(a) Income-tax---

----Re-assessment---Notice---Failure to disclose material facts necessary for assessment---Recording of belief that there had been failure to disclose material facts necessary for assessment---Non-mention of cl. (a) of S.147 in notice will not render it invalid--Indian Income Tax Act, 1961, S.147.

(b) Income-tax---

----Re-assessment---Failure to disclose material facts necessary fol assessment---Condition precedent---Belief regarding such failure based on documents---Fact that documents were impounded illegally, is not relevant-- Indian Income Tax Act, 1961, S. 147.

Section 147(a) of the Income Tax Act, 1961, envisages two distinct conditions precedent to assume jurisdiction. The Assessing Officer must have reasons to believe that income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return or disclose fully or truly all material facts necessary for his assessment for the relevant year. If the factual existence of the conditions precedent can be inferred from the materials on record, non-mentioning of the clause will not vitiate the notice.

The illegality or irregularity in impounding of documents cannot vitiate the material collected unless the genuineness or correctness of the same are in doubt. Such material can form the basis for a notice for reassessment.

The assessment of the petitioner for the assessment year 1982-83 was completed. Subsequently, a survey was conducted in the business premises of the assessee. Some documents were impounded. On an examination of the documents, the Income-tax Officer came to the conclusion that the return of income for the year 1982-83 did not reflect the true state of affairs of the income of the firm and accordingly issued notice on the firm to show cause as to why the assessment for the year 1982-83 should not be reopened under section 147 of the Act. The petitioner submitted his reply questioning the legality and validity of the notice. In the above communication the petitioner took objection also to the manner in which the survey was conducted and documents were impounded. The Deputy Commissioner was of the opinion that the proceeding under section 147 was rightly initiated. On a writ petition assailing the legality of the above order:

Held, dismissing-the writ petition, that the Assessing Officer had duly recorded his belief relating to the omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment for the ear 1982-83. The fact that clause (a) of section 147 had not been mentioned in the notice would not render it invalid.

(ii) that an illegal search will not invalidate the seizure of the articles. The document impounded showed that there was reasonable ground before the concerned officer for exercising power under section 147(a). The reassessment proceedings were valid.

Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati); Biju Patnaik v. ITO (1976) 102 ITR 96 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961 41 ITR 191 (SC); Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR ~ (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Jameson and Magrudar Co. (Pvt.) Ltd. v. ITO (1987) 167 ITR 77 (Cal.); Madhya Pradesh Industries Ltd. v. ITO (1970) 77 ITR 268 (SC); Madhya Pradesh Industries Ltd. v. ITO (1965) 57 ITR 637 (SC); Morarjee Goculdas Spinning and Weaving Co. Ltd. v. Das (M.M.), IAC (1991) 189 ITR 406 (Bom.); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC); Pooran Mal v. Director of Inspection (Investigation) I.T. (1974) 93 ITR 505 (SC); Partap Singh (Dr.) v. Director of Enforcement (1985) 155 ITR 166 (SC); Radha Kishan v. State of U.P. (1963) AIR 1963 SC 822. Sheo Nath Singh v. AAC of I.T, (1971) 82 ITR 147 (SC); State of Maharashtra v. Natwarlal Damodardas Soni AIR 1980 SC 593; (1980) 4 SCC 669; Union of India v. Rai Singh Deb Sigh Bist (1973) 88 ITR 200 (SC) and Union Carbide (India) Ltd. v. ITO (1973) 87 ITR 529 (Cal.) ref.

J.P. Bhattachargee and Dr. A. K. Saraf for Petitioner.

K. N. Choudhury and G. K. Joshi for Respondents.

JUDGMENT

D. N. CHOWDRURY, J.--The legality of the proceeding under section 147 of the Income Tax Act, 1961, as well as the notice, dated March 30, 1987, issued by respondent No. 4 in exercise of power under section 148 of the Income Tax Act, 1961, for reopening the Income-tax assessment for the assessment year 1982-83 is the subject-matter of this proceeding.

