MESSRS PAKISTAN EDUCATIONAL SOCIETY VS THE GOVERNMENT OF PAKISTAN THROUGH CHAIRMAN AND SECRETARY, REVENUE DIVISION, ISLAMABAD, 1993 PTD-KARACHI-HIGH-COURT-SINDH 804 (1993)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 59(1)(1-A)---C.B.R. Circular No. 22 of 1991, dated 21-7-1991, para.4(ii)---Self-Assessment Scheme---Selection of assessee's case for detailed scrutiny in accordance with C.B.R. Circular No.22 of 1991, para.4(ii)--- Expressions "information", "definite information" and "material evidence" occurring in C.B.R. Circular No.22 of 1991, para. 4(ii) mean that information must be substantial which may lead to discovery---Such information, therefore, should not be based on mere guess, gossip or rumour but it should be based on material evidence against the assessee---Income-tax Officer should form an honest belief upon material which should reasonably support such belief and action keeping case apart for detailed scrutiny cannot be based on mere suspicion---Use of word "gross" in para.4(ii) of the Circular indicates that it is not in case of every understatement in regard to income that empowers the Income-tax Officer to take action against assessee under the said paragraph, but only when gross understatement appears to have been made by him-- Where the Income-tax officer failed to discharge the burden on him to show that the action against the assessee had been taken purely within the conditions laid down by the Circular or that the same was not taken on account of any extraneous considerations, such an action would be arbitrary and discriminatory and liable to be quashed.

It, clearly follows from the definition of the expressions "information", "definite information" and "material evidence" that information must be substantial which may lead to discovery. Such information, therefore, should not be based on mere guess, gossip or rumour but it should be based on material evidence against the assessee. The Income-tax Officer, therefore, should form an honest belief upon material which should reasonably support such belief.

The word "suspected" has been used in paragraph 4(ii) of C.B.R. Circular No.22 of 1991 alongwith the words "gross understatement of income" and "definite information based on material evidence". A plain reading of the said paragraph makes it abundantly clear that, the Income-tax Officer or the Regional Commissioner of Income-tax can proceed against an assessee or grant approval as the case may be, only on the ground of definite information which must be based on material evidence. Therefore, such action cannot be based on mere suspicion. Suspicion, in contradistinction to definite information, means partial or unconfirmed belief. The use of the word "gross" in the said paragraph further indicates that it is not, in case of every under statement in regard to income that empowers the Income-tax Officer to take action against an assessee under the said paragraph, but only when gross understatement appears to have been made by him.

It would, therefore, be dangerous to proceed on mere assertion where conclusions have been drawn by the functionaries of the Department themselves and are not supported by an evidence which can be contested by the assessee in the Court. The department had failed to discharge the burden which was heavily placed on them to show that the action against the petitioner/assessee had been taken purely within the conditions laid down by the said circular or that the same was not taken on account of any extraneous considerations. Such an action, therefore, was arbitrary and discriminatory, and any illegal, irrational or arbitrary action or decision whether in the nature of legislative, administrative or quasi judicial exercise of power is liable to be quashed as such.

Consequently, unless a line of demarcation can be drawn, it would be hard to judge the action of the functionaries empowered under the said circular. The mere assertion of the department that action was taken against the assessee on the basis of material evidence without actually referring to the same can hardly clothe such action with validity.

High Court allowed the Constitutional petition against the order of the Department and quashed the respective notices issued to the assessee. However, High Court observed that it did not mean that the assessee should succeed in evading such action even in cases where the action was warranted by law, simply on account of the failure of the Department to furnish evidence in that regard or to establish a prima facie case. Under circumstances it was left to the concerned functionaries of the Income-tax Department to reopen any case, provided action was taken fairly and squarely within the power respectively vesting in them under the Statute or the said Circular, in the light of the observations made by the Court.

Cannon Products Ltd. v. Income-tax Officer 1985 P T D 549 distinguished.

