Case: Chhugamal Rajpal Vs. S. P. Chaliha &amp; Ors

the Income-tax Officer as well as the order of the Commissioner:"Report in connection with the starting of proceeding under Sec. 147 of the Income-tax Act, 1961.Name of DistrictWard of Circle .....A Ward. MuzaffarpurC. I. R. No .....303-C1. Name and address of the assesseeM/s. Chugamal Rajpal, Muzaffarpur2. StatusR. F3. Assessment Year for which notice under S. 148 is proposed to be issued1960-61.4. Whether it is a new case or one in which re-assessment (or recomputation) has to be made.Re-assessment.5. If a case of reassessment (or recomputation) the income (or loss or depreciation allowance) originally assessed/determined.Rs. 73,604/-6. Whether the case falls under Cl (a) or (b) of S. 147147 (a)7. Brief reasons for starting proceedings under S. 147 (indicate the items which are believed to have escaped assessment)Kindly see overleaf Sd/- S. P. Chaliha I. T. O., 30-4-66 A-Ward, Muzaffarpur.8. Whether the Commissioner is satisfied that it is a fit case for the issue of notice under S. 148.YesSd/- K. Narain13-5-66Commissioner of Income-tax.Bihar and Orissa, Patna9. Whether the Board is satisfied that it is a fit case for the issue of notice under S. 148.Secretary, Board of Revenue.During the year the assessee has shown to have taken loans from various Parties of Calcutta. From D. I.s Inv. No. A/P/Misc. (5) D. I./63 64/5623, dated 13-8-65, forwarded to this office under C. I. T. Bihar and Orissa, Patnas letter No. Inv. (Inv.) 15/6566/1953-2017dated Patna 24-9-65, it appears that these persons are name1enders and the transactions are bogus Hence proper investigation regarding these loans is necessary. The name of some of the persons from whom money is alleged to have taken on loan on Hundis are:1. Seth Bhagwan Singh Sricharan2. Lakha Singh Lal Singh3. Radhakissan Shyam Sunder.The amount of escapement involved amounts to Rs. 1,00,000/-.Sd/- S. P. Chaliha, 30-4-66.Income-tax OfficerA-Ward, Muzaffarpur".8. In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the C. I. T. Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of Section 151 (2). What that provision requires is that he must give reasons for issuing a notice under Section 148.In other words he must have some prima facie grounds before him for taking action under Section 148. Further his report mentions:"Hence proper investigation regarding these loans is necessary". In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under Sec. 148. Before issuing a notice under S. 148 the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of Clauses (a) or (b) of Section 147 are satisfied, the Income Tax Officer has no jurisdiction to issue a notice under Section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessees omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year: nor could it be said that he as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that Year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either Clause (a) or Clause (b) of Section 147. Therefore he could not have issued a notice under Section 148.Further the report submitted by him under Section 151 (2) does not mention any reason for coming to the conclusion that it is a fit case for the Issue of a notice under Section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under Section 148. To Question No. 8 in the report which reads Whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148", he just noted the word "yes" and affixed his signatures thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148.The important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these previsions as of little importance. They have substituted the form for the substance."

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the C. I. T. Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of Section 151 (2). What that provision requires is that he must give reasons for issuing a notice under Section 148.In other words he must have some prima facie grounds before him for taking action under Section 148. Further his reportproper investigation regarding these loans is necessary". In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under Sec. 148. Before issuing a notice under S. 148 the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of Clauses (a) or (b) of Section 147 are satisfied, the Income Tax Officer has no jurisdiction to issue a notice under Section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessees omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year: nor could it be said that he as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that Year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either Clause (a) or Clause (b) of Section 147. Therefore he could not have issued a notice under Section 148.Further the report submitted by him under Section 151 (2) does not mention any reason for coming to the conclusion that it is a fit case for the Issue of a notice under Section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under Section 148. To Question No. 8 in the report which reads Whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148", he just noted the word "yes" and affixed his signatures thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148.The important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these previsions as of little importance. They have substituted the form for the substance.