# CHHUGAMAL RAJPAL v. S. P. CHALIHA & ORS

- **Citation:** [1971] 3 S.C.R. 442
- **Court:** Supreme Court of India
- **Decided:** 1971-01-21
- **Case number:** Civil Appeal No. 1311 of 1967
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chhugamal-rajpal-v-s-p-chaliha-ors-5153
- **Pages:** 7

## Headnote

Income-tax Act, 1961, s. 147, 148 and 151-lssue of notice under
s. 148-Assessment of escaped income-Requirement of s. 147(a) and
(b) must be satisfied and reasons recorded before the
issue of notice
under s. 148-Report to Commissioner under s. 151 (i) must
disclose
.existence of ground'S for issue of notice-Conzmissioner 1nust apply 1nind
before -grantinK sanction.
The appe.lant, a partnership firm, filed its return of income for the
.assessment year 1960-61 and subsequently produced before the Income·
:tax Officer its relevant books of accounts and papers. It also produced
before him the statement showing various creditors from whom it had
borrowed on Hundis during the accounting year in question, giving full
names and· addresses of the alleged creditors. After enquiry the Income-
·tax Officer made an assessment.
On June 3, 1966 the' Income-tax Officer
issued to the appellant a notice under s. 148 of the Income-tax Act, 1961.
The notice was issued after four years but before 8 years of the end of
·the original assessment year. ·The appellant challenged the validity of
the notice as well as the proceedings taken on the strength of that notice
in a writ petition under Arts. 226 and 227 of the Constitution. The High
Court dismissed the petition.
By special leave appeal was filed in thi<
Court.
On direction given by the Court
the report submitted by tho
Income-tax Officer to the Commissioner and 1 the Commissioner's order
thereon were produced. Jn the report it was said that it appeared that
the alleged creditors of the appellant were name lenders and transactions
were bogus; hence proper investigation regarding those loans was necessary.
Question No. 8 on the report was whether the Commissioner was
satisfied that the case was fit for the issue of notice under s. 148. Against
this the commissioner had noted 'yes'.
On these facts this Court,
HELD: Under s. 148 and s. 151(2) the Income-tax Officer must
record his reasons for issuing the notice under s. 148. There must be
prima facie grounds for taking action under s. 148
Further before issufog such a notice the provisions of els. (a) and (b) of s. 147 must be
satisfied. [447 B, E]
·
In this case the Income-tax Officer appears to have had a vague feeling that the transactions were bogus and that the alleged creditors were
·only name lenders.
According to him proper investigation regarding the
loans was necessary.
That is not the same thing as saying that there
are reasons to issue notice under s. 148. [447 A-CJ
In these circumstances it
could not be held that the
Income-lax
Officer had any material before him which could satisfy the requirements
· of either cl. {a) or cl. (b) of s. 147. Therefore he C?uld not ha.vc
issued a notice under s. 148. Further the report submitted by
him
under s. 151'(2) did not mention any reason for coming to the conclusion
that it was a fit case for the issue of the notice under s. 148. The
Commissioner also mechanically accorded permission. Thus the important safeguards provided in ss. 147 and 151 were lightly treated by the
income-tax Officer as well as by the Commissioner. [447 F-448 BJ
The appeal must accordingly be allowed.
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ClIHUGAMAL v. s. P. CHALIHA (Hegde, J.)
443

## Text

CHHUGAMAL RAJPAL
v.
S. P. CHALIHA & ORS.
January 21, 1971
(J. C. SHAH, C.J., K. S. HEGDE AND A. N. GROVER, JJ.J
Income-tax Act, 1961, s. 147, 148 and 151-lssue of notice under
s. 148-Assessment of escaped income-Requirement of s. 147(a) and
(b) must be satisfied and reasons recorded before the
issue of notice
under s. 148-Report to Commissioner under s. 151 (i) must
disclose
.existence of ground'S for issue of notice-Conzmissioner 1nust apply 1nind
before -grantinK sanction.