Legal Thesaurus by W.C. Burton; Encyclopaedia Law Dictionary with Law Terms and Phrases by Dr. A.R. Biswas; Commissioner of Income-tax v. Jagan Nath AIR 1957 Pb. 226; ILR 1957 Pb. 125; Income-tax Commissioner v. A. Raman AIR 1968 SC 49; Wharton's Law Lexicon, 14th Edn.; Black's Law Dictionary, Revised 4th Edn. and E.P. Royappa v. State of Tamil Nadu AIR 1974 SC 555 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 59---C.B.R. Circular No.22 of 1991, dated 21-7-1991, para. 4(ii)---Self Assessment Scheme---Selection of assessee's case for detailed scrutiny in accordance with para.4(ii) of the Circular---Prior notice to the assessee in regard to the information received by the Income-tax Officer in respect of inaccuracy of his return whether necessary.

With regard to the question, whether a prior notice to the assessee in regard to the information received by the Income-tax Officer in respect of inaccuracy of his return would be necessary, the Income-tax Officer is obliged to hold an inquiry and in case the assessee feels aggrieved he will have the departmental remedies as provided in the Ordinance available to him. At the inquiry under section 61 of the Ordinance, the assessee would have a right to appear and to produce evidence before the Income-tax officer as the Income -tax Officer in such a case would be required to hold a quasi-judicial inquiry. Any inquiry held prior to the issuance of the notice would necessarily result in duplication of the procedure, therefore, neither the Income-tax Officer is required to issue notice to the assessee prior to his taking action under paragraph 4(ii) nor such an enquiry would be feasible under the circumstances of the case.

Commissioner of Income-tax, Bengal v. Messrs Mahaliram Ramjidas (1940) 8 ITR 442. and Muhammad Asghar v. Central Board of Revenue 1986 PTD 357 rel.

Messrs Burhan Engineering Co. Ltd. v. The Income-tax Officer, Companies Circle II, Karachi 1985 P T D 465 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 59---C.B.R. Circular No.22 of 1991, dated 21-7-1991, para. 4(ii)---Self Assessment Scheme---Selection of assessee's case for detailed scrutiny in accordance with para.4(ii) of the Circular---Material upon which action under para. 4(ii) of the Circular has been taken has to be disclosed to the assessee---Failure to disclose such material to the assessee would render such action completely arbitrary and discriminatory.

Although subsection (1-A) of section 59 itself fails to make any classification in regard to persons or class of persons to whom or cases or class of cases to which the said provision shall apply, but it leaves the same to the discretion of the Board. The Board had framed a policy, complete in all respects in regard to the classification of persons and the criterion for selection of cases which may be excluded from the benefit of the Self-Assessment Scheme under the Circular 22 of 1991. However as is clear from the Circular itself, it was never intended to clothe the Income-tax Officer or any other functionary of the department with any arbitrary powers. The said functionaries are obliged to exercise power under the said Circular justly, honestly and strictly within the parameters laid down by the Circular itself.

Consequently, the validity of the exercise- of power by the concerned Income-tax Officer or the fact that such action has been taken by him in good faith, would always be open to question unless the material upon which such action has been taken is disclosed to the assessee. Failure to disclose such material to the assessee would render such action completely arbitrary and discriminatory because conclusions would be drawn by Income-tax Officer or the Regional Commissioner of Income-tax, himself without being supported by any evidence. The contention that enquiry is to be conducted by the Income-tax. Officer cannot by itself clothe such action with validity.

Judicial Review of Administrative Action by De Smith and E.P. Royappa v. State of Tamil Nadu A I R 1974 SC 555 ref.

(d) Words and phrases---

----" Information", "definite information", "material" and "material evidence"-- Expressions defined and meanings explained.

Legal Thesauaus by W.C. Burton; Encyclopaedia Law Dictionary with Law Terms and Phrases by Dr. A.R. Biswas; Commissioner of Income-tax v. Jagan Nath AIR 1957 Pb. 226; ILR 1957 Pb. 125; Income-tax Commissioner v. A. Raman AIR 1968 SC 49; Wharton's Law Lexicon, 14th Edn. and Black's Law Dictionary, Revised 4th Edn. rel.

Muhammad Farogh Naseem for Petitioners.

Shaik Haider for Respondents.

Dates of hearing: 26th and 27th October, 1992.