The petitioner filed its return of income for the assessment year 1982-83 on November 26, 1982, showing its total income at Rs.14,340. The assessment was completed by respondent No. 4 on examination of the books of account produced in compliance with the notice issued under section 143(2) of the Act, vide order, dated January 19, 1983. The petitioner preferred appeal against the assessment challenging disallowances of certain expenses which were also finally disposed of. A survey was conducted by the Income-tax Officer alongwith other officers on February 27, 1985, in the business premises of the petitioner/firm. According to the petitioner, some unattended and loose and rough papers were found in the premises and the same were taken possession of by the officials of the Department. The survey party wanted to take possession of those papers which was objected to by the petitioner in view of the provisions contained in subsection (4) of section 133A of the Income-tax Act. The officers undertaking survey thereafter then and there at the shop premises prepared a notice under section 131 of the Income-tax Act, dated February 27, 1985, directed the petitioner to attend personally' or through an authorised representative on February 27, 1985, at 4-30 p.m. at the office of the Income-tax Officer, "A" Ward at Dibrugarh requiring to produce books of account or other documents specified overleaf of the notice. The petitioner wrote a letter narrating the full facts to the concerned Income-tax Officer of "A" Ward about the whole incident which took. place at the shop premises of the petitioner on February 27, 1985, in the course of the survey and the manner under which the rough and loose papers were taken away by the survey party. The Income-tax Officer after taking possession of the loose and rough papers, passed an order on February 27, 1985, in exercise of the powers vested in him under section 131(3) of the Act. The petitioner, in turn by the letter, dated March 14, 1985, through its counsel denied its correctness. The Income-tax Officer, by letter, dated March 6, 1986, intimated the petitioner about the alleged discrepancies that it found and informed the petitioner that the return of income for the year 1982-83 did not reflect the true state of affairs of the income of the firm and accordingly issued notice on the firm to show cause as to why the assessment for the year 1982-83 should not be reopened under section 147 of the Act. The petitioner, by his communication, dated March 17, 1986, accordingly submitted his reply before the respondents questioning the legality and validity of the notice. In the above communication, the petitioner took objection also about the manner in which the survey was conducted and documents were impounded. Respondent No. 4 by his notice, dated March 30, 1987, issued notice under section 148 of the Income-tax Act which was duly replied to by the petitioner by his letter, dated April 20, 1987. The petitioner also made a reference particularly under section 144A to the Deputy Commissioner, Range-II, Diburgarh, for a direction under section 144A of the Income-tax Act, in view of the fact that a notice under section 148 of the. Act was issued without indicating whether it was issued under clause (a) or (b). The Deputy Commissioner of Income-tax by his letter dated March 9,1990, after going through all the materials on record and also on going through the documents at the time of survey in the business premises of Thakursidas Banwarilal & Co. and Surendra Auto Agencies, was of the opinion that the proceeding under section 147 was rightly initiated. Hence, the application before this Court assailing the legality of the above order.

Dr. A. K. Saraf, learned counsel for the petitioner, firstly pointed to the fact that in the instant case no affidavit so far was fled by the respondent. Dr. Saraf also submitted that in the absence of any affidavit explaining the reason as to why the impugned notices were issued, the very existence of formation of opinion has become questionable. In the absence of any rebuttal, the assertion of the petitioner is required to be accepted as true for want of affidavit from the concerned Income-tax Officer. In support of his contention, Dr. Saraf, learned counsel for the petitioner, has brought to my attention the following decisions in Union of India v. Rai Singh Deb Singh Bist (1973) 88 ITR 200 (SC); Sheo Nath Singh v. AAC of I. T. (1971) 82 ITR 147 (SC); Biju Patnaik v: ITO (1976) 102 ITR 96 (Cal); Morarjee. Goculdas Spinning and Weaving Co. Ltd. v. M.M. Das, LAC (1991) 189 ITR 406 (Bom.); and 157 ITR 637 (Bom) (sic), Dr. Saraf, learned counsel for the petitioner, further submitted that in the instant case the notice of the Income-tax Officer was silent as to whether assessment was sought to be opened under section 147(a) or section 147(b). Admittedly, .in the instant case, the impugned proceeding could not have been initiated under section 147(b) after the expiry of the period of limitation, as regards section 147(a) of the Act. Dr. Saraf further submitted that it is not a case of non-submission of return nor is it a case where the petitioner failed to disclose fully or truly all material facts necessary for his assessment and, therefore, the notice under section 147(a) was void, illegal and, unwarranted too: Dr. Saraf particularly cited the instances of submission of profit and loss account, balance-sheet and other detailed particulars, that in fact there was no omission or failure on the part of the petitioner as contemplated under section 147(a) and there has been no omission or failure on the part of the petitioner to disclose fully and truly the material facts necessary for the assessment and the Income-tax Officer had no jurisdiction to issue the impugned notice and as such the impugned notice is unsustainable. In support of his contention, Dr. Saraf relied on the decisions of the Supreme Court in S. Narayanappa v. CIT (1967) 63 ITR 219 and Madhya Pradesh Industries Ltd. v. ITO (1970) 77 ITR 268.

