Appeals Nos
23 92 to 2403 of 1969
Appeals by certificate from the judgment and order dated September 9 1968 of the Delhi High Court at New Delhi in Civil Writs Nos 67 to 78 of 1968
section C Manchanda B B Ahuja section P Nayar and R N Sachthey for the appellants
N D Karkhanis Rameshwar Nath and Seita Vaidialingam for the respondents
The Judgment of the Court was delivered by HEGDE J
These appeals by certificate arise from several writ petitions filed by the HUF Ms Rai Singh Deb Singh Bist and its Karta Thakur Mohan Singh Bist challenging the validity of certain notices issued under section 341 a of the Indian Income tax Act 1922 in short the Act by the Income tax Officer Central Circle 1 Delhi
The High Court of Delhi allowed those writ petitions and quashed the impugned notices
Hence these appeals
The assessee in these cases is an HUF The assessment years with which we are concerned in these appeals range from 1942 43 to 1953 54
The assessee filed its returns for these years in due time
The assessee s account books showed considerable cash credits in the name of the brothers in law of the 2nd respondent the Karta of the HUF Those alleged creditors were living in Nepal
The account books also showed certain credit entries in the name of Rana Anand Nar Singh alleged to be in connection  with expenses incurred by him for getting trees cut on behalf of the assessee
The assessee was a forest contractor
He had taken large tracts of forests for felling trees in Nepal
The Income tax 104 Officer went into the genuineness of the cash credit entries standing in the name of the alleged creditors of the assessee as well as to the alleged amount due to one of them
The contention of the assessee was substantially accepted either by the Appellate Assistant Commissioner or by the Revenue Appellate Tribunal
With regard to the assessment for the assessment years 1943 44 to 1949 50 the final assessments were made in pursuance of an agreement or settlement arrived at between the assessee and the Deputy Director of Inspection Investigation New Delhi on October 18 1954 Long after the assessments in question were final ised the Income tax Officer
issued notices to the appellants under section 341 a of the Act seeking to reopen the assessments already finalised
The validity of those notices is in issue
Before an Income tax Officer can issue a statutory notice under section 34 1  a he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question income profits or gains chargeable to income tax have escaped assessment during those years
Further before doing so he must have recorded his reasons for acting under section 341 a and the Central Board of Revenue must have been satisfied on those reasons that it is a fit case for the issue of the notice
The recording of the reasons in support of the belief formed by the Income tax Officer and the satisfaction of the Central Board of Revenue on the basis of the reasons recorded by the Income tax Officer that it is a fit case for issue of notice under section 34 1 a are extremely important circumstances to find out whether the Income tax Officer had jurisdiction to proceed under section 341 a
In Calcutta Discount Co Ltd vs Income tax Officer Com panies District 1
Calcutta and anr1 this Court laid down 1 that to confer jurisdiction under section 34 to issue notice in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year two conditions had to be satisfied
The first was that the Income tax Officer must have reason to believe that income profits or gains chargeable to income tax had been under assessed
The second was that he must also have reason to believe that such under assessment had occurred by reason of either 1 omission or failure on the part of an assessee to make a return of his income under section 22 or 2 omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year
Both these conditions are conditions precedent to be satisfied before the  Income tax Officer could have jurisdiction to issue a notice for the assessment or re assessment beyond the period 141 ITR 191
105 of four years but within the period of eight years from the end of the year in question
In Chhugamal Rajpal vs section P Chaliha and ors1 this Court ruled that before an Income tax Officer can be said to have had reason to believe that some income had escaped assessment he should have some relevant material before him from which he could have drawn the inference that income has escaped assessment
His vague feeling that there might have been some escape of income from assessment is not sufficient
This Court also took the view that the Central Board of Revenue before reaching its satisfaction that the case was a fit one to be proceeded under section 3 4 1  a must have examined the reasons given by the Income tax Officer and arrived at its own conclusion and that it is not permissible for it to act mechanically
The same view was again taken by this Court in Sheo Nath Singh vs Appellate Assistant Commissioner of Income tax Central Calcutta and ors
2 In the instant case the assessee alleged in his writ petitions that there was no relevant material before the Income tax Officer before he issued notices under section 34 1 a on the basis of which he could have had reason to believe that any income had escaped assessment
In the writ petitions the assessee called upon the Income tax Officer to produce the report made by him to the Central Board of Revenue as well as the order of the Central Board of Revenue thereon
Despite this prayer neither the Union of India nor the Income tax Officer cared to produce the report made by the Income tax Officer to the Central Board of Revenue under section 341 a or the order of the Central Board of Revenue