JUDGMENT

MAMOON KAZI, J.--- The petitioner in these petitions is aggrieved on account of selection of its case for detailed scrutiny under paragraph 4 of Circular No22 of Income-tax dated 21-7-1991. The said Circular was issued in accordance with the provisions of section 59 of the Income Tax Ordinance, 1979, hereinafter referred to as "the .Ordinance".

2. The petitioner in each case filed its return of income under Self- Assessment Scheme for the assessment year 1991-92 declaring its total income. Although the return of the petitioner fully qualified under the provisions contained in the said Self-Assessment Scheme, however, instead of the return filed by the petitioner being processed under such scheme, a notice was received by the petitioner informing it that its case had been selected for detailed scrutiny in accordance with sub-para. (ii) of para. No.4 of Circular No.22 of 1991. A notice under the relevant provisions of the Ordinance was also received by the petitioner requiring it to file various details and documents mentioned in such notice. Hence this petition.

3. Learned counsel for the petitioners has contended that there is no provision in the Self-Assessment Scheme under which the cases of the petitioners can be set apart for detailed scrutiny otherwise than on the basis of definite information which must be based on material evidence. The notices under section 62, according to the learned counsel, were completely outside the purview of the Self-Assessment Scheme. The case on behalf of the respondents has been resisted, by Mr. Shaik Haider and Mr. Nasrullah Awan, respectively.

4. Section 59(1) and-(1-A) under which the said circular has been issued provide as under:--

"59. Self-Assessment.--- (1) Where the return of total income for any income year furnished by the assessee under section 55 qualifies for acceptance in accordance with the provisions of a scheme of Self-Assessment Assessment made by the Central Board of Revenue for that year or under any instructions or orders issued thereunder, the Income-tax Officer shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment.

Explanation: - For the removal of doubt it is hereby declared that a return of total income furnished under section 55 does not include a return of total income furnished under section 57.

(1-A) Notwithstanding anything contained in subsection (1), the Central Board of Revenue or any authority subordinate to it, if so authorised by the Central Board of Revenue in this behalf, may, in accordance with a scheme referred to in subsection (1), select out of returns referred to in that subsection any cases or classes of cases or persons or classes of persons, howsoever determined, for assessment under section 62, and the Income-tax Officer shall proceed to make the assessment under that section or, if the circumstances so warrant, under section 63, accordingly."

Paragraph 4 of the said Circular around which the entire controversy in the case revolves provides:--

"(4) From -amongst those qualifying for the Self-Assessment Scheme, returns may be selected for audit,

(i) through computer ballot up to five per cent. of the returns received. However, from amongst the returns in which income declared for the assessment year 1991-92 is higher by 25% 'or more as compared with the last assessed-.income or the income assessed for the assessment year 1987-88, whichever is the higher, the selection shall be restricted up to a maximum of three per cent. These percentages may vary within a trade or income group or from circle to circle, and

(ii) with the approval of Regional Commissioner of Income-tax, where gross understatement of income is suspected on the basis of definite information based on material evidence."

Note.---A case once selected- through computer ballot will not be earmarked for such ballot in the next two years."

5. The main ground of attack of the learned counsel for the petitioners has been -that, as is indicated by the language used in paragraph 4(ii) of Circular No.22 of 1991, it authorises the Regional Commissioner of Income-tax to select a case for total audit from amongst those qualifying for the Self -Assessment Scheme only on the ground of suspected gross understatement of income, and that also if definite information has been received by him which is based on material evidence. However, in none of the cases in hand, such information has been disclosed or such conditions have been satisfied. The second contention of the learned counsel is that, the action taken by the respondents is opposed to the principles of natural justice as embodied in the maxim audi alteram partem as no opportunity of hearing had been afforded to any of the petitioners before issuance of the said notice to it.