Mr. G. K. Joshi, learned counsel appearing on behalf of the respondents/Revenue, on the other hand, submitted that the action of the respondents so far taken was lawful. The Revenue in this case did not file any affidavit, instead, it placed the original records of the case on its entirety and relied upon the same. Mr. Joshi, learned counsel for the Revenue, further submitted that in the objection before the authority, the petitioners did not make any whisper of the loose sheets nor the petitioner disowned any of those documents. On the other hand, some of the expenses which were shown by the petitioner in its explanation tally with the loose sheets that were recovered. At any rate, the factual existence as well as of the documents were not under challenge. If the materials disclosed some evidence its reliability or authenticity were taken in doubt the evidence cannot become inadmissible in view of the means resorted to in obtaining the evidence. Mr. Joshi, therefore, contended that the alleged irregularity cannot vitiate the evidence collected and, therefore, the same can be used against the assessee. Mr. Joshi further submitted that respondent No. 4 has the necessary jurisdiction under section 147(a) of the Act and the concerned officer possessed reasonable ground to believe that income chargeable to tax escaped by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts for its assessment and the discrepancies in the balance of creditors and debtors were not disclosed by the petitioner firm either in the statement of account filed with the return of income or in the course of assessment proceedings while producing the books of account for examination. The essential ingredients of section 147(a) of the Act were duly complied with by the concerned Income-tax Officer. In support of his contention. Mr. Joshi, learned counsel referred to the following decisions of the Supreme Court; Calcutta Discount Co. Ltd. v. CIT (1961) 41 ITR 191 (SC); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC), ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Ganga Saran & Sons P. Ltd. (1981) 130 ITR 1 (SC); Jameson and Magrudar Co. (P.) Ltd. v. CIT (1987) 167 ITR 77 (Cal); Abdul Rab Abdul Salam v. CIT (1988) 174 ITR 424 (Gauhati); Pratap Singh (Dr.) v. Director of Enforcement (1985) 155 ITR 166 (SC) and Union Carbide (India) Ltd. v. ITO (1973) 87 ITR 529(Cal). Mr. Joshi also submitted that though under normal circumstances an affidavit ought to have been filed by the Department, when the records are produced and the materials are disclosed the Court may not insist on the technicalities and address it mind to the facts made available on record. The existence of the belief is duly disclosed in the records. The entire materials are placed on record for consideration of the matter. In support of his contention, learned counsel, Mr. Joshi, brought to my attention the case of Madhya Pradesh Industries Ltd. v. ITO (1965) 57 ITR 637 (SC).

When the legitimacy of the action is assailed in a writ petition it is the duty of the respondents to submit an affidavit and to explain, more particularly in a matter where serious allegations regarding illegality of the action are brought in. The duty of the respondents to submit an affidavit cannot, therefore, be watered down. However, it is for the Department to support its action also by production of records disclosing the grounds for initiating the impugned action. From the order, dated March 30, 1987, it appears that notice was issued under section 147(a) of the Income-tax Act. The Income-tax Officer by his order, dated March 6, 1986, passed the following orders which read as follows:

". . . Office of the Income-tax Officer; D. Ward: Dibrugarh No.T-31 1/D/con/763, dated 6th March, 1986

To The Manging Partner,

M/s. Thakursidas Banwarilal

A. T. Road, Dibrugarh.

Reopening of assessment for the assessment year 1982-83---Proposal regarding.

Dear Sir,

In the course of survey on 27-2-1985, certain documents and copies of accounts in original were impounded and kept under my custody. From the documents and copies of accounts impounded, I have found that the return of income submitted by you for the assessment year 1982-83 does not reflect the true state of affairs of your income for the assessment year 1982-83. Certain discrepancies found are noted below.

1. From the return of income submitted for the assessment year 1982-83. 1 have, found that you have shown net profit at Rs.24,724.12 including godown rent Rs.18,000 and Tinsukia land rent at Rs.17,709.35. But from the documents and copies of accounts in original impounded, I find that there was a loss of Rs.32,734.71. This loss stands after consideration of expenses of Rs.30,823.14 on account of Basa Kharcha, Rs.3,212.99 on account of Ghar Kharaeha. Rs.5,238,51 on account of officers Kharcha, Rs.135-84 on account of Shri Banwarilal Deorah, Rs.16,372.48 Banwarilal Deorah, Rs.17,662.50 Bhat Khata (Gita Bai) and Rs.15,484.05-Khisri Khata (Bai Sarita). If these excluded are expenses being non-admissible, then net profit ' of Rs.56,194.80 comes for the assessment year 1982-83 as per records impounded.

