TMI Blog1993 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company in the expenses incurred by the company's headquarters at New York as well as the expenses incurred by the area headquarters of the company in Manila or Tokyo. The expenses incurred at the company's headquarters in New York are allocated amongst its branches all over the world in such proportion as the gross revenue of the branch bears to the gross total revenue of the company. Similarly, the expenses incurred by the concerned area headquarters are also allocated to each of the branches served by it in the same proportion is the branch's gross revenue to the total gross revenue earned by all the branches coming under the area headquarters. The area headquarters of the appellant at the relevant time was located first at Manila and then at Tokyo. Towards the end of 1965, an India Region Office of the company was set up. This office, however, did not serve the appellant-company during any of the years which are relevant to the present appeals. It was set up to serve the needs of other regions in South Asia such as Sri Lanka, Bangaladesh, Nepal and Afganisthan. In each of the assessment years in question, the appellant received a statement from the headquarters in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, the Reserve Bank of India by its letter dated February 7, 1974, asked the appellants to furnish the ratio which the Indian branch's gross revenue in that year bore to the total gross revenue of all the branches of IBM for the year 1971. As a result, the appellants were required to go into the methodology as well as the actual figures adopted by them for the purposes of allocating expenses of the headquarters as well as area headquarters to the appellants. Thereupon the appellants discovered that a mistake had been made in allocating area headquarters' expenses to the appellants for the assessment years 1967-68 to 1973-74. It seems that after the India Region Office was set up towards the end of 1965, the expenses of this office were allocated to the appellants in proportion to their income although the India Region Office did not serve the appellants at all. Instead, what should have been allocated to the appellants were the expenses of the Asian headquarters located in Tokyo as was being done previously, As a result, a larger amount of expenses was allocated to the appellants than what should have been allocated. On the discovery of this error, G. R. Williamson, Preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... break-up was also annexed to the letter. In addition, the findings of a detailed examination carried out in New York were also annexed. The letter pointed out that the errors had arisen inadvertently and a full disclosure was being made voluntarily, immediately on the determination of the full facts. The letter requested waiver of penalty under section 271(4A)(ii) of the Income-tax Act, 1961. Amended returns for the years 1966 to 1972 were also submitted and a self-assessment of the tax payable was made and the tax amount of Rs. 49,29,148 was also enclosed. Nothing was heard from the Commissioner of Income-tax thereafter. However, the appellants received notices from the Income-tax Officer under section 148 of the Income-tax Act for the assessment years 1967-68 to 1973-74, all dated January 5, 1976. On an enquiry by the appellants, the Inspecting Assistant Commissioner clarified to the appellants that the notices under section 148 were issued to regularise the voluntary returns filed by the assessee along with voluntary disclosures under section 271(4A) of the Income-tax Act, 1961, on November 22, 1974. This is recorded in the appellants' letter to the Inspecting Assistant Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session, 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 sec tions 148 to 153 referred to as the relevant assessment year). Explanation 1.-- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (a) where income chargeable to tax has been underassessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2.-- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." Section 148, as it stood at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge that the headquarters expenses claimed by the assessee are not based on actual service or benefits obtained by the assessee but are based on the ratio of the Indian branch's turnover to the world turnover of the branches and subsidiaries and in view thereof he has reopened the assessments for the said period. In respect of the accounting years 1968 to 1972, (1958 to 1965 ?) the learned judge, in our view, has rightly come to the conclusion that the assessing authority was informed by the assessee about the basis and the method of allocation of headquarters expenses to the appellant-assessee. It was aware of the method of allocating expenses at the time of making the assessment orders for these assessment years. The reasons show merely a change of opinion on the part of the assessing authority. In these circumstances, it cannot be held that there was any failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment for these years. We agree with the reasoning and conclusion arrived at by the learned judge for quashing the notices served on the assessee under section 148 of the Income-tax Act, 1961, for these assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red a case where the facts were very similar to the facts which are before us. In that case, the assessee was a company incorporated in the U. K. It had its principal place of business in Assam, The assessee claimed deduction of certain expenses as administrative charges incurred by the assesseecompany in London for management and secretarial work carried on, on behalf of the assessee in London. The expenses represented approximately 40 per cent. of the total composite management expenses of the company in London covering these expenses in respect of their management and secretarial work of all its branches. This was done in the assessment year 1954-55 and onwards. In the assessment year 1954-55, the Income-tax Officer called for an auditors report regarding the reasonableness of the allocation of such expenses. But nothing further seems to have been done. For the assessment year 1963-64, the assessee furnished a certificate from the London auditors which revealed that reasonable charges allocable to the assessee would be about ten per cent. of the total administrative expenses incurred by the headquarters from London. The assessee was asked to produce similar certificates for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been laid down. Moreover, the assessee must be aware of those facts which are not disclosed before it can be said that there is any omission or failure on his part to disclose the same. In the case of CIT v. Balvantrai S. Jain [1969] 72 ITR 59, the Bombay High Court held that the assessee cannot be said to have failed to disclose the facts in question as he had no knowledge of those facts. It interpreted section 34(1)(a) of the Indian Income-tax Act, 1922, which is in pari materia with the present section 147(a) and held that section 34(1)(a) covers only the cases where the assessee, knowing all the material facts, deliberately withholds information. The section cannot apply to a case where the assessee was not aware of the facts which he was supposed to disclose. There are similar observations in the case of Sampat Ram Budhmal Dugar v. CWT [1987] 164 ITR 178 (Raj). The court there dealt with section 17(1)(a) of the Wealth-tax Act, 1957, which is also in pari materia with section 147(a) of the Income-tax Act, 1961. The court said that the omission or failure to disclose fully or truly any material fact postulates the knowledge of this fact at the relevant time. A person can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report. In the case before it, the Calcutta High Court refused to take into consideration the affidavit filed by the Income-tax Department giving some additional reasons. In the present case, the reasons which are given by the Inspecting Assistant Commissioner for reopening the assessments which are annexed to the affidavit in rejoinder of the appellants are to the effect that in respect of the assessment years 1967-68 to 1973-74, there are errors in the principle of allocating headquarters expenses to India which have been deducted. The net effect is that there has been an excess charge of the headquarters expenses allocated to India. Each of the notices sets out the relevant error for the accounting year. The reasons, therefore, do not indicate in any manner any deliberate omission or suppression of any fact or of this error, on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notices under section 148 have been issued without the provi sions of section 147(a) being attracted to the facts and circumstances of the case. The appellant-assessee has also objected to the large number of queries raised by the assessing authority in the course of the assessment which clearly indicate that the entire assessment on all aspects was being reopened for each of the assessment years. The appellant-assessee has submitted that when the reassessment is on a specific ground, the reassessment should ordinarily be confined to determine the income which has escaped assessment. It was submitted that the entire assessment could not have been reopened by the Department in any event. The appellant-assessee has relied upon the decision of the Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297, where various conflicting decisions of the different High Courts have been examined. We need not go into this quest-ion because in any event the notices for the assessment years 1967-68 to 1973-74 are required to be set aside because they do not comply with the requirement of section 147(a) of the Income-tax Act, 1961. In the premises, the appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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