1962 (2) TMI 86 - HC - Income Tax

Court Invalidates Income-tax Reassessment, Rejects Profit Estimation, Awards Costs

CHOUTHMAL AGARWALLA Versus COMMISSIONER OF INCOME-TAX, ASSAM.

The court ruled in favor of the assessee, declaring the proceedings under section 34(1) of the Income-tax Act invalid due to the lack of reasonable belief ... - Issues:1. Validity of proceedings under section 34(1) of the Income-tax Act based on non-disclosure of material facts.2. Justification of estimating profits at Rs. 60,000 from an undisclosed sum of Rs. 1,18,000 secretly invested in business during 1942-1946.Issue 1: Validity of proceedings under section 34(1) of the Income-tax Act based on non-disclosure of material facts:The case involved a Hindu undivided family reassessed for the year 1946-47 due to a notice issued under section 34 of the Income-tax Act, alleging non-disclosure of material facts leading to escaped income. The Income-tax Officer estimated a profit of Rs. 60,000 from an undisclosed sum of Rs. 1,18,000 invested by the family. The Appellate Assistant Commissioner and the Appellate Tribunal upheld this assessment. However, the court held that the primary facts were disclosed in the account books, and there was no evidence of non-disclosure to justify the reassessment. The court ruled that the Income-tax Officer lacked reasonable belief for issuing the notice under section 34(1)(a), rendering the proceedings invalid.Issue 2: Justification of estimating profits at Rs. 60,000 from an undisclosed sum of Rs. 1,18,000 secretly invested in business during 1942-1946:Regarding the second question, the court found no evidence supporting the claim that the undisclosed sum of Rs. 1,18,000 was secretly invested in business during 1942-1946, justifying a profit estimate of Rs. 60,000. The court noted discrepancies in the approach of the Income-tax Officer and the Appellate Assistant Commissioner in assessing the profit. It emphasized that assessments based on mere suspicion and conjecture are invalid. The court highlighted the lack of material to infer the profit amount, concluding that the estimate of profits at Rs. 60,000 was not justified. The court also rejected the department's argument that the point was not raised before the Tribunal, stating that the issue was consistently raised by the assessee throughout the proceedings.In conclusion, the court held in favor of the assessee on both issues, declaring the proceedings under section 34(1) invalid and rejecting the justification for estimating profits at Rs. 60,000. The court awarded costs to the assessee and dismissed a related petition under article 226 of the Constitution of India due to the favorable ruling on the reference.