TMI Blog1961 (1) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction under section 34 of the Indian Income-tax Act did not exist in the present cases, and consequently, the Income-tax Officer had not jurisdiction to issue the three impugned notices, the conditions precedent being, (1) that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for the relevant years or have been under-assessed, and (2) that he must have also reason to believe that such a result has been brought about by the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. It was contended that in the present cases there was no material whatever upon which the Income-tax Officer could have entertained such reasonable belief. To decide the issues involved in these cases, it is necessary to set out in chronological order the facts leading up to the filing of these writ petitions. The petitioner's assessments for the years, 1950-51, 1951-52 and 1952-53, had been completed on October 24, 1950, March 19, 1952, and March 30, 1957, determining a loss of ₹ 5,03,872, ₹ 4,51,625 and ₹ 7,54,617 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of its income and expenditure. It may be mentioned here that the case of the petitioner is that the Income-tax Officer had not at all looked into the petitioner's account books for the accounting years 1948-49, 1949-50 and 1950-51 because they had not been produced before him in the course of the assessment proceedings for the year 1954-55; and that the Income-tax Officer had acted on mere suspicion and conjecture in issuing the notices in question. To proceed with the course of events, on February 5, 1959, the Income-tax Officer, as required by the proviso to section 34 of the Act, made a report to the Commissioner setting out the reasons for his belief that there had been escapement of assessment for the three years and requesting the Commissioner to accord his sanction for the issue of notices under section 34(1)(a) of the Act. The Commissioner, being apparently satisfied that they were fit cases for reopening the assessments, gave the requisite sanction on February 17, 1959. Thereafter, on March 20, 1959, the Income-tax Officer issued the three impugned notices under section 34(1)(a) of the Act in respect of the three assessment years 1950-51, 1951-52 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome- tax Officer had also fixed a programme of visit to the petitioner's factory as per the direction of the Appellate Assistant Commissioner in the course of the appellate proceedings for the year 1954-55, wherein the company was contending that its factory should be classed as a second class factory for purposes of depreciation, whereas the assessing officer had taken it as a first class factory. The enquiry itself was to be taken up in the afternoon on that date after the Income-tax Officer's visit to the factory. The Income-tax Officer finished his visit to the factory by 2 p.m. At 2 p.m. the company's representative requested the Income-tax Officer to take up the enquiry on another day and further promised to telephone to him at 4 p.m. with regard to the exact date to which the cases may be adjourned for enquiry. At that stage, the chief accounts officer of the petitioner's company informed the Income-tax Officer that they had already filed writ petitions in the High Court in respect of the assessment proceedings and obtained orders of ad interim injunction. At about 4 p.m. the same day, i.e., August 24, 1960, the chief accounts officer of the company went to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich have escaped assessment or indicate whether it is issued under clause (a) or clause (b) of sub-section (1). In the present cases, the petitioner was fully aware of the true import of the notices and the petitioner did file the returns as required by the notices. In these circumstances it is idle for the petitioner to complain that it has been misled by the form of the notices. The main contention on behalf of the petitioner was that, issuing the notices under section 34, the Income-tax Officer could not have had reason to believe that there had been omission or failure by the petitioner to disclose fully and truly all material facts necessary for its assessment for the three years in question. It was argued that the Income-tax Officer had not issued any summons for the production of the account books relating to the relevant accounting years, nor had the books been produced before him. It is asserted in the affidavit filed in support of these writ petitions by the chief accounts officer of the petitioner's company and in the rejoinder-affidavit filed by the assistant secretary of the company that the account books relating to the assessment years of 1950-51, 1951-52 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fell under section 34(1)(a) of the Income-tax Act and the reasons recorded therein are as follows: While scrutinising the books of accounts for 1954-55 to 1956-57, it was found that the books of accounts maintained by the company were defective and that on several dates the cash outgoings as recorded in the cash book exceeded the cash incomings. The cash books for the accounting years for the assessment years 1950-51 to 1953-54 were summoned and similar defects were found. Further, it was also seen on verification that there were shortages of raw materials such as M.S. Sheets. The valuation of closing stock of manufactured and semi-manufactured articles was found to have been deliberately under-valued. Inflation of expenses such as wages of temporary labour was also noticed. The gross profit disclosed by the company was also lower than that disclosed by similar concerns. Thus, by manipulating cash, raw materials, closing stock and expenses, the company got away with huge losses which were determined and allowed to be carried forward. In view of the defects pointed out above, the book results have to be the rejected and gross profit has to be estimated which would result in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 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...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 books and the documents.' His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary corollary that the Income-tax Officer was acting within his jurisdiction in issuing the impugned notices. In this connection, a judgment of the Judicial Committee of the Privy Council in Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 I.T.R. 442 (P.C.) may also be usefully referred to. Their Lordships, in construing section 34 of the Indian Income-tax Act, said this at page 448: The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, utters valet porous qualm pereat. In the present instance two considerations are in their Lordships' opinion decisive. First, no powers are imposed by the section on the Income-tax Officer to convene the assessee, or to issue notices calling on him to produce documents, though these powers are essential if the Income-tax Officer is to conduct a quasi-judicial enquiry before deciding that profits have escaped assessment or have been assessed at too low a rate. Their Lordships, after referring to the observations o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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