TMI Blog1991 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted a particular accounting method for charging to its profit and loss account, fiscal duties paid during the year as well as labour charges, wages, power, fuel, chemicals, etc. However, for the assessment years 1967-68, 1968-69, 1970-71, 1971-72, 1972-73 and 1973-74, while valuing its closing stock, the element of fiscal duty and other direct aforementioned, manufacturing costs were not included therein. This resulted in under valuation of the inventories and understatement of the profits resulting in the income escaping the assessment. For the said six assessment years mentioned above, the assessment orders were passed on the dates mentioned below : "Assessment year Date of passing final order 1967-68 24-2-1970 1968-69 17-3-1971 1970-71 26-3-1973 1971-72 14-3-1974 Original order 20-9-1979 Fresh order passed on original order being set aside 1972-73 24-3-1975 Original order 20-9-1979 Fresh order passed on original order being set aside 1973-74 21-9-1976 Original order 20-9-1979 Fresh order passed on original order being set aside." The petitioner-company has, in this petition, challenged the notices under section 148 read with section 147(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ingredients of section 147(a) are satisfied and the issuance of the notices under section 148 was justified. Section 147, prior to its amendment with effect from April 1, 1989, stood as under "If (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing 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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.-For the purposes of this section, the following shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the authority had no jurisdiction to issue the impugned notices. In support of his contention that the action under section 147(a) was without jurisdiction, learned counsel has placed reliance on several authorities as under : (i) Shri Dastur has first placed reliance on the judgment of this court in the case of D. R. Dhanwate v. CIT [1961] 42 ITR 253, where Division Bench of this court took the view that there was no obligation cast on the assessee in filing a return of his total income to include therein the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner. The Division Bench in Dhanwate's case [1961] 42 ITR 253 (Bom), observed that even assuming that it was obligatory on the assessee in making a return for any year to include in his total income the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner, failure on his part to do so does not amount to "failure to disclose fully and truly all material facts necessary for his assessment for that year" within the meaning of section 34(1)(a) of the Indian Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under no obligation to inform the Income tax Officer about the possible inferences that might be raised against it. It was for the officer to raise such inferences and if he had not done so in the original assessment, the income which had escaped assessment could not be brought to tax under section 34(1)(a) of the 1922 Act. (iii) Shri Dastur further placed reliance on a decision of the Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1. In Parashuram Pottery's case [1977] 106 ITR 1, the Supreme Court observed that when an Income-tax Officer relies upon his own records for determining the amount of depreciation allowable to the assessee and makes a mistake in doing so, the responsibility for that mistake cannot be ascribed to an omission or failure on the part of the assessee. The Supreme Court in Parashuram Pottery's case [1977] 106 ITR I was dealing with a case where, in working-out the figure of depreciation for certain items of capital assets, the Income-tax Officer had lost sight of the fact that the aggregate of the depreciation, including the initial depreciation allowed under the different heads, could not exceed the original cost to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording sanction to the issuance of the impugned notices under section 148 of the said Act. In support of this contention, Shri Dastur relied upon the decision of the Calcutta High Court in Chanchal Kumar Chatterjee v. ITO [1974] 93 ITR 130. In the said case, the Income-tax Officer had stated in the notice served on the assessee that the statement about the sanction having been granted by the Commissioner of Income-tax was inadvertently deleted. In the file, however, there was only a rubber stamp for the signature of the Commissioner under the date, March 30, 1971. It was in these facts that the learned single judge of the Calcutta High Court held that as the Commissioner had mechanically accorded the sanction, the sanction was not proper. Thirdly, Shri Dastur contended that the reasons were not made available to the assessee and that the reasons which have now been made available to us, a copy of which has been furnished to the assessee, are not relevant or germane