The appe.lant, a partnership firm, filed its return of income for the
.assessment year 1960-61 and subsequently produced before the Income·
:tax Officer its relevant books of accounts and papers. It also produced
before him the statement showing various creditors from whom it had
borrowed on Hundis during the accounting year in question, giving full
names and· addresses of the alleged creditors. After enquiry the Income-
·tax Officer made an assessment.
On June 3, 1966 the' Income-tax Officer
issued to the appellant a notice under s. 148 of the Income-tax Act, 1961.
The notice was issued after four years but before 8 years of the end of
·the original assessment year. ·The appellant challenged the validity of
the notice as well as the proceedings taken on the strength of that notice
in a writ petition under Arts. 226 and 227 of the Constitution. The High
Court dismissed the petition.
By special leave appeal was filed in thi<
Court.
On direction given by the Court
the report submitted by tho
Income-tax Officer to the Commissioner and 1 the Commissioner's order
thereon were produced. Jn the report it was said that it appeared that
the alleged creditors of the appellant were name lenders and transactions
were bogus; hence proper investigation regarding those loans was necessary.
Question No. 8 on the report was whether the Commissioner was
satisfied that the case was fit for the issue of notice under s. 148. Against
this the commissioner had noted 'yes'.
On these facts this Court,
HELD: Under s. 148 and s. 151(2) the Income-tax Officer must
record his reasons for issuing the notice under s. 148. There must be
prima facie grounds for taking action under s. 148
Further before issufog such a notice the provisions of els. (a) and (b) of s. 147 must be
satisfied. [447 B, E]
·
In this case the Income-tax Officer appears to have had a vague feeling that the transactions were bogus and that the alleged creditors were
·only name lenders.
According to him proper investigation regarding the
loans was necessary.
That is not the same thing as saying that there
are reasons to issue notice under s. 148. [447 A-CJ
In these circumstances it
could not be held that the
Income-lax
Officer had any material before him which could satisfy the requirements
· of either cl. {a) or cl. (b) of s. 147. Therefore he C?uld not ha.vc
issued a notice under s. 148. Further the report submitted by
him
under s. 151'(2) did not mention any reason for coming to the conclusion
that it was a fit case for the issue of the notice under s. 148. The
Commissioner also mechanically accorded permission. Thus the important safeguards provided in ss. 147 and 151 were lightly treated by the
income-tax Officer as well as by the Commissioner. [447 F-448 BJ
The appeal must accordingly be allowed.
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ClIHUGAMAL v. s. P. CHALIHA (Hegde, J.)
443
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1311 of
1967.
Appeal by special leave from the judgment and order dated
January 17, 1967 of the Patna High Court in C.W.J.C. No. 952
of 1966.
M. C. Chagla, N. D. Karkhanis, S. P. Chowdhury, Bhumnesh
Kumari, for the appellant.
S. C. Manchanda, R. N. Sachthey and B. D. Sharma, for the
respondent.
. C
The Judgment of the Court was delivered by
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Hegde, J,
This is an assessee's appeal by special leave against
the judgmqnt of the High Court of Patna dismissing in limini its
writ petition under Arts 226 and 227 of the
Constitution of
India.
The assessee is having construction contracts under the Railways as well as the Government. It is a partuership firm. For
the assessment year 1960-61, relevant to the accounting year
1959-60, after the assessee submitted its income-tax return, it was
asked by the Incol))t:-tax Officer during the income-tax assessment proceedings to produce before him its books of account
E
and the other relevant papers.
The assessee also produced before him a statement showing various creditors from
whom it
had borrowed on Hundis during the accounting year in ques1ion.
11). that statement it gave the full names and addresses of the
alleged creditors.
After enquiry, the assessee's total income was
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assessed at Rs. 69,886/-. On June 3, 1966, the 1st respondent
(Income-tax Officer ,Ward 'A', Muzalfarpur)
issued
to the
assessee a notice under s. 148 of the Indian Income-tax Act,
1961. The material portion of that notice reads as follows :
"Notice under s. 148 of the Income-tax Act, 1961.