6. The provisions of subsection (1) of section 59 of the Ordinance indicate that the Central Board of Revenue has been authorised to make a scheme of self-assessment and the said subsection further indicates that where any return of total income for an income year furnished by an assessee under section 55 of the Ordinance qualifies for acceptance in accordance with the provisions of such scheme, the Income-tax Officer shall assess the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment. The power of the Central Board of Revenue to select individual cases for detailed scrutiny without providing for any qualifications or conditions under paragraph 6 of Circular No.14 of 1983 issued under section 59 of the Ordinance was the subject-matter of controversy before a Division Bench of this Court in the case of Cannon Products Ltd. v. Income tax Officer 1985 PTD 549 and it was held that, although such power could be validly exercised by selecting cases or class of cases on the basis of some criterion laid down in such circular, but any power exercised by the Board of Revenue in individual cases without setting out any parameters first for selection of such cases would be ultra vires the power of the Board, both under section 59(1) and section 165(2) of the Ordinance. However, therefore, subsection (1-A) was added to section 59 of the Ordinance, empowering the Central Board of Revenue to make a scheme authorizing selection of any cases or class of cases or persons or' class of persons for assessment under section 62 of the Ordinance. Circular No.22, which is now the subject-matter of controversy in the present case, was issued by the Central Board of Revenue purportedly under exercise of such power. The position, therefore, has now been materially altered by incorporation of subsection (1-A) and by virtue of the non obstante clause inserted therein.

7. Mr. Farogh Naseem, learned counsel appearing on behalf of the petitioners in C.P. No.1320 of 1992, who was the first to address us on behalf of the petitioners, has referred to the connotation of the expressions "information", "definite information", "material" and "material evidence". According to the meaning of the term "information" given in Legal Thesaurus by W.C. Burton, it means: "acquired facts, acquired knowledge, available facts, book learning, collected writings, communication, communique, compilations, comprehension, education, enlightenment, erudition, experience, familiarity, grasp, intelligence, intelligent grip, knowledge, knowledge of facts, known facts, learning, lore, mental grasp, revelation, understanding, wisdom". The said expression, according to Encyclopaedia Law Dictionary of Law Terms and Phrases Judicially Defined by Dr. A.R. Biswas, is synonymous with knowledge or awareness, in contradistinction to apprehension, suspicion or misgiving (Commissioner of Income-tax v. Jagan Nath, AIR 1957 Pb. 226; ILR 1957 Punj. 125). The said learned author while relying upon the case of Income-tax Commissioner v. A. Raman AIR 1968 SC 49, refers to the meaning of the said term in the light of the Income Tax Act as "instruction or knowledge derived from an extraneous source concerning facts or particulars or as to law relating to assessment". Wharton's Law Lexicon, 14th Edition, gives a somewhat different connotation to the said term by defining it as "an accusation, or complaint, also, communicated knowledge". Mr. Farogh Naseem has also referred to the meaning of the said term in Black's Law Dictionary, Revised 4th Edn. as:--

"As accusation exhibited against a person for some criminal offence, without an indictment. 4 Bl. Comm. 308. An accusation in- the nature of indictment, from which it differs only in being presented by a competent public officer on his oath of office, instead of grand jury on their oath. 1 Bish. Crim. Fore. 141; Feople v. Sponsler, 46 N.W. 459, 1 Dak. 289, Howard v. State 143 Tenn. 539, 227 S.W. 36. A written accusation sworn to before a Magistrate, upon which an indictment is afterwards founded. Commonwealth v. Cooke 55 Pa. Super Ct.435, 439."

According to the learned author, "the word is also frequently used in the law in its sense of communicated knowledge". Similarly, the expression "definite information" has been defined by A.R. Biswas in his above said book as:--

"Definite Information: --The phrase `definite information' cannot be construed in a universal sense and its meaning must depend on and vary with the circumstances of each case. There is no doubt, however, that the information must be definite, that is, more than mere guess, gossip or rumour. There must be causal connection between the information and the discovery; but `discovery' in the context of the section does not mean a conclusion of certainty at the stage of notice. What is necessary at that stage is that the Income-tax Officer should have formed an honest belief upon materials which reasonably support such belief. AN Lakshman Shenoy v: Income-tax Officer A I R 1958 SC 795: (1958) SCJ 1023."

