TMI Blog1990 (2) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the petitioner's failure to disclose truly and fully all material facts necessary for assessment. In order to examine the correctness of this contention, this court directed learned standing counsel for the department to produce the relevant record containing the material forming the basis for such belief. In compliance, the relevant record was produced before us. The reasons recorded by the Inspecting Assistant Commissioner (Assessment), based on which the impugned notices have been issued, find place in the record produced before us by the department. The main ground of attack urged by Sri Sudhir Chandra, learned counsel for the petitioner, against the impugned notices was that the material on the basis of which the Inspecting Assistant Commissioner has issued the notices bears no real and rational nexus to the belief that any income of the petitioner chargeable to tax had escaped assessment. In support, learned counsel placed reliance on Indian Oil Corporation v. ITO [1986] 159 ITR 956 (SC), Ganga Saran and Sons (P.) Ltd. v. ITO [1981] 130 ITR 111 (SC) and Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). These authorities lay down the parameters of the power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said assessment year. In response to the said notice, the petitioner filed a return under protest and asked for a copy of the reasons based on which the impugned notice was issued. Some correspondence was exchanged thereafter which it is not necessary to elaborate here. Thereafter, the petitioner received a notice dated October 6, 1989, fixing the case for hearing for the assessment year 1981-82 on October 29, 1989. A similar notice dated November 20, 1986, under section 148 was received by the petitioner also for the assessment year 1982-83 followed by the same pattern of events. The petitioner filed its return under protest and thereafter received notice dated November 6, 1989, fixing November 29, 1989, for the hearing of the assessment proceedings for the assessment year 1982-83. It is in this background of facts that the petitioner approached this court under article 226 of the Constitution for quashing the aforesaid notices under section 148. The legal position and the scope of judicial review in regard to action inititated under section 147/148 of the Income-tax Act is no longer in doubt. Right from the case of Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC), the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re too well-settled to require further elaboration. It is from these legal perspectives that we proceed to examine whether the reasons recorded by the Inspecting Assistant Commissioner for reopening the assessment for the two years in question were relevant and could sustain the belief that the petitioner's income has escaped assessment by reason of its failure to disclose truly and fully all material facts. For the assessment year 1982-83, the reasons recorded by the Inspecting Assistant Commissioner are : "The assessment in this case was made on October 29, 1984, at a loss of Rs. 5,22,94,800. It came to my notice that the assessee-company had paid excess amount of expenses, carrying charges, commission and insurance on purchases of cotton made through Ganga Prasad Purshottam Lal during the period relevant to the assessment year 1982-83. Accordingly, the assessee was asked to file a copy of the report submitted by the auditors in this respect. This report was called for under section 133(6) of the Income-tax Act and had been supplied by the assessee. A perusal of this report and the minutes of the Board meeting held on July 8, 1985, shows that during the period February 1981, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in respect of purchases of 4,710 bales of cotton relating to the above referred period and held that there was misappropriation to the extent of Rs. 8,56,167 in respect of the impugned transactions. The assessee-company did not disclose to the Department either in the return of income or during the assessment proceedings that any misappropriation has been detected by the chartered accountant. It is important to note that the report of the chartered accountant was submitted on January 29, 1983, whereas the assessment was completed on March 23, 1984. In the accounts filed along with the return for the assessment year 1982-83 a note was given as under : 'The system of purchases of cotton in the company underwent change towards the close of 1980, Sri Anand Prakash, Director (Finance), B. I. C. and Sri D. N. Dikshit, Managing Director, B. I. C., both directors on the board of Elgin Mills Co. Ltd. have expressed from time to time that the purchases of cotton during the periods 1980-81 and 1981-82 have suffered from infirmities. Accordingly, some impugned transactions were got examined jointly by two firms of chartered accountants in the month of February/March, 1982. The board of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1981-82 in one volume is enclosed. Also enclosed with this pro forma is one file cover containing the copies of the minutes of the board meetings, reports of the auditors, etc., in respect of cotton purchases made by the assessee-company. These details were obtained from the assessee-company under section 133(6) of the Income-tax Act. (Sd.) V. K. Singal 9-9-1986 Inspecting Assistant Commissioner of Income-tax (Asstt.) Range-II, Kanpur." The reasons recorded by the Inspecting Assistant Commissioner having received the approval of the Commissioner of Income-tax, Kanpur, the impugned notices were issued to the petitioner for the two assessment years under section 148. From a perusal of the record produced before us, we find that the impugned notices were under clause (a) of section 147 of the Income-tax Act, i.e., on the ground that the petitioner had not disclosed fully and truly all material facts necessary for assessment as a result of which its income chargeable to tax had escaped assessment. It is impossible to conclude from the reasons disclosed that the Inspecting Assistant Commissioner had no reason to believe that the income of the assessee had escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated its losses are correct. As observed earlier, our enquiry is restricted to the question whether the Inspecting Assistant Commissioner had any material which could reasonably form the basis of belief that the income of the assessee chargeable to tax had escaped assessment from the failure of the assessee to disclose full and true facts. Judged from that limited point of view, there is no doubt that the Inspecting Assistant Commissioner did have such material. Sri Sudhir Chandra for the petitioner, however, vehemently contended that the petitioner had truly and fairly discharged its obligation by declaring all material facts vide the note appended by the assessee in the profit and loss account filed along with the return for the year 1982-83 (quoted in the reasons recorded by the Inspecting Assistant Commissioner for the assessment year 1981-82). If in spite of this note, the Inspecting Assistant Commissioner did not probe the matter further, the company could not be charged with the failure to disclose fully and truly all material facts so as to issue a notice under section 147/148 of the Act. The submission suffers from a basic fallacy. It omits to take into account that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere has been non-disclosure of primary facts causing escapement of income from assessment is essentially a question of fact. It has been further ruled that the fact that the Income-tax Officer could have found out the correct position by further probing did not exonerate the assessee from his duty to make a full and true disclosure of material facts. Similar observations are to be found in the case of West India Cotton Association Ltd. v. K. C. Rao [1966] 61 ITR 226 (Guj). Their Lordships held that certain material for assessment not furnished nor known to the Incometax Officer at the time of assessment but coming to his knowledge subsequently could legitimately form the basis of a reasonable belief under section 147. In the present case, indubitably the auditor's report containing important disclosures having a bearing on the assessment and indicating that losses had been inflated by the assessee in respect of cotton purchases was known to the assessee. It constituted a relevant primary fact. The Inspecting Assistant Commissioner could hence treat that as a basis for issuing a notice under section 148. Sri Sudhir Chandra then advanced a submission which, at the first blush, seem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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