# UNION OF INDIA AND OTIIERS v. WS. RAl SINGH DEB SINGH BIST & ANR

- **Citation:** [1973] 3 S.C.R. 102
- **Court:** Supreme Court of India
- **Decided:** 1972-12-15
- **Bench:** K. s. HEGDB, P. Jaganmohan Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-and-otiiers-v-ws-ral-singh-deb-singh-bist-anr-5942
- **Pages:** 5

## Headnote

Indian Iru:onu Tax Act, 1922~. 34(1) (a)-To confer jurisdiction
to ilsue notice, l conditions hav~ to be &alis{ied (i) I.T.O. must luzve
rtason to believe that tncome had been underauessed : (ii) He must /JQVe
reason to believe that either asseuee has fdlled to make a return under
s. 22 or he has omitted to disclose fully all material facts.
The assessee in these appeals is an Hindu Undivided Family. The
assessmer;Dt years in question ar~ ranged from 1942-43 to 1953-54. Tho
assessee tiled its returns for these years in time. The assessee's account
books showed considerable cash credits in the name of some relations
of the second respondent, the Karta of the H. U.F. The I. T. 0. went
into the ~uilneness of these cash credit entries. The contention of the
assessee was substantially accepted either by
the Appellate Assistant
Commissioner or by the Revenue Appellate Tribunal. With regard to
the assessment for the assessment years 1943-44 to 1949-50, the final
assessment was made in pursuance of an agreement or settlement arrived
between the assessee a;nd the Deputy Director of Inspection (Investiga·
tion). Long after the assessments in question were finalised, the I. T. 0.
issued notices to the appellants under s. 34 ( 1 )(a) of the Indian Income
Tax Act 1922, seeking to reopen the assessments already finalised.
The
assessee challenged the validity of thes,e notices of the I . T. 0.
The
High Court allowed the writ petitions
and
quashed the
impugned
notices.
The assessee alleged that there was no relevant material before tho
I. T. 0. before he issued the notices under s. 31 (a) on the basis o~
which he could have reason to believe that any income had escaped
assessment.
In the writ petitions, the assessee called upon the I. T. 0.
to produce the report made by him to the Central Board of Rev®Ue,
as. well as the ~der of the ~ntral Bo~rd of Revenue thereon. Despite
this prayer, neither the Umon of India, nor the
I. T. 0,
produced
the report made by the I . T . 0 . to the Central Board of Revenue under
s. 34(1) (a) nor the order of the Central Board of Revenue.
Dismissing the appeal,
HELD: (i) Before an_l.T.O. ca,r. issue a statuto'ry notice under
B
c
D
.,
s. 34(1)(a), he must have reason to believe that by reason of omission
or failure on the part of an assessee to disclose fully and
truly all
material facts necessary for his assessment for the years in question,
G
income, profits or gains chargeable to Income Tax have escaped assessment during those years.
Further, before doing so, he
must
have
recorded his reaSO!DS for acting under s. 34(1)(a) and the Central Board·
of Revenue must have been satisfied on those reasons that it is a fit
case for the issue of the notice. The recording of the reasons in support
of the belief formed by the I. T, 0. and the sa t1sfaction of the Central
Board of Revenue on the basis of the reasons rerorded by the I, T. 0.
H
that it is a fit case for issue of notice under s. 34(1)(a) are extremely
important circumst-.mces to find out whether the I. T . 0. bas jurisdiction
to proceed under s.34(1)(a), [1040)
A
B
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G
H
UNION v. 1W SINGH (H1gd1, /.)
103
Calcutta D/8counl Co. Ltd, v. I.T.O. Company District 1 Calcutta
and Others. 41 I.T.R 191; ChhutlfJI7I(ll Rajpal v. S. P. Chalia &: On. 79
I.T.R, 603; Sheo~th Singh v. Appellate A.aristant Commissioner of Income
Tax, Central, Calcutta&: Ors., 82 I.T.R. 1447 referred to.
