10 years old, the assessee was not in a position to supply the present addresses of the bankers. In the circumstances, the Income-tax Officer competed the reassessment observing that the assessee had not been able to establish the genuineness of the hundi loans. The difference between the peak of hundi loans during the previous years and the peak of hundi loans on the first day of the previous year amount to Rs. 25,000, was therefore, added as the assessee's income from undisclosed sources. He also disallowed the interest paid on such hundi loans. The assessee's appeal before the Appellate Assistant Commissioner as well as the Tribunal failed. That is how the Tribunal, at the instance of the assessee, has referred to this court the above said two questions of law. The Tribunal considered the issue in the following manner :
"The Income-tax Officer issued the notice under section 148 of the Act of 1961 pursuant to his satisfaction that the details of the hundi loans had not been disclosed before him at the original assessment stage and that the was satisfied that there were credits which were not genuine and represented the undisclosed income of the assessee. This inference of the Income-tax Officer at this stage could find support from the fact that, on November 11, 1955, he had asked for the list of outstanding hundis paid in Samvat year 2011, which list was as a matter of fact not supplied by the assessee and so the Income-tax Officer has, as a fact, not scrutinized and checked the said list. Furthermore, it is a fact that the assessee had not at any time of the original assessment disclosed the names of all the hundi bankers. Admittedly, the assessee had paid a sum of Rs. 13,790-10-6 as interest under the head 'Sundries'. It is also not disputed that the assessee obtained credits from 140 persons and that the names of only 16 such bankers were disclosed at the original assessment stage. It is also not disputed that the addressed of the giver bankers whose loans have been added were not given at the original assessment stage. On these facts and circumstances, the action of the Income-tax Officer for initiating reassessment proceedings under section 147(a) of the Income-tax Act, 41 ITR 191 (SC). The contention of the assessee in this behalf is, therefore, negatived.
We now come to the merits of the case. Admittedly, the assessee had, in the court of the reassessment proceedings on three occasions, taken time from the Income-tax Officer, for supplying the details of the hundi loans, which included the names of the hundi brokers. The said information was not supplied, may be that the matter was at that stage over 10 years old. It is not disputed that two of the erstwhile partners of the assessee-firm are alive. It is not shown that any attempt was made to contact them for obtaining the addresses of all the hundi brokers. Nor is it shown that the books of account of the assessee did not disclose the addresses of the said bankers. The position being as it is, the income-tax Officer was justified in doubting the genuineness of the hundi borrowings and for adding the different in the peak during the account period relevant to the assessment year under consideration and the opening balance of that year amounting to Rs. 25,000 as the assessee's income from undisclose sources. And the interest paid on those hundi loans also seems to be justified. We hold likewise."
5. Placing reliance on the Supreme Court decision in the of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, Shri Dalvi, learned counsel for the assessee, submitted that though the sufficient of material was not justiciable, it was open to this court to examine whether there existed some material a least having a direct nexus or live link with the formation of such a belief. He stated that any and every material, so ever vague, indefinite, remove or far-fetched, would not warrant the formation of the belief that income chargeable to tax has escaped assessment. In the Supreme Court decision in Lakhmani Mewal Das' case [1976] 103 ITR 437, the information was stated to be that (i) M.K. who was shown to be one of the creditors of the assessee had since confessed that he was done only name-lending; and (ii) that N.M., D.K.N., B.S. and others, whose names too were maintained in the list of the creditors of the respondents, were known name-lenders. And yet it was held that there was no direct nexus between the material that came to the notice of the Income-tax Officer and the formation of his belief that there has been escarpment of the assessee's income from assessment. In the instance case, the information in the possession of the Income-tax Officer is more vague than what it was in the Supreme Court case. Accordingly, it was argued by Shri Dalvi that if the reopening of the assessment under section 147(a) was held invalid in the Supreme Court case, it must necessarily be so in the present case.
6. Dr. Balasubramanian, learned counsel for the Department, on the other hand, fairly admitted that the assessee had given a list of creditors to whom interest of Rs. 400 or more was paid during the original assessment proceedings. Since that assessee had not furnished the list of outstanding hundi loans, the Income-tax Officer, according to Dr. Balasubramanian, could not have examined all these persons while making the assessment originally, suspecting that the loans were not genuine. That is why he completed the assessment. subsequently, the material as indicated in the order of the Tribunal came to the Income-tax Officer's notice. In the circumstances of the case, the material had a direct nexus with the formation of the belief that the assessee's income had escaped assessment. His submission, thus, is that the Supreme Court decision in Lakhmani Mewal Das' case [1976] 103 ITR 437, is applicable.
7. In our opinion, the submission made on behalf of the assessee is well-founded. The material that has come to the notice of the Income-tax Officer in the present case is that there are credits in the names of bankers who are well-known for passing havala entries and formation of the belief is founded on this information. This information is more vague than the information available to the Income-tax Officer in the Supreme Court case. Assuming, on the other hand, the assessee had filed necessary particulars for assessment at the time of the original assessment but the Income-tax Officer could not yearly the same for various reasons, the formation of belief assuming that the assessee's income had escaped assessment could, in that case, be on the basis of the information received subsequent to the assessment and not on account omission or failure on the part of the assessee to furnish necessary particulars. In any view of the matter, therefore, the reopening of the assessment under section 147(a) of the Income-tax Act cannot be upheld.
8. The first question is, accordingly, answered in the negative and in favour of the assessee. It is agreed that, in view of our answered to question No. 1, question No. 2 need not be answered.
9. No order as to costs.