9911796707
TMI Blog1971 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... for the revenue. Learned counsel has further stated that the revenue did not wish to proceed with the said notice under section 148 of the Income-tax Act, 1961, for the assessment year 1962-63. It is, therefore, not necessary to consider the question of the assessment year 1962-63. The petitioner is a manufacturing company engaged in the manufacture and sale of electric dry batteries, chemicals and plastics and carbon products. The manufacture of electric dry batteries in India is undertaken by a division or department of the petitioner-company known as National Carbon Company, shortly called " Natco ". Zinc strips are incorporated in dry batteries and these strips not only form the metal casings of batteries but function as the negative electrodes of batteries. The said zinc strips which are incorporated into dry batteries manufactured by Natco are integral parts of the dry batteries sold by the petitioner. The petitioner set up a new and separate division or department for the production of zinc strips. The new manufacturing division is known as " Metals and Ores Company ", shortly called " Metco ". For this the petitioner erected a factory at Alipur which went into production in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1958-59 and 1962-63. It appears from the said notices that the notice for the assessment year 1958-59 was issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, West Bengal III. Thereafter, the petitioner received another notice dated 26th March, 1968, in respect of the assessment year 1959-60 issued by the Income-tax Officer, Shri P. R. Rao. From the correspondence preceding the issuance of the said notices and subsequent thereto, and the affidavit-in-opposition it appears that the notice was issued on the ground that the petitioner had been wrongly granted relief under section 15C of the Indian Income-tax Act on the sales made by " Metco " to " Natco " or in other words in respect of inter-departmental transactions. Upon the receipt of the said notices the petitioner moved this court under article 226 of the Constitution challenging the issue of the said notices on the ground that there were no materials for the Income-tax Officer to issue the said notices and all the necessary particulars and primary facts were fully disclosed at the time of the original assessments and there had been no omission or failure on the part of the petitioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction and further failed to disclose material particulars showing what was the amount of profits arising out of sales to outside parties. As such the Income-tax Officer has reason to believe and bona fide believed that by reason of the omission and failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment the said year's income chargeable to taxes had escaped assessment." There is no affidavit by Shri S. K. Roy as mentioned hereinbefore. In the records of the Income-tax Officer produced before me, it has been recorded as follows : " The company has been allowed section 15C relief for the assessment year 1958-59 and onwards on the profits of the unit known as metals and ores division. It, however, transpires that many a portion of the products manufactured in this unit have been consumed by the assessee-company itself in the unit known as National Carbon Co. It is provided that such relief under section 15C which has been allowed is not profit earned by resale to outside customers, but represents the book adjustment only. The relief under section 15C is not admissible in respect of so much of the profits as have been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company's products were about Rs. 6,05,06,971 in 1958 as compared to Rs. 5,35,34,597 in 1957. Of these total sales, Rs. 39,44,301 represents the value of zinc processed by Metals & Ores Company for internal use of other division of your company." In the profit and loss account for the said year there is also a statement like this : " By Sales (including Rs. 39,44,301 being the cost of items utilized internally) ... ... Rs. 6,05,06,971. " It is also the common case that along with the profit and loss account of the company a copy of the profit and loss account of the Metals & Ores Company was filed for the purpose of section 15C relief for the two relevant assessment years. Now, in this copy for the year 1957, relevant assessment year 1958-59, it has been stated as follows : " By sales ... ... Rs. 43,88,054." Similarly for the year 1958 relevant for the assessment year 1959-60 it has been stated as follows : " By sales ... ... Rs. 40,49,866." It is upon these facts that the question, whether there were any materials for the Income-tax Officer to hold the belief that there was omission of failure on the part of the assessee to disclose fully and truly all material facts rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, Rajahmundry, Sowdagar Ahmed Khan v. Income-tax Officer, Nellore and Commissioner of Income-tax v. Burlop Dealers Ltd. In the case of Chhugamal Rajpal v. S. P. Chaliha the Supreme Court observed after setting out the facts at page 607 of the report : " What that provision requires is that he must give reasons for issuing a notice under section 148. In other words, he must have some prima facie grounds before him for taking action under section 148. Further, his report mentions : ' Hence proper investigation regarding these loans is necessary.' In other words, his conclusion 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 section 148. Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 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 alternativel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer, Central-15 (Matter No. 53 of 1967), T. K. Basu J. held that where facts had been disclosed in the balance-sheet filed along with the return it could not be contended that there was no full disclosure of the said facts. I am in respectful agreement with the views expressed by T. K. Basu J. In view of the aforesaid judgment and in view of the facts it is clear to me that I have to presume that facts stated in the directors' report and the profit and loss account of the National Carbon Company for the two relevant years were fully disclosed. A reference to the directors' report would reveal that, out of the total sales claimed to have been made by the petitioner-company, Rs. 43,71,970 for the year 1957, and Rs. 39,44,301 for the year 1958, were being claimed as being cost of items utilised internally. If these figures are read with the statement contained in the report of the directors quoted above, it would be abundantly clear that the value of the zinc sold and processed by Metals & Ores Company were being used by the other divisions of the petitioner-company. It is the case of the respondent that in the statement claiming relief under section 15C of the Indian Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come to the conclusion that there was failure or omission on the part of the petitioner to disclose fully and truly all primary facts at the time of the original assessments. From the records it appears to me, therefore, that the conditions precedent for the issue of the notice have not been fulfilled. Counsel for the petitioner contended that Sri S. K. Roy had not made the affidavit ; but the records have been produced and the records of the case do not improve the position of the revenue from this point of view. In the aforesaid view of the matter this application must succeed and the rule is made absolute. There will be a writ in the nature of mandamus directing the respondents to recall, cancel and withdraw the notices under section 148 of the Income-tax Act mentioned in the petition and there will also be a writ in the nature of prohibition directing the respondents to forbear from giving effect to the said notices. There will be no order as to costs. There will be a stay of operation of this order for eight weeks from date and during the continuance of stay all interim orders will continue. During the pendency of the rule leave was given to the respondents to complete th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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