Our attention has also been invited by Mr. Farogh Naseem to the meaning of the word "material" given in Legal Thesaurus by W.C. Burton. It means:--

"basic, capital, cardinal, central, compelling, consequential, considerable, critical, crucial, decisive, effective, essential, extensive, far-reaching, fundamental, indispensable, influential, key, leading, main, major, memorable, momentous, necessary, paramount, pertinent, pivotal; prevalent, primary, principal, relevant, remarkable, salient, signal, significant, substantial, valuable, vital, weighty, worth considering."

The expression "material evidence" has also been defined in Black's Law Dictionary as under:--

"Material evidence.---Such as is relevant and goes to the substantial matters in dispute, or has a legitimate and effective influence or bearing on the decision of the case. Porter v. Valentine, 18 Misc. 213, 41 N.Y.S. 507, Connecticut Fire Ins. Co. of Hartford, Conn. v. George, 52 Okl, 432, 153 p.116, 119. `Materiality,' with reference to evidence does not have the same signification as `relevancy'. Pangburn v. State Tex Cr. App. 56 S.W.72, 73."

8. It, therefore, clearly follows from the definition of the expressions "information", "definite information" and "material evidence" that information must be substantial which may lead to discovery. Such information, therefore, should not be based on mere guess, gossip or rumour but it should be based on material evidence against the assessee. The Income-tax Officer, therefore, should have formed an honest belief upon material which should reasonably support such belief. Mr. Shaik Haider, learned counsel for the respondents although argued, but half-heartedly, that the use of the word "suspected" in paragraph 4(ii) indicates that the Income-tax Officer can initiate action against the assessee or the Regional Commissioner can accord his approval merely on the basis of suspicion, however, himself realizing the fallacy of the argument, he did not pursue the same further. The word "suspected" has been used in the said paragraph alongwith the words "gross understatement of income" and "definite information based on material evidence". A plain reading of the said paragraph makes it abundantly clear that, as pointed out earlier, the Income tax Officer or the Regional Commissioner-. ; Income-tax can proceed against an assessee or grant approval as the case may be, only on the ground of definite information which must be based on material evidence. Therefore, such action cannot be based on mere suspicion. Suspicion, in contradistinction to definite information, means partial or unconfirmed belief. The use of the word "gross" in the said paragraph further indicates that it is not in case of every under-statement in regard to income that empowers the Income-tax Officer to take action against the assessee under the said paragraph, but only when gross understatement appears to have been made by him.

9. Although the contention that the Income-tax Officer cannot select a case for detailed scrutiny under paragraph 4(ii) in absence of a definite information based on material evidence, has not been challenged by Mr. Shaik Haider, but the case of the respondents, according to the respective counter-affidavits filed in some of these petitions is that, action against the petitioners has been taken on the basis of such information. However, according to Mr. Shaik Haider, the Income-tax Officer was not bound under the law to disclose such information to the petitioners at the time of serving upon them a notice in this regard. Support has been sought in this connection from Commissioner of Income-tax, Bengal v. Messrs Mahaliaram Ramjidas (1940) 8 ITR 442, Messrs Burhan Engineering Co. Ltd. v. The Income-tax Officer, Companies Circle II, Karachi 1985 PTD 465 and Muhammad Asghar v. Central Board of Revenue 1986 PTD 357.