(ii) In the pr~CSent case, an affidavit was filed before the Court stating
that the relevant records could not be traced from the file of the Ceptral
Board of Revenue. Assuming th-at the concerneci records were mis'sing
from the tile of the Central Board of Revenue, the copy of the report
made by the I. T. 0. and the Order received by him, must have been
in the file of the I. T. 0. and reason was given for not produci!Dg those
records. These circumstances give rise to an adverse inference that the
records in question were not produced because they did not assist the
department's case. Und

## Text

102
UNION OF INDIA AND OTIIERS
v.
WS. RAl SINGH DEB SINGH BIST & ANR.
December 15, 1972
,
[K. s. HEGDB AND P. JAGANMOHAN REDDY, JJ.]
Indian Iru:onu Tax Act, 1922~. 34(1) (a)-To confer jurisdiction
to ilsue notice, l conditions hav~ to be &alis{ied (i) I.T.O. must luzve
rtason to believe that tncome had been underauessed : (ii) He must /JQVe
reason to believe that either asseuee has fdlled to make a return under
s. 22 or he has omitted to disclose fully all material facts.
The assessee in these appeals is an Hindu Undivided Family. The
assessmer;Dt years in question ar~ ranged from 1942-43 to 1953-54. Tho
assessee tiled its returns for these years in time. The assessee's account
books showed considerable cash credits in the name of some relations
of the second respondent, the Karta of the H. U.F. The I. T. 0. went
into the ~uilneness of these cash credit entries. The contention of the
assessee was substantially accepted either by
the Appellate Assistant
Commissioner or by the Revenue Appellate Tribunal. With regard to
the assessment for the assessment years 1943-44 to 1949-50, the final
assessment was made in pursuance of an agreement or settlement arrived
between the assessee a;nd the Deputy Director of Inspection (Investiga·
tion). Long after the assessments in question were finalised, the I. T. 0.
issued notices to the appellants under s. 34 ( 1 )(a) of the Indian Income
Tax Act 1922, seeking to reopen the assessments already finalised.
The
assessee challenged the validity of thes,e notices of the I . T. 0.
The
High Court allowed the writ petitions
and
quashed the
impugned
notices.
The assessee alleged that there was no relevant material before tho
I. T. 0. before he issued the notices under s. 31 (a) on the basis o~
which he could have reason to believe that any income had escaped
assessment.
In the writ petitions, the assessee called upon the I. T. 0.
to produce the report made by him to the Central Board of Rev®Ue,
as. well as the ~der of the ~ntral Bo~rd of Revenue thereon. Despite
this prayer, neither the Umon of India, nor the
I. T. 0,
produced
the report made by the I . T . 0 . to the Central Board of Revenue under
s. 34(1) (a) nor the order of the Central Board of Revenue.
Dismissing the appeal,
HELD: (i) Before an_l.T.O. ca,r. issue a statuto'ry notice under
B
c
D
.,
s. 34(1)(a), he must have reason to believe that by reason of omission
or failure on the part of an assessee to disclose fully and
truly all
material facts necessary for his assessment for the years in question,
G
income, profits or gains chargeable to Income Tax have escaped assessment during those years.
Further, before doing so, he
must
have
recorded his reaSO!DS for acting under s. 34(1)(a) and the Central Board·
of Revenue must have been satisfied on those reasons that it is a fit
case for the issue of the notice. The recording of the reasons in support
of the belief formed by the I. T, 0. and the sa t1sfaction of the Central
Board of Revenue on the basis of the reasons rerorded by the I, T. 0.
H
that it is a fit case for issue of notice under s. 34(1)(a) are extremely
important circumst-.mces to find out whether the I. T . 0. bas jurisdiction
to proceed under s.34(1)(a), [1040)
A
B
c
D
E
F
G
H
UNION v. 1W SINGH (H1gd1, /.)
103
Calcutta D/8counl Co. Ltd, v. I.T.O. Company District 1 Calcutta
and Others. 41 I.T.R 191; ChhutlfJI7I(ll Rajpal v. S. P. Chalia &: On. 79
I.T.R, 603; Sheo~th Singh v. Appellate A.aristant Commissioner of Income
Tax, Central, Calcutta&: Ors., 82 I.T.R. 1447 referred to.