Before the hearing of the writ petitions commenced the assessee again applied to the Court to call upon the Union of India and the Income tax Officer to produce those documents
In response to that application an affidavit was filed before the Court stating that the relevant records could not be traced from the file of the Central Board of Revenue
Assuming that the concerned records were missing from the file of the Central Board of Revenue the copy of the report made by the Income tax Officer and the order received by him must have been in the file of the Income tax Officer
No reason was given for not producing those records
These circumstances give rise to an adverse inference against the department
We are constrained to come to the conclusion that the records in question were not produced because they did not assist the department s case
Under these circumstances it is not possible
to come to the conclusion that the facts necessary to confer jurisdiction on the Income tax Officer to proceed under section 3 4 1  a had been established
1 2 8 7 106 All that was said on behalf of the department was that some time in the year 1955 the assessee sold large tracts of land to two of his brothers in law for a sum of Rs 47 lakhs but in reality that property was not worth that amount
We do not know whether there was any basis for this conclusion
As seen earlier the cash credit entries were brought to the notice of the Income tax Officer before the relevant assessment orders were passed
He had an occasion to investigate into them
It is not necessary to go into this question more deeply in view of the fact that there is nothing to show that there was any relevant material before the Incometax Officer before he issued the notices under section 34 1 a to have reason to believe that as a result of the assessee s failure to state in its return truly and fully any fact any income had escaped assessment
In the result these appeals fail and they are dismissed with costs one hearing fee
SC Appeals dismissed


Summary:
The assessee in these appeals is an Hindu Undivided Family The assessment years in question are ranged from 1942 43 to 1953 54
The assessee filed its returns for these years in time
The assessee s account books showed considerable cash credits in the name of some relations of the second respondent the Karta of the HUF
The ITO went into the genuineness of these cash credit entries
The contention of the assessee was substantially accepted either by the Appellate Assistant Commissioner or by the Revenue Appellate Tribunal
With regard to the assessment for the assessment years 1943 44 to 1949 50 the final assessment was made in pursuance of an agreement or settlement arrived between the assessee and the Deputy Director of Inspection Investiga tion
Long after the assessments in question were finalised the ITO issued notices to the appellants under section 341 a of the Indian Income Tax Act 1922 seeking to reopen the assessments already finalised
The assessee challenged the validity of these notices of the ITO
The High Court allowed the writ petitions and quashed the impugned notices
The assessee alleged that there was no relevant material before the ITO before he issued the notices under s 31a on the basis of which he could have reason to believe that any income had escaped assessment
In the writ petitions the assessee called upon the ITO to produce the report made by him to the Central Board of Revenue as well as the order of the Central Board of Revenue thereon
Despite this prayer neither the Union of India nor the ITO produced the report made by the ITO to the Central Board of Revenue under s341a nor the order of the Central Board of Revenue
Dismissing the appeal HELD  i Before an ITO can issue a statutory notice under s341a he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question income profits or gains chargeable to Income Tax have escaped assessment during those years
Further before doing so he must have recorded his reasons for acting under section 341 a and the Central Board of Revenue must have been satisfied on those reasons that it is a fit case for the issue of the notice
The recording of the reasons in support of the belief formed by the ITO and the satisfaction of the Central Board of Revenue on the basis of the reasons recorded by the ITO that it is a fit case for issue of notice under section 341 a are extremely important circumstances to find out whether the ITO has jurisdiction to proceed under s341a
104D 103 Calcutta Discount Co Ltd vs ITO Company District 1 Calcutta and Others  Chhugamal Rajpat vs section P Chalia  Ors
79 ITP 603 Sheonath Singh vs Appellate Assistant Commissioner of Income Tax Central Calcutta  Ors referred to
iiIn the present case an affidavit was filed before the Court stating that the relevant records could not be traced from the file of the Central Board of Revenue
Assuming that the concerned records were missing from the file of the Central Board of Revenue the copy of the report made by the ITO and the Order received by him must have been in the file of the ITO and reason was given for not producing those records
These circumstances give rise to an adverse inference that the records in question were not produced because they did not assist the department s case
Under the circumstances it is not possible to come to the conclusion that the facts necessary to confer jurisdiction on the ITO to proceed under s341a had been established
There is nothing to show on record that there was any relevant material before the ITO before he issued the notices under s341 a
105F