10. The first case referred to above was decided by the Privy Council. In this case the Income-tax Officer on the basis of material and information available to him was satisfied that a prima facie case had been made out against the assessee for assessment under section 34 of the repealed Income Tax Act, 1922. The question that arose was, whether on true construction of the said section, it would be open for the Income-tax Officer to initiate proceedings under the said section without affording an opportunity to the assessee to produce such evidence to the contrary as he liked in the course of the proceedings thus initiated. The contention on the other hand, was that the section contemplated that the factum of escapement of income should have been first proved and definitely found and determined by an independent inquiry, before the Income-tax Officer could assume jurisdiction to reopen the assessment under section 34: It was held that to enable the Income-tax Officer to initiate proceedings under section 34 of the Income-tax Act, it was enough that the Income-tax Officer on the information which he had before him in good faith had considered that he had good ground for believing that the assessee's profits had for some reason escaped assessment or had been assessed at too low a rate. The Income-tax Officer was not required by the said section to convey to the assessee or to intimate to him the nature of the alleged escapement, or to give him an opportunity of being heard, before he decided to operate the powers conferred by the section. It was further held that in interpreting a section of a Taxing Act which deals merely with the machinery of assessment and does not impose a charge on the subject, that construction should be preferred which makes the machinery workable, uth res valeate potius quam pereat. The case of Messrs Burhan Engineering Co. Ltd. the second case cited by Mr. Shaikh Haider was decided by a Division Bench of this Court. In this case while examining similar provisions embodied in section.34(1-A) of the repealed Income Tax Act, 1922, the Division Bench expressed more or less the same view. It was, however, held that the expression "reason to believe" occurring in the said section does not mean a purely subjective satisfaction on the part of the Income-tax Officer but the reason must be held in good faith. It, therefore, cannot be merely a pretence and it was open to the Court to examine whether the reasons for the formation of the belief had rational connection with the formation of such belief and were not extraneous or irrelevant for the purpose. In the third case cited by Mr. Shaik Haider which was decided by a Division Bench of the Lahore High Court, although, the provisions of section 59(1) and (1-A) of the Ordinance were under attack, but the question urged before the High Court was that any provision in a scheme made by the Central Board of Revenue authorizing picking out of cases for detailed scrutiny was ultra vires the powers conferred by subsection (1) or (1-A) of section 59 on the Board of Revenue. It was further urged that subsection (1-A) was not a valid piece of legislation as it conferred unfettered power on the Central Board of Revenue and the functionaries subordinate thereto in selection of cases or class of cases for detailed scrutiny without laying down any parameters for the same. The action against the assessee was also assailed on account of being violative of the principles of natural justice which are to be imported into every piece of legislation affecting rights of citizens. The said pleas were, however, repelled by the learned Division Bench. With regard to the first contention, the Division Bench was of the view that qualifications or disqualifications vis-a-vis section 59 of the Ordinance or any scheme framed thereunder by the Board were essential matters of policy and they required expert knowledge in the field of income-tax which was a highly specialized field where -the ingenuity of the tax-payer was constantly at work to device means both legitimate and illegitimate to lessen his burden. Therefore, if under the circumstances, the legislature had left the task of laying down the qualifications to a body possessing expert knowledge in the field, it could hardly be said to have abdicated, its legislative functions in favour of such body. The second contention did not find favour for various reasons, some of which being that a list of returns prima facie raising suspicion with regard to their accuracy was first prepared at the level of the Commissioner of Income-tax and subsequently it was to be scrutinized by the Regional Commissioner before picking up cases for detailed scrutiny. Thereafter, the list was required to be sent to the Central Board of Revenue for further scrutiny. Such procedure, resulted in considerable reduction of the number of cases picked up for detailed scrutiny and not more than five per cent. of the total returns were being picked up for such scrutiny. In some of the years under consideration, the percentage of cases picked up was found to be as low as two per cent. The Division Bench was further of the view that m any case an inquiry was to be held by the Income-tax Officer and any person dissatisfied with his findings had departmental remedies available to him. Consequently, the contentions were repelled.

11. It would thus appear that, out of the three cases referred to by Mr. Shaik Haider, in the first two it was the action taken against the assessee under the provisions of section 34 of the repealed Income Tax Act, which now correspond to those of section 65 of the Ordinance, whereas the provisions of para. 4(ii) require examination completely from a different angle. However, with regard to the question, whether a prior notice to the assessee in regard to the information received by the Income-tax Officer in respect of inaccuracy of his return would be necessary, we find ourselves in respectful agreement with the view expressed by the learned Division Bench in the case Muhammad Asghar v. Central Board of Revenue that the Income-tax Officer is obliged to hold an inquiry and in case the assessee feels aggrieved he will have the departmental remedies as provided in the Ordinance available to him. In fact such a view also finds favour in two other cases relied upon by Mr. Shaik Haider. It is pertinent to point .out that at the inquiry under section 61 of the Ordinance, the assessee would have a right to appear and to produce evidence before the Income-tax Officer as the Income-tax Officer in such a case would be required to hold a quasi-judicial inquiry. Any inquiry held prior to the issuance of the notice would necessarily result in duplication of the procedure, as was held in the case of Messrs Mahaliram Ramjidas and Messrs Burhan Engineering Co. Ltd. Therefore, in the final analysis, neither the Income-tax Officer is required to issue notice to the assessee prior to his taking action under paragraph 4(ii) nor such an enquiry would be feasible under the circumstances enumerated above.

