TMI Blog1981 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... wed deduction by the ITO, vide assessment order dated September 28, 1968. Later on, while examining the assessee's accounts for the next assessment year, the ITO on the basis of the following material formed the opinion that the sole selling agency firm did not render any service to the assessee and hence the income to the extent of Rs. 1,27,313 paid to the said firm by the assessee in the shape of commission had escaped assessment on account of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment : (a) T. A. Bills of Shri K. S. Khosla, managing partner of M/s. Kay Engineering Sales' Corporation which were impounded under s. 131 were false to the extent that he was shown on tour on certain dates on which he was actually present in Kapurthala and attended the directors' and shareholders' meetings of the company. (b) The receipt and despatch books of the company which were inspected during the course of proceedings for 1967-68 showed that no correspondence was exchanged between the so-called sole selling agents and the company. (c) It was found that the existence of Shri S. K. Puri and Yodha Ram, who are said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned under section 147(a) for the assessment year 1966-67 ?" As regards question No. 1, it is not disputed between the learned counsel for the parties that the ITO is not required to specify the clause of s. 147 under which the assessment is proposed to be reopened in the notice issued under s. 148. However, according to the learned counsel for the assessee, when the assessee appears in response to that notice and raises an objection regarding the legality of the notice, the ITO necessarily has to specify the clause of s. 147 while rejecting the objection raised. In the present case, according to him, the reason given was that the assessee had failed to disclose fully and truly all material facts necessary for the assessment during the course of the original assessment and, therefore, action was taken under cl. (a) of s. 147. The order of the ITO was upheld by the AAC also by invoking the provisions of cl. (a) of s. 147 and not cl. (b). The argument of the Revenue before the Tribunal that the ITO reopened the case under s. 147(b) was, therefore, rightly rejected. The question which still remains to be determined is whether the Tribunal was justified in law in not allowing the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the proceedings which were commenced by notice under s. 34(1)(b) (equivalent to s. 147(b)) could have been converted into proceedings under s. 34(1)(a) of the I.T. Act, by the Appellate Tribunal. It was answered in the negative. The reasons given for this view were that before taking action under cl. (a), the ITO is required to form an opinion that because of the failure on the part of the assessee to disclose fully and truly all the material facts, the income chargeable to income-tax has escaped assessment and without the formation of this opinion he will not have jurisdiction to initiate proceedings under that clause. Further, the said clause requires the ITO to record his reasons for taking action thereunder and obtain the sanction of the CBR or the Commissioner, as the case may be. These requirements possibly could not have been fulfilled if the ITO proceeded on the basis of s. 34(1)(b). Therefore, it would not be open to the Tribunal to justify the proceedings taken by the ITO under s. 34(1)(a). Such mandatory condition is required to be complied with before action is taken under s. 34(1)(b) (now s. 147(b)). If the information with the ITO is not sufficient to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cl. (b) if the proceedings had been initiated within a period of four years. On the other hand, in Mriganka Mohan Sur's case [1974] 95 ITR 503, a Division Bench of the Calcutta High Court, after noticing the said two decisions relied upon by the learned counsel for the assessee, went on to say that where the reassessment made under s. 34(1)(a) is set aside by the Tribunal, it is open to the Tribunal to treat the reassessment as one properly made under s. 34 (1)(b) provided that all the necessary conditions under s. 34(1)(b) are satisfied. The reasons given for this view would be discernible from the following passage (p. 508): " Section 34, as mentioned hereinbefore, is a machinery section and it deals with the power of the Income-tax Officer to reopen and reassess certain income and the situations in which such power of reopening and reassessment can be used have been prescribed in the two different clauses of sub-section (1) of section 34. It appears to us that these two clauses deal with the power of reopening and of making reassessment and it covers different contingencies and situations. Clauses (a) and (b) do not deal with separate jurisdictions; both deal with cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery whereby an income which had escaped assessment or had been underassessed in the relevant assessment years could be brought into the net work of taxation. With respect, we are in agreement with the aforesaid view expressed by Manchanda J." Similar view was taken by two other Benches of the same court in Eastern Coal Co. Ltd.'s case [1975] 101 ITR 477 (Cal) and Bhupatrai Hirachand's case [1977] 109 ITR 97 (Cal). We fully agree with the reasons given in Mriganka Mohan Sur's case [1974] 95 ITR 503 (Cal) and, respectfully following the same, hold that the Tribunal erred in not allowing the Revenue to support the reassessment by invoking the provisions of s. 147(b). The first question is accordingly answered in the negative against the assessee and in favour of the Revenue. On the second question, the Tribunal held that according to the principles laid down by the Supreme Court in CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609, the duty of the assessee is to disclose the primary facts and not to point out the principle of chargeability to income-tax or the inference which could possibly be drawn from the disclosure of these primary facts and, applying this principle, it further o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the said venture. For the next assessment year, the respondent has similarly again claimed that it had paid half the profits from the joint venture to " R " but, on an examination of the transaction, the officer held that the agreement of October 7, 1948, was a got-up device to reduce the profits and taxed the entire profits from the venture which was ultimately upheld. Meanwhile, the officer issued a notice under s. 34(1)(a) for reopening the earlier assessment and brought to tax the sum of Rs. 87,937, allowed as having been paid to R. The Tribunal, however, held that the respondent bad produced all the relevant accounts and documents for completing the assessment and it was under no obligation to inform the officer about the true nature of the transactions and directed that the said amount be excluded. Having failed to get a reference made either under cl. (1) or cl. (2) of s. 66, the Revenue took the matter to the Supreme Court but its appeal was rejected and the view of the Tribunal was confirmed holding that the respondent had disclosed its books of account and evidence from which material facts could be discovered; it was under no obligation to inform the ITO about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the present case. On the other hand, so far as this court is concerned, the law has been settled by two Division Bench decisions, in Hazi Amir Mohd. Mir Ahmed v. CIT [1977] 110 ITR 630 (P H) and Civil Writ Petition No. 3671 of 1971 (Kirpa Ram Ramji Dass v. ITO) decided on November 20, 1979 (since reported in [1982] 135 ITR 68 (P H)). In the former case, it was held (headnote): That if the Income-tax Officer has reason to believe that primary facts were not fully disclosed or that they were not truly disclosed, he may reopen the assessment. This he may do either because fresh facts come to light which were not previously disclosed or because new light thrown on facts previously disclosed tends to expose the untruthfulness of such facts. Where subsequent information comes into the possession of the Income-tax Officer exposing the accounts as false, the Income-tax Officer is not precluded from reopening the assessment. It would not be case of mere change of opinion as a result of drawing a different inference from the same facts. It would be a case where the Income-tax Officer has reason to believe, on the basis of subsequent information, that the assessee had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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