TMI Blog2003 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner is a registered firm engaged in the business of rice shelling and manufacturing dal. A search was carried out at the business premises of the petitioner on November 30, 1976. During the search operation, certain books of account and other documents are alleged to have been seized from its premises. The petitioner filed a return for the assessment year 1977-78 on April 5, 1978, declaring a total income of Rs. 1,19,350. During the course of assessment, the petitioner was asked to file a certificate of the Central Bank of India, Majitha Mandi 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the proposed reassessment. On the merits, it has been averred that the impugned notice has been issued in view of the information furnished by the branch manager of the bank vide letter annexure R-2/2 dated November 22, 1982. The respondents have defended the proposed reassessment of the income of the petitioner by asserting that respondent No. 2 had formed a bona fide opinion that, the income of the petitioner had escaped assessment. Shri A.C. Jain, learned counsel for the petitioner, argued that the proceedings for reassessment initiated by respondent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessment if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reason to believe that on account of omission or failure on the part of the assessee to make a true and full disclosure of material facts necessary for his assessment, any part of his income, profits or gains chargeable to tax has escaped assessment. He can also start reassessment proceedings because some fresh facts have come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude." In Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34, their Lordships of the Supreme Court rejected the challenge to the notice issued for reassessment by observing that at that stage, the court can only consider whether there is a prima facie case for reassessment and reopening proceedings cannot be struck down by going into the sufficiency or correctness of the material relied upon by the assessing authority 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 annexur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 reassessment. The reasons recorded by respondent No.2 for issuing the impugned notice, as contained in annexure R2/1, read as under: "2. After the matter was finally disposed of by the Income-tax Appellate Tribunal, Amritsar and the addition of Rs. 1,75,000 on account of valuation of unacco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank is made at the same rate the total valuation of stocks available with the assessee as on March 31, 1977 would work out to Rs. 9,06,000 as under: Paddy IR-8 Bag 2000 Rs. 90 1,26,600 Qtls. 1400 Paddy Basmati Bag 4000 Rs.130 3,64,000 Qtls. 2800 Rice IR-8 Bag 1400 Rs. 140 1,96,000 Qtls. 1400 Rice Basmati Bag 600 Rs. 300 1,80,000 Qtls. 600 Rice Parmal Bag 200 Rs. 200 40,000 Qtls. 200 ----------- 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 suppressed the particulars of the closing stock both in terms of its quantity and valuation as on Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars 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 costs." In ITO v. Purushottam Das Bangur [1997] 224 ITR 362 (SC); [1997] 3 SCC 253, their Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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