to the exercise of the power under sections 147(a) and 148 of the Income-tax Act, 1961. At this stage, it must be mentioned that at the very commencement of the hearing of this petition Shri Jetley, appearing for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding direct manufacturing costs while valuing the inventories came to be known to the Department only during the course of assessment proceedings for the assessment year 1979-80. The Income-tax Officer, therefore, concluded in the notices that he had reason to believe that as a result of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the income had escaped assessment." What we have reproduced and summed up above are the reasons for the issuance of the notice for the assessment year 1967-68. However, identical notices with variation of the figures, viz., the amounts involved have been issued for the remaining five years. Shri Dastur's contention is that either these are no reasons or that the said reasons are not relevant or germane to the exercise of the powers under section 147(a) of the Act for reopening the assessments. As against this, Shri Jetley has contended that this is a clear case where the assessee had deliberately resorted to under valuation of his inventories and understatement of his profits resulting in the income escaping assessment to a large extent as mentioned above. Shri Jetley contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. ITO [1961] 41 ITR 191, the Supreme Court had observed that mere production of evidence was not enough and that there may be an omission or failure to make a full and true disclosure if some material fact necessary for the assessment lies embedded in that evidence which the assessee can uncover but does not. If there is such a fact, it is the duty of the assessee to disclose it. Das Gupta J. observed at page 200 of the report as under : " There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example 'I have produced the account books and the documents : You, the Assessing Officer, examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by section 139(1) of the Act requiring the assessee to furnish a return of her income in the prescribed form, and in failing to do so, the assessee was guilty of concealment of those amounts. Dealing with the judgment of the Supreme Court in (V. D. M. Rm. M. Rm.) A Muthiah Chettiar's case [1969] 74 ITR 183, the Supreme Court observed thus in P. K. Kochammu Amma's case [1980] 125 ITR 624, at pages 629 and 630 of the report, as under : "It is obvious that on this view the order imposing penalty on the assessee would have to be sustained, but there is a decision of this court in V. D. M. Rm. M. Rm. Muthiah Chettiar v. CIT [1969] 74 ITR 183 (SC), which is binding upon us and where we find that a different view has been taken by a Bench of three judges of this court. It was held in this case that even if there were any printed instructions in the form of the return requiring the assessee to disclose the income received by his wife and minor child from a firm of which the assessee was a partner, there was, in the absence in the return of any head under which the income of the wife or minor child could be shown, no obligation on the assessee to disclose this item of income, and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted of masonry work, the Income-tax Officer could reasonably be said to have material to form the belief that there was underassessment owing to the failure or omission on the part of the assessee to disclose fully and truly all material facts ; (ii) that the fact that the Income-tax Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the assessee from the duty to make a full and true disclosure of material facts. It was further held that whether there was such non-disclosure of primary facts as had caused escapement of income from assessment was basically a question of fact. It is well-settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts-the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business in purchase and sale of house properties, gardens and estates. In the accounting period commencing on April 13, 1960, which would have normally come to close by about April 13, 1961, the firm closed its accounts as on March 13, 1961, with effect from which date the firm was dissolved. Along with its income-tax return for the assessment year 1961-62, the firm filed on April 10, 1962, a profit and loss account and certain other statements. In the profit and loss account, a certain sum was shown as difference on revaluation of "estates, gardens and house properties" on the dissolution of the firm on March 13, 1961. In the memo of adjustment for income-tax purposes, that sum was deducted on the ground that it was not assessable to tax either as revenue or as capital gains. The Income-tax Officer completed the assessment on the same day after making a small addition. Thereafter, on September 3, 1963, the Income-tax Officer wrote a letter to the assessee