CHHUGAMAL RAJPAL versus S. P. CHALIHA & ORS.

Citation: [1971] 3 S.C.R. 442 · Decided: 21-01-1971 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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 neces-
sary. 
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 issu-
fog 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 feel-
ing 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 impor-
tant 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. 
.. 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
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 
D 
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 Rail-
ways 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 assess-
ment proceedings to produce before him its books of account 
E 
and the other relevant papers. 
The assessee also produced be-
fore him a statement sho

Excerpt shown. Read the full judgment & AI analysis in Lexace.