2. I have also found from the Talpat impounded that Ramdeo Ranglal is a creditor to you for Rs.1,12,028 whereas in the return of income submitted by you, you have shown Ramdeo Ranglal as a debtor for Rs.45,268.26. Since the papers impounded are original, I am relying on the original papers and I find that Ramdeo Ranglal is a creditor to you for Rs.1,12,028. Since you have shown Ramdeo Ranglal as your debtor, a sum of Rs.1,56,296.26 (Rs.1,12,028 + Rs.45,268.26) represents your income from undisclosed sources for the assessment year 1982-83.

3. I also find that debtors and creditors appearing in the return of income submitted by you does not tally, with those appearing in the original Talpat impounded.

However, before reopening the case under section 147 of the Income-tax Act, 1961, I allow you an opportunity to explain the circumstances and also to explain why assessment for the assessment year 1982-83 should not be reopened under section 147 of the Act. Your reply should reach me on or before March 17, 1986, failure of which it will be presumed that you have nothing to submit and proceedings will be started without any further communication.

Yours faithfully,

(Sd.)

(A. R. Chakraborty),

Income-lax Officer,

D-Ward, Dibrugarh... "

From the order sheet it thus emerges that the Income-tax Officer after verifying the original papers and documents found that the assessee had not submitted the correct statement and the assessee during the year 1982-83 showed net profit at Rs.24,724.12 including godown rent Rs.18,000 and Tinsukia land rent at Rs.17,709.35 whereas the Income-tax Officer found a loss of Rs.32,734.71. The income-tax Officer gave an opportunity vide his letter, dated March 6, 1986, to explain as to why a proceeding under section 147 of the Act should not be taken. Considering the reply of the assessee, the Income-tax Officer issued notice under section 148 of the Act.

Dr. Saraf was right that the notice did not indicate as to whether the notice was issued under section 147(a) or (b) but if the factual existence can be inferred from material on record non-mentioning of the clause will not vitiate the notice. The officer duly recorded his belief relating to the omission or failure on the part of the assessee to disclose fully and truly all the material facts for the assessment year 1982-83 as income chargeable within the meaning of section 147(a) of the Act. Section 147(a) envisages two distinct conditions precedent to assume jurisdiction, (i) he must have reason to believe that income has escaped assessment and (ii) he must have reason to believe that such escape is by reason of the omission of failure on the part of the assessee to make a return and disclose fully and truly all material facts necessary for his assessment for the relevant year. These are the two essential conditions for exercising of jurisdictions under section 147(a) and if either of the conditions is absent the action of the officer will be Without jurisdiction. The principles of law are now well settled (refer to-Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) and S. Narayanappa v. CIT (1967) 63 ITR 219 (SC): ITO v. Lakhmani

Mewal Das (1976) 103 ITR 437 (SC)). In Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR 1, the Supreme Court observed (page 11):

"It is well-settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income-tax Officer can assume jurisdiction to issue notice under section I47(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly, all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income-tax Officer would be without jurisdiction. The important words under section 147(a) are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the Income-tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income-tax Officer in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid."

In the case in hand, the Income-tax Officer considered the circumstances and the materials on record and thereafter, assumed the jurisdiction under section 147(a)) followed by notice under section 148. After considering the materials on record, I cannot hold that there is no existence of reasonable ground before the concerned officer for exercising power under section 147(a). The other ground regarding illegality or irregularity in impounding of documents cannot vitiate the materials so far collected unless the genuineness or correctness of the same are in doubt. The Courts in India persistently refuse to exclude material evidence solely on the ground that it was obtained by illegal search or seizure. Illegal search will not invalidate the seizure of the articles. In such cases only the Court is to scrutinise the evidence carefully, refer to Radhakishan v. State of U.P. AIR 1963 SC 822; Pooran Mal v. Director of Inspection (Investigation) of Income-tax (1974) 93 ITR 505 (SC); Dr. Partap Singh v. Director of Enforcement (1985) 155 ITR 166 (SC) (175) and State of Maharashtra v. Natwarlal Damodardas Soni (1980) 4 SCC 669; AIR 1980 SC 593.

On an overall consideration of all the aspects of the matter, I do not find any infirmity in the reopening of the assessment by the respondents. For the reasons stated above, the writ petition is dismissed. No. costs. The respondents may now proceed with the matter. Stay order if any stands vacated.

M.B.A./3282/FCPetition dismissed