To
Income-Tax Officer, Muzaffarpur
Dated, the 3-6-1966.
M/s. Chugamal Rajpal, Muzaffarpur.
Whereas (I) have reason to believe that your income chargeable the income of 1960-1961 in rspect of
which you are assessable to
tax for
the
assessment
year 19
19
has escaped assessment within the
444
SUPREME COURT REPORTS
[1971] 3 S.C.R.
meaning of section 14 7 of the Income Tax Act,
1961.
I therefore propose to re-assess the income for the
said assessment year and I hereby require you to deliver
to me within 30 days from t.'te date of service of this
notice a return in the prescribed form of your income
The income
assessable relevant to the
assessment year
1960-61
of
in respect of which you are assessable for the said
assessment year.
2. The notice is being issued after obtaining the
necessary satisfacti0tn of the Commissjoner of IncomeTax, Bihar and Orissa, Patna.
Sd/- S. P. Chaliha
Income-Tax Officer,
Ward A, Muzaffarpur."
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The assessee challenged the validity of that notice as well as
proceedings taken on: the strength of tha<
notice on various
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grounds. As we are accepting the co;ntention of the assessee
that the impugned notice is invalid inasmuch as it did not comply with the requirements of s. 151 (2) of the Act, we have not
thought it necessary to examine the other contentions advanced
on behalf of the assessee.
In this case the notice was issued
after four years but before eight years of the date of the original F
assessment.
Section 151(2) of the Act reads:
"No notice shall be issued qnder Section 148 ·after
the expiry of four years from the end of the relevant
assessment year, unless the Commissioner is satisfied on
the reasons recorded by the Income-tax Officer that it is
a fit case for the issue of such notice.',''
·section 148 prescribes :
" ( 1) Before making the assessment, re-assessment
or re-computation under Section 147, the Income-tax
Officer shall serve on the assessee a notice containing
all or any of the requirements which may be included
in a notice under sub-sectioo (2) of Section 139 and
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ClillUGAMAL v. s. P. CHALIHA (Hegde, /.)
445
the provisions of this Act shall, so far as may be, apply
accordingly as if the notice were a notice issued under
that sub-section.
( 2) The ~ncome-tax Officer shall, before issuing ·any
notice under this section, record his reasons for doing
so."
Section 14 7 deals with income escaping assessment. At this
stage we need not refer to that section : We shall refer to that
·provision at a later stage. Section 139(2) says:
"In the case of any person who, in the Incometax Officer's opinion,
assessable under this Act,
whether on his own total income or on the total
income of any other person during the previous year,
the Income-tax Officer may, before the end of the
relevant assessment year; serve a notice upon him requiring him to furnish, within thirty days from the date
of service of the notice, a return of his income or the
income of such other person during the previous year,
in the prescribed form and verified in the prescribed
manner. and setting forth such other particulars as may
be prescribed."
(proviso is not necessary for our present purpose)
When this appeal came up for hearing on the last occasion,
as we found the affidavit filed by the Income-tax Officer to be
vague and indefinite, we directed the learned Counsel for the
Department to produce before us the records of the Income- ·
tax Officer to show that the Income-tax Officer had complied
with the requirements of s. 148 and s. 151 (2) of the Act. When
the appeal was talc~n .up for hearing on the 18th January 1971,
only the report suomitted by the Income-tax Officer to the Commissioner and the order of the Commissioner was produced. The
order .sheet recording the reasons of the Income-tax Officer as
required by s. 148(2) was not produced. Hereinbelow we have
sent out the report of the Income-tax Officer as well as the order
of the Commissioner :
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"Report in Connection with. the starting of proceeding 1 under Section 147 of the
--t
Income~tax Act, 1951.
·
11
Name ofD:strict
Ward of Circle....
A Ward, Muzaffarpur
G.l.R. No....
. . 303-C.
1.
l. NJm'! and address of the as5es'!ee
2. Status
3. Assec.sment year for which notice under
M/s. ChugamaJ RajpaJ,
Muzaffarpur.