12. It now remains to be considered whether the Income-tax Officer concerned was bound to disclose the material upon which action was taken by him under the said Circular. Although subsection (1-A) of section 59 itself fails to make any classification in regard to persons or class of persons to whom or cases or class of cases to which the said provisions shall apply, but it leaves the same to the discretion of the Board. But the validity of Circular No.22 has not been attacked for such reasons. The Board had framed a policy, complete in all respects in regard to the classification of persons and the criterion for selection of cases which may be excluded from the benefit of the Self-Assessment Scheme under the said Circular. However, as is clear from the Circular itself, it was never intended to clothe the Income-tax Officer or any other functionary of the department with any arbitrary powers. The said functionaries are obliged to exercise power under the said Circular justly, honestly and strictly within the parameters laid down by the Circular itself., De Smith in "Judicial Review of Administrative Action" has summarised the relevant principles formulated by the Courts of law in this regard thus:

"The relevant principles formulated by the Courts may be broadly summarised as follows. The authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it: it must not act under the dictation of another body or disable itself from exercising a discretion in each individual case. In the purported exercise of its discretion it must not do what it has been forbidden to do, nor must it do what it has not been authorised to do. It must act in good faith, must have regard to all relevant considerationsand must not be swayed by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of legislation that gives it power to act, and must not act arbitrarily, or capriciously. These several principles can conveniently be grouped in two main categories: failure to exercise a discretion, and excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account; and where an authority hands over its discretion to another body it acts ultra vires. Nor, as will be shown, is it possible to differentiate with precision the grounds of invalidity contained within each category."

Consequently, the validity of the exercise of power by the concerned Income tax Officer or the fact that such action has been taken by him in good faith, would always be open to question unless the material upon which such action has been taken is disclosed to the assessee. Failure to disclose such material to the assessee would render such action completely arbitrary and discriminatory because conclusions would be drawn by the respondent Income-tai Officer or the Regional Commissioner of Income-tax, himself without being supported by any evidence. The contention that enquiry is to be conducted by the Income-tax Officer cannot by itself clothe such action with validity. Even in the counter affidavits filed on behalf of the respondents, although, it has been stated that action has been taken only in such cases where definite information had been received in regard to the accuracy of the returns respectively filed by the petitioners in each case, but again, it is only a general assertion not supported by any material. It would, therefore, be dangerous to proceed on mere assertion where as pointed out earlier, conclusions have been drawn by the respondents themselves and are not supported by any evidence which can be contested by the petitioners in the Court. The respondents have, therefore, failed to discharge the burden which was heavily placed on them to show that the action against the respondents had been taken purely within the conditions laid down by the said circular or that the same was not taken on account of any extraneous considerations. Such an action, in our judgment, is, thereof e, arbitrary and discriminatory, and any illegal irrational or arbitrary action or decision whether in the nature of legislative, administrative or quasi-judicial exercise of power is liable to be quashed as such. It was held by the Indian Supreme Court in the case of E.P. Royappa v. State of Tamil Nadu AIR 1974 SC 555: "equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch". Consequently, unless a line of demarcation can be drawn, it would be hard to judge the action of the respondents empowered under the said circular. The mere assertion of the department that action was taken against the petitioners on the basis of material evidence without actually referring to the same as just pointed out, can hardly clothe such action with validity.

13. In the result, we allow these petitions and quash respective notices issued to the petitioners. However, this does not mean that the petitioners should succeed in evading such action even in cases where the action is warranted by law, simply on account of the failure of the respondents to furnish evidence in this regard or to establish a prima facie case. Under circumstances we leave it to the concerned functionaries of the Income-tax Department to reopen any case, provided action is taken fairly and squarely within the power respectively vesting in them under the statute or the said Circular, in the light of the observation made in this judgment. The parties are left to bear their own costs.

M.BA./P-276/TOrder accordingly.