TMI Blog1985 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... to summarise the facts set out in the statement of case. For this assessment year, the assessee had returned an income of Rs. 7,42,278, which was revised to Rs. 7,41,017, and the assessment was completed in the ordinary course on a total income of Rs. 7,42,978. The assessment was reopened under section 147(a) of the Income-tax Act, 1961, on March 23, 1973, on the ground that the assessee had transferred its profits to others. A profit of Rs. 3,13,895 was transferred to M/s. Cosmos Traders, a proprietary concern of Shri Arun Kumar Goyal, son of the assessee's managing director and a profit of Rs. 3,58,172 was transferred to M/s. Rengo Farms (P) Ltd., a family concern of the managing director. The ground for reopening the assessment was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pork and other meat products are manufactured and sold. The assessee obtained a contract for supplying canned mutton to the Defence Department at certain specified rates. For this purpose, agreements were entered into with M/s. Cosmos Traders for a part of the year and M/s. Rengo Farms (P) Ltd. for a subsequent period. According to the Tribunal, the rates at which these firms had to supply were not much lower than the rates at which the Defence Department was to buy the canned mutton. But these two firms entered into agreements with a butcher for supply of mutton at still lower rates. M/s. Cosmos Traders was a proprietary concern of Shri Arun Kumar Goyal, son of the managing director of the assessee-company and M/s. Rengo Farms (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the canned mutton had to be obtained from other sources, the assessee-company could have employed its own staff but, instead, it chose to have first an agreement with M/s. Cosmos Traders, which was a proprietary firm of Shri Arun Kumar Goyal, son of Shri R. N. Goyal, the managing director of the assessee-company. The other company, M/s. Rengo Farms (P) Ltd., was itself a company. On closer examination of the facts, we found that both these firms had also been assessed, so we were interested to enquire Ls to what income had escaped assessment. On this aspect of the matter, the proposition may be stated as follows. If the entire income of M/s. Cosmos Traders as well as M/s. Rengo Farms (P) Ltd. is clubbed with the assessee, the taxable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cosmos Traders. It has also been noticed that M/s. Cosmos Traders entered into an agreement with one Mirza Munir Beg to purchase and supply raw mutton on commission basis. All this shows that the assessee-company diverted its own profits to avoid proper taxation in its hands. In this connection, it is pointed out that the Income-tax Officer, District II, Ward A, has framed the assessment for the year 1964-65 of Shri Arun Kumar Goyal at Rs. 3,01,658 as a protective one. Therefore, I have reasons to believe that due to failure on the part of the assessee to disclose fully and truly all material facts relevant to the assessment year in question, income to the extent of Rs. 3,00,000 has escaped assessment. Necessary permission to reopen the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which does not lose anything in Revenue because the tax realised, if anything, is more and not less. At the same time, though we do not want to comment on the nature of the transaction, it must be kept in view that the assessee was dealing only in piggery and pork products, when it entered into the contract to supply goat meat. The nature of the work to be done for the Defence Department is disclosed in a note which is reproduced in the Appellate Assistant Commissioner's order. It states as follows : " For the purpose of supplying to the Defence Department, the company purchased dressed meat from Cosmos Traders for a part period and from Rengo Farms Private Ltd., for a certain part of the period. According to the agreement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the supply of mutton was concerned, it had to get the goats from somewhere. It is, therefore, not altogether unusual to get the services of somebody else. Prima facie this does not seem to be only a diversion of profits, but appears to be payments for the work of getting goats in good-condition and for supply of pork to the Defence Department. Such work would require some initiative and considerable amount of time. These facts are only set out to show the nature of the transaction but, this case has to be decided on the question whether the conditions of section 147(a) are satisfied. That section operates in two particular cases either there has to be an omission or failure on the part of an assessee to make a return or, there has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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