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TMI Blog2003 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... andi Branch, Amritsar (for short "the bank"), regarding stock pledged/hypothecated as on November 30, 1976, and March 31, 1977, for availing of overdraft facility. In reply, the petitioner gave out that the bank had not furnished the required certificate. Thereupon, respondent No.2 sent a letter annexure P-3 dated December 14, 1979, to the manager of the bank to furnish the following information in terms of section 133(6) of the Act: "(i) Amount due to the bank in overdraft account as on November 30, 1976 and also as on March 31, 1977. (ii) Details of stocks pledged as on November 30, 1976, and also as on March 31, 1977, with quantity and value. (iii) The details of stocks hypothecated as on November 30, 1976 and also as on March 31, 1977, showing the quantity of the goods as well as the value of the goods." Finally, he made the assessment by making addition of Rs. 1,75,000 representing the value of the excess stock of paddy and rice which, in his opinion, was not accounted for by the petitioner. The Commissioner of Income-tax (Appeals), Amritsar Range, Amritsar, dismissed the appeal filed by the petitioner and upheld the order of assessment. However, the Income-tax Appellate T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No.2 are without jurisdiction and the impugned notice is liable to be quashed because the conditions precedent enumerated in section 147(a) and 148 of the Act have not been satisfied. He laid emphasis on the fact that at the time of assessment, the petitioner had truthfully disclosed all the facts relevant to the assessment proceedings and argued that respondent No.2 cannot reopen the assessment after the Tribunal had accepted the petitioner's plea regarding artificial stock position given to the bank for the purpose of securing higher credit. In support of his argument, Shri Jain relied on the decisions of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 and Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 Dr. N.L. Sharda, learned counsel for the respondents defended the impugned notice and argued that respondent No.2 did not commit any illegality by initiating proceedings for reassessment after seeking approval from respondent No. 1. He further argued that the impugned notice cannot be declared without jurisdiction because respondent No.2 had reason to believe that income of the petitioner had escaped assessment. Dr. Sharda pointed out that the letter annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his possession which demonstrates the untruthfulness of those facts. However, before issuing notice under section 148, the Income-tax Officer is required to record reasons. The ambit and scope of sections 147 and 148 of the Act was considered by the Supreme Court in Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456. After reviewing several judicial precedents on the subject, a two-judge Bench of the Supreme Court held as under: "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to re-open an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to Income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the purpose of reopening. If the case in hand is examined in the light of the above analysis of the two sections and the law laid down by the Supreme Court, I do not find any difficulty in rejecting the petitioner's plea that respondent No.2 did not have jurisdiction to initiate proceedings for reassessment. A careful scrutiny of the averments contained in the pleadings of the parties and the order of assessment passed by respondent No.2, the appellate order passed by the Commissioner of Income-tax (Appeals), Amritsar Range, Amritsar, order dated September 4, 1982, passed by the Tribunal, impugned notice annexure P-1 and annexures R1/1 and R2/2 shows that in the statement of closing stock filed with the return, the petitioner had disclosed the total value of different varieties of paddy at Rs. 5,87,892. Respondent No.2 issued notice dated April 20, 1979, to the petitioner under section 143(3) requiring it to furnish a certificate regarding stock pledged/hypothecated to the bank as on November 30, 1976, and March 31, 1977, for securing overdraft facility. The petitioner did not furnish required information in this behalf. It did not even make a request to the bank till, Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation would be furnished as soon as the record is traced out. In view of this, the assessment proceedings were finalised by taking into consideration certificate dated January 21, 1980, sent by the bank in which the value of stock hypothecated by the petitioner as on March 30, 1977 was disclosed at Rs. 8,21,000. The cost price of the stock was worked out at Rs. 6,46,600 against the value of Rs. 5,87,892 disclosed by the petitioner and on that basis, addition of Rs. 1,75,000 was made. Respondent No.2 gave detailed reasons for not accepting the plea of the petitioner. The Commissioner of Income-tax (Appeals) agreed with him, but the Tribunal overturned their orders and accepted the plea of the petitioner that it had given an inflated position of the stocks for availing of higher overdraft facility. After the order of the Tribunal, the bank furnished details of the stocks vide letter dated November 22, 1982 (annexure R2/2). On receipt of that letter, respondent No.2 again examined the matter and found that the income of Rs. 3,18,108 chargeable to tax had escaped assessment. He then referred the case to respondent No. 1. who accorded approval for initiation of proceedings for reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 587892.00 ------------ On the other hand, the details of stocks and the valuation thereof as disclosed to the bank by the assessee in its statement submitted on March 30, 1977 are as under: Paddy IR-8 Bag 2000 Rs. 74 1,05,600 Qtls. 1400 Paddy Basmati Bag 4000 Rs.130 3,64,000 Qtls. 2800 Rice IR-8 Bag 1400 Rs. 130 1,82,000 Qtls. 1400 Rice Basmati Bag 600 Rs. 240 1,44,000 Qtls. 600 Rice Parmal Bag 200&nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------- 9,06,000 ----------- The information from the bank with regard to the hypothecation of stocks in terms of quantitative details was gathered by the Department on January 13, 1983, i.e., after the appeal for the assessment year under consideration was finally disposed of by the Income-tax Appellate Tribunal. From the information now collected by the Department, it is evident that during the course of regular assessment proceedings, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial, the Income-tax Officer found that the assessee had not truly disclosed all the material particulars with regard to the services rendered by the sole selling agent and that the sole selling agent firm was nothing but a legal device to avoid tax. The Division Bench uphold the proceedings under section 147(a) and quashed the order passed by the Tribunal. The aforementioned judgment of the Division Bench was approved by the Supreme Court in Ess Ess Kay Engineering Co. (P.) Ltd. v. CIT [2001] 247 ITR 818 with the following observations: "This is a case of reopening. We have perused the documents. We find there was material on the basis of which the Income-tax Officer could proceed to reopen the case, it is not a case of mere change of opinion. We are not inclined to interfere with the decision of the High Court merely because the case of the assessee was accepted as correct in the original assessment for this assessment year. It does not preclude the Income-tax Officer to reopen the assessment of an earlier year on the basis of his findings of fact made on the basis of fresh materials in course of assessment of the next assessment year. The appeal is dismissed. No order as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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