R.F.
s.148 is proposed to be issued
1960-61.
446
SUPREME COURT. REPORTS
[1971] 3 S.C;R.
4. Whether it is a new case or on~ in which
re-assessment (or recon1putation) ·
has to be made
Re-assess1ncn1
5. If a case of reassessment (or rccomputation) the income·. (or loss or depreciation
allowance) originally assessed/determined. Rs. 73,604/-
6. Whether the case falls under cl. (a) or (b)
ofs.147
147(a)
7. B:ief re1sons for starting PrOC!cdings under
s. -147 (indicate the items which are
b.!liev~d to h:tve escaped assessment)
8. Whether the Con1missioner is scitisfied that
it is a fit· case for the issue of notice under
se::lion 148.
Kindly see overleaf
Sd/- S. P. Chaliha.
l.T.0., 30-4·66
A-Warci, Muzaffarpur.
Yes
Sd/- K. Narain
13-5·66 -
Con1missioner of tncon1e-tax.
Bihar and Orissa, Patna
9. Whe1her the Board iS satisfied that it is a Secretary, Board of Revenue.
fit case for the issue of notice under s.148.
During the year the assessee has shown to have taken loans
from various parties of Calcutta.
From D.I.s Inv. No. AIP I
Misc.(5)D.I./63-64/5623 dated 13-8-65, forwarded to this office
under C.I.T. Bihar and Orissa, Patna's letter No. Inv. (Inv.) 15/
65-66/1953-2017 dated Patna 24-9-65, it appears
that these
persons are naine lenders
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 Sricharan.
2. Lakha Singh Lal Singh.
3. Radhakissen Shyam Sunder.
The amount of e§capement involved
amounts
to
Rs. 100,000/-.
Sd/- S. P. Chaliha, 30'4-66.
Income-tax Officer,
A-Ward. Muzaffarpur."
In his repott the Income-tax Officer does not set
out
any
reason for coming to the
conclusion th'at this is a £.t case to
issue notice under s. 148.
The material that he had before him
for issui. g notice under s. 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 communicatiqns "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
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CHHUGAMAL V. S. P.·'CHALIHA. (H~gde, J.)
447
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 s. 151 (2).
Wl;lat that provision requires
is that he must give reasons for issuing a notice under s. 148.
In other words he must have some prima facie grounds before
him for taking action under s. 148.
Further his report mentions : "Hence proper investigation regarding these loans
is
necessary". In other words his cQ11Clusion 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 s. 148. Before issuing a notice under s. 148·, the
Income-tax Officer must have either reasons to believe that by
C reason of the omission or failure on the part of these assessee to
make a return under s. 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 notD
withstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer
has in CO!}sequence of information in his possession reason to
believe that income chargeable to tax has escaped assessment
for any assessment year. Unless the requirements of clause (a}
or (b) of s. 14 7 are satisfied, the Income-tax Officer has 110
jurisdiction to issue a notice under s. 148. From the report subE
mitted by the Income-tax Officer to the Commissioner, it is clear
that he could not have had rea,sons to believe that by reaSOI! of
tho assessee's 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 inforF mation 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 cl. (a)
or Cl. (b) of s. 147.
Therefore he could not have issued a
notice under s. 148. Further the report submitted by him under
s. 151 (2) does not mention any reason for coming to the conG clusion that it is a fit case for the issue of a notice under s. 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 s. 148. To Question No. 8 in the report which reads
"Whether the Commissioner is satisfied that it is a case for the
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issue of i!lOtice 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
448
SUPREME COURT REPORTS'
[1971 j 3 S.C,R.
<:ome to the conclusion on the material before him that this is
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.a fit case to issue notice under s. 148. The important safeguards
provided in sections 147 and 151 were Jightly 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 those provisions as of little importance.
They have substituted the form for the substance.
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In the result this appeal is allowed, the order of the High
Court is set aside and the impugned notice quashed. The Respondent No. 2 shall pay the costs of the appellant both in this
Court and in the High Court.
G.C.
Appeal allowed.