to the effect that the revaluation difference should have been brought to tax in view of the decision of the Madras High Court in the case of G. R. Ramachari and Co. [1961] 41 ITR 142, and after receiving the reply of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facie, show that they are good reasons justifying exercise of the power under section 147(a) of the Income-tax Act, 1961. We have given our anxious consideration to the rival contentions raised by both learned counsel. In our view, the contentions raised by Shri Dastur are wholly untenable and those raised by Shri Jetley deserve acceptance. In the first place, having regard to the decisions of the Supreme Court in the cases of : (i) Calcutta Discount Co. Ltd. [1961] 41 ITR 191, (ii) CIT v. Smt. P. K. Kochammu Amma [1980] 125 ITR 624 and (iii) Indo-Aden Salt Mfg. and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624, it is not possible for us to accept Shri Dastur's first contention on the basis of the observations of the Division Bench of this court in the case of D. R. Dhanwate v. CIT [1961] 42 ITR 253. Indeed, in view of the Supreme Court decision in the cases of-(i) Calcutta Discount Co. Ltd. [1961] 41 ITR 191, (ii) CIT v. Smt. P. K. Kochammu Amma [1980] 125 ITR 624, and (iii) Indo-Aden Salt Mfg. and Trading Co. P. Ltd. [1986] 159 ITR 624, it must be held that the decision of this court in D. R. Dhanwate v. CIT [1961] 42 ITR 253, is no longer good law. We are not inclined to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 at page 630 of the report, reproduced earlier above in paragraph 12 (at page 942) and we have emphasised the said observations which are as under : "With the greatest respect to the learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down the correct law on the subject." It is, therefore, not possible for us to accept the first contention of Shri Dastur regarding the lack of jurisdiction. As far as the second contention of Shri Dastur is concerned, this is a case where the reasons recorded, prima facie, appear to be good and valid reasons which are relevant and germane to the exercise of the powers under section 147(a) of the Act. In our view, the ratio of the judgment of the learned single judge of the Calcutta High Court in the case of Chanchal Kumar Chatterjee [1974] 93 ITR 130 can have no application whatsoever to the facts of the present case. The learned single judge of the Calcutta High Court was dealing with a case where there was only a rubber stamp for the signature of the Commissioner in the original file and even in the notice issued to the assessee, the statement about sanction having been granted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. From what we have stated above, it is not possible for the assessee, in the facts of the present case, to contend that the Income-tax Officer did not hold such a belief that there had been non-disclosure. There is, thus, no merit in the third contention of Shri Dastur. On the merits of the matter, regarding the method adopted for under valuation of the stock, Shri Dastur tried to place reliance on the decision of the Calcutta High Court in the case of ITO v. British Paints India Ltd. [1979] 118 ITR 878. Shri Dastur further placed reliance on the observations of the Gujarat High Court in the case of Commercial Ahmedabad Mills Co. Ltd. v. ITO [1983] 144 ITR 839. However, Shri Jetley for the Revenue has invited our attention to a recent decision of the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. Shri Jetley's contention is that the Calcutta decision in ITO v. British Paints India Ltd. [1979] 118 ITR 878 and the Gujarat decision in Commercial Ahmedabad Mills Co. Ltd. v. ITO [1983] 144 ITR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory power for determining what, in his opinion, would be the correct income. While we are bound by these observations of the Supreme Court in CIT v. British Paints India Ltd. [1991] 188 ITR 44, it is not necessary for us at this stage of the case to express any opinion on the merits of the method of valuation of the inventories adopted by the assessee. To sum up the above discussion, our conclusions are as under: (i) The assessee's first contention that the Income-tax Officer had no jurisdiction to issue the impugned notices in the facts of the present case is negatived. The contention of the Revenue that it had the necessary jurisdiction to issue the impugned notices under section 148 read with section 147(a) of the Income-tax Act, 1961, is supported by the decisions of the Supreme Court in (i) Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191, (ii) Smt. P. K. Kochammu Amma's case [1980] 125 ITR 624, and (iii) Indo-Aden Salt Mfg. and Trading Co. P. Ltd.'s case [1986] 159 ITR 624. The Revenue's contention in this behalf is also supported by some of the observations appearing in the judgment in the case of A. L.A. Firm v. CIT [1991] 189 ITR 285 (SC). We, therefore, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