(ii) In the pr~CSent case, an affidavit was filed before the Court stating
that the relevant records could not be traced from the file of the Ceptral
Board of Revenue. Assuming th-at the concerneci records were mis'sing
from the tile of the Central Board of Revenue, the copy of the report
made by the I. T. 0. and the Order received by him, must have been
in the file of the I. T. 0. and reason was given for not produci!Dg those
records. These circumstances give rise to an adverse inference that the
records in question were not produced because they did not assist the
department's case. Under the circumstanct:s, it is lllOt possible to come
to the conclusion that the facts necessary to confer jurisdiction on the
I.T.O. to proceed under s. 34(1)(a) had been established. There is
nothing to show on record that there was any relevant material before
the I.T.O. before be issued the notices under s.34(1)(a). [lOSF]
CML APPELLATE JURISDICTION: Civil Appeals Nos. 2392 to
2403 of 1969.
Appeals by certificate from the judgment and order dated
September 9, 1968 of the Delhi High Court at New Delhi in Civil
Writs Nos. 67 to 78 of 1968.
S.C. Manchanda, B. B, Ahuja, S. P. Nayar and R.N. Sachthey
for the appellants.
N. D. Karkhanis, Rameshwar Nath and Seita Vaidialingam
for the respondents.
The Judgment of the Court was delivered by
HEGDE, J. These appeals by certificate arise from several writ
petitions filed by the H.U.F. M/s. Rai Singh Deb Singh Bist and
its Karta Thakur Mohan Singh Bist, challenging the validity of
certain notices issued under s. 34 ( 1) (a) of the Indian Income-tax
Act, 1922 (in short the Act) by the Income-tax Officer, Central
Circle I, Delhi. The High Court of Delhi allowed those wlit petitions and quashed the impugned notices. Hence these appeals.
The assessee in these cases is an H.U.F. The assessment years
with which we are concerned in these appeals range from 1942-43
to 1953-54. The assessee filed its returns for these years in due
time.
The assessee's account-books showed considerable cash
credits in the name of the brothers-in-law of the 2nd respondent,
the Karta of the H.U.F. Those alleged creditors were living in
Nepal. The account books also showed certain credit entries in
the name of Rana Anand Nar Singh, alleged to be in connection
with expenses incurred by him for getting trees cut on behalf of
the assessee. The assessee was a forest contractor. He had taken
large tracts of forests for felling trees in Nepal. The Income-tax
104
SUPREME COURT REPORTS
(1973] 3 S.C.R.
Officer went into the genuineness of the cash credit entries st<mding in the name of the alleged creditors of the assessee as well as
to the alleged amount due to one of them. The contention of the
assessee was substantially accepted either by the Appellate Assistant Commissioner or by the Revenue Appellate Tribunal. With
regard to the assessment for the assessment years 1943-44 to
1949-50, the final assessments were made in pursuance of an
agreement or settlement arrived at between the assessee and the
Deputy Director of Inspection (Investigation) New Delhi on October 18, 1954. Long after the· assessments in question were finalised, the Income-tax Officer issued notices to the appellants under
s. 34 ( 1 ) (a) of the Act seeking to reopen the assessments already
finalised. The validity of those notices is in issue.
Before an Income-tax Officer can issue a statutory notice under
s. 34(1) (a), he must have reason to believe that by reason of
omission or failure on the part of an assessee to disclose fully and
truly all material facts necessary for his assessment for the years
in question, income, profits or gains chargeable to income-tax have
escaped assessment during those years. Further. before doing so,
he must have recorded his reasons for acting under s. 34(1) (a)
and the Central Board of Revenue must have been satisfied on
those reasons· that it is a fit case for the issue of the notice. The
recording of the reasons in support of the belief formed by the
Income-tax Officer and the satisfaction of the Central Board of
Revenue on the basis of the reasons recorded by the Income-tax
Officer that it is a fit case for issue of notice under s. 34 (1 )(a)
are extremely important circumstances to find out whether the
Income-tax Officer had jurisdiction to proceed under s. 34 (1 )(a).
In Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I. Calcutta and anr.(l) this Court laid down (1)
that to confer jurisdiction under s. 34 to issue notice in re5pect of
assessments beyond the period of four years, but within a period
of eight years, from the end of the relevant year, two conditions
had to be satisfied. The first was that the Income-tax Officer must
have reason to believe that income, profits or gains chargeable to
income-tax had been under assessed. The second was that he must
also have reason to believe that such "under-assessment" had
occurred by reason of either ( 1) omission or failure on the part
of an assessee to make a return of his income under section 22,
or (2) omission or failure on the part of an assessee to disclose
fully and truly all material facts necessary for his assessment for
that year.
Both these conditions are conditions precedent to be
satisfied before the Income-tax Officer could have jurisdiction to
issue a notice for the assessment or re-assessment beyond the period
(I) 41 I.T.R. 191.
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11
UNION V. RAI SINGH (Hegde, J.)
105
of four y~ars bu~ withi!l the period of eight years from the end of
the year m questton.
. .
In Chhugamal Rajpal v. S. P. Chaliha and ors.(l), this Court
ruled that before an Income-tax Officer can be said to have had
reason to believe that some income had escaped assessment be
should have some relevant material before him from which he c~uld
have drawn the inference that income has escaped assessment. His
vague feeling that there might have been some escape of income
from assessment is not sufficient. This Court also took the view
that the Central Board of Revenue before reaching its satisfaction
that the case was a fit one to be proceeded under s. 34(1) (a) must
have examined the reasons given by the Income-tax Officer and
arrived at its own conclusion; and that it is not permissible for it
to act ~echanically. The same view was again taken by this
Court rn Sheo Nath Singh v. Appellate Assistant Commissioner of
Income-tax (Central ) Calcutta and ors.(2)...
In the instant case, the assessee alleged in his writ petitions that
there was no relevant material before the Income-ta.~ Officer before
he issued notices under s. 34 ( 1 )(a) on the basis of which he
could have bad reason to believe that any income bad escaped
assessment. I n the writ petitions the assessee called upon the
Incom~tax Officer to produce the report made by him to the Central Board of Revenue as well as the order of the Central Board of
Revenue thereon. Despite this prayer, neither the Union of India
nor the Income-tax Ollker cared to produce the report made by
the Income-tax .Officer to the Central Board of Revenue under
s. 34 (1 )(a) or the order of the Central Board of Revenue. Before the hearing of the writ petitions commenced, the assessee
again applied to the Court to call upon the Union of India and the
Income-tax Officer to produ~c those documents. In resp?nse to
that application, an affidavit was filed before the Court stating that
the relevant records could not be traced from the Iile of the Central Board of Revenue. Assuming that the concerned records were
missing from the file of the Central Board of Revenue, the copy
of the report made by the Income-tax Officer and. the order re·
cei\'ed by him must have been in the file of the Income-ta."t Offic~r.
No reason was given for not produc.ing; those rec~rds . These cucumstances give rise to an adver.;e mference ag:un.st the department. We arc constrained to come to the conclusiOn. that the ~e
cord~ in question were not produced because they .d1.d not aSSt~t
the department's case. Undl.!r these circumstances, It IS not poSSible to come to the conclusion that the facts necessary to c)(fe)
jurisdiction on the Income-tax Officer to proceed under s. 34(1
a
had been established.
(I) 79 I.T.R. 603.
(2)
f/2 1.7 F. 1<1.
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108
SUPllBME COUllT UPOlTS
(1973] 3 S.C.L
All that was said on behalf of the department was that someA
time in the year 195S, the assessee sold Jargo tracts of land to two
of his brothers-in-law for a sum of Rs~ .47 lakhs but~ reality that
property was not worth that amount. We do not know whether
there was any basis for this conclusion. As seen earlier the cash
credit entries were brought to the notice of the Income-tax Officer
before the relevant assessment orders were passed. He had an
8
occasion to investigate into them.. It is not necessary to go into
this question more deeply in view of the fact that there is nothing
to show that there was any relevant material before the Incometax Officer before he issued the notices under s. 34(l)(a) to have
reason to believe that as a result of the assessee's failure to state
in its return truly and fully any fact, any income had escaped c
assessment.
In the result these appeals fail and they are dismissed with
costs-one hearing fee.
S.C.
Appeals dismissed.