TMI Blog1977 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... of the power under these sections do not exist in the instant case. The assessee in each of these matters is a limited company and the same question arises in both the matters. The assessee, in its return for the relevant assessment years, disclosed for each year an item of Rs. 20,000 was amount spent under the head "Workmen and staff welfare expenses". In each of the years, when the assessment was completed, the petitioner claimed deduction of this amount of Rs. 20,000 because it was claimed that the vice-president of the company spent the amount at his discretion for pacifying the troublesome elements amongst the workmen employed by the company. This explanation on behalf of the company was accepted by the Income-tax Officer in each of the two years under consideration. Subsequently, for the assessment year 1971-72, when the same amount of Rs. 20,000 was claimed as a deduction on the same grounds, the Income-tax Officer held that, in the absence of vouchers, he would not permit any such deduction. Thus, so far as the assessment years under consideration are concerned, the deduction had become final and in the light of the decision for the assessment year 1971-72, the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court and of various High Courts. The locus classicus is the decision of the Supreme Court in Calcutta Discount Co Ltd. v. Income-tax Officer [1961] 41 ITR 191 and in that case, for the first time it was laid down that if the assessee, at the time of the original assessment, had disclosed all the primary facts, then there could not be said to be any concealment of the income and the provisions of section 147(a) or section 34(1)(a) of the Indian Income-tax Act, 1922, could not be invoked. After this decision in Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC) there have been several decisions of the different High Courts in connection with the requirements of section 147(1). The majority of the learned judges, who decided in Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC) held that the law did not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. The question of the assessee's intention was an inferential fact and so the assessee's omission to state its true intention behind the sale of shares in that case could not be considered to be a failure or omission to disclose any material fact within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the Income-tax Officer at the time of the original assessment, a version contrary to what he contends for or contrary to what be has written in his books of account. In certain circumstances the question whether a particular transaction is genuine or not is an inference to be drawn from primary facts. If the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts. Further, where on the evidence and material produced at the time of the original assessment the Income-tax Officer could have reached a conclusion other than the one which he has reached, the proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer had earlier raised an inference which he may later regard as erroneous." In our opinion, the last portion of the passage quoted above has a bearing on the facts of this case, viz., that it was not for the assessee to point out the various possible inferences which could be drawn from the primary facts which he had disclosed. His duty is to disclose the primary facts and leave it to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ape assessment because of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The present is not a case where the assessee had omitted or failed to file the return. Question then arises as to what has been omission or failure on the part of the assessee to make a full and true disclosure. There is nothing before us to show that in the return filed by the assessee-appellant, the particulars given were not correct... The case of the appellant is that in determining the amount of depreciation at the time of the original assessment for the two assessment years in question, the Income-tax Officer relied upon the written down value of the various capital assets as obtaining in the records of the department. This stand has not been controverted. When an Income-tax Officer relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee. It also cannot be disputed that initial depreciation in respect of items of capital assets in the shape of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decisions of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191, Kantamani Venkata Narayana and Sons v. Income-tax Officer [1967] 63 ITR 638, S. Narayanappa v. Commissioner of Income-tax [1967] 63 ITR 219, Commissioner of Income- tax v. Hemchandra Kar [1970] 77 ITR 1, Modi Spinning and Weaving Mills Co. Ltd. v. Income-tax Officer [1970] 75 ITR 367, Sowdagar Ahmed Khan v. Income-tax Officer [1968] 70 ITR 79 and Commissioner of Income-tax v. Burlop Dealers Ltd. [1971] 79 ITR 609. As is clear from Parashuram Pottery Works Co. Ltd. v. Income-tax Officer [1977] 106 ITR 1 (SC), which is the latest decision on the point, the Supreme Court has not departed from that legal position. In order to highlight the position as to the extent to which these legal principles have been applied, it would not be out of place to state the facts of the case in Commissioner Income-tax v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC). The assessee before the Supreme Court was a limited company. The assessee stated at the time of filing of its return for the assessment year 1949-50, that on June 5, 1948, it had entered into an agreement with H. Manory Ltd. to do bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the assessment year 1949-50. The Appellate Assistant Commissioner upheld the action of the Income-tax Officer under section 34(1)(a) and confirmed the order observing that the assessee had misled the Income-tax Officer into believing that there was a genuine arrangement with Ratiram Tansukhrai and had stated in the profit and loss account that the amount paid to Ratiram Tansukhrai was the share of the latter in the partnership, whereas no such share was payable to Ratiram Tansukhrai. The Income-tax Appellate Tribunal in further appeal held that at the time of the original assessment the assessee had produced all the relevant accounts and documents necessary for completing the assessment and the assessee was under no obligation to inform the Income-tax Officer about the true nature of the transactions. On this view, the Tribunal reversed the order of the Appellate Assistant Commissioner and directed that the amount of Rs. 87,937 be excluded from the total income of the assessee for the year 1949-50. The Tribunal declined to state the case to the High Court under section 66(1). A petition to the High Court under section 66(2) for directing the Tribunal to state the case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's pleader wrote to the purchaser that, as the purchaser had not completed the contract on the due date, the assessee had exercised the right of forfeiture and the amount of Rs. 3,05,000 stood forfeited on November 18, 1944. N, who was the sole proprietor of N and Co., replied that he was striving hard to raise the balance, that the assessee should give a further opportunity for 15 days from November 18 and that the forfeiture might stand good if the sale was not completed by then. At the time when the original assessment was completed on January 23, 1947, the agreement under which the assessee had purchased the land, the agreement to sell a portion of this to N and Co., the receipt for the payment of Rs. 1,05,000 and the Correspondence between the assessee's pleader and the reply were all produced before the Income-tax Officer. No reference was made in that assessment order to the transaction of the amount of Rs. 3,05,000 but the Income-tax Officer placed among the records, a note of the same date, January 23, 1947, referring to the explanation of the assessee for crediting in the accounts an amount of Rs. 78,000 only out of the total amount of Rs. 3,05,000 and noting that the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 34(1)(a) that it would have been open to the Income-tax Officer to bring in aid the information received from the Income-tax Officer at Surendranagar for reopening the proceedings which had been completed in January, 1947. The facts of the case before us are not as much glaring as the facts of the case in Poonjabhai Vanmalidas and Sons v. Commissioner of Income-tax [1974] 95 ITR 251 (Guj) [FB] or in Parashuram Pottery Works Co. Ltd. v. Income-tax Officer [1977] 106 ITR 1 (SC) before the Supreme Court. If, in either of these two cases, the provisions of section 147(a) or section 34(1)(a) could not be invoked, we fail to see how, on the facts of the case before us, they can be invoked against the assessee. The assessee had given his explanation, viz., that the amount of Rs. 20,000 in each of the years under consideration had been utilised by the vice-president at his discretion for pacifying the troublesome elements among the workmen of the company. It was open to the Income-tax Officer either to reject or accept that explanation at the time of the original assessment in respect of each of the two years. The primary facts from which the inference could be drawn were al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other, except the decision in Malegaon Electricity Co. (P.) Ltd. v. Commissioner of Income-tax [1970] 78 ITR 466 (SC), considered by the Full Bench of the Gujarat High Court and since the legal position summarised by the Full Bench of the Gujarat High Court is on the same lines as the legal position which was accepted by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. Income-tax Officer [1977] 106 ITR 1 (SC), there is no need to refer to these decisions of the Supreme Court. In view of our conclusions as stated above, we hold in favour of the assessee and against the income-tax department on the issue of the jurisdiction of the Income-tax Officer to issue a notice under section 147(a). We, therefore, hold that Writ Petition No. 2557 of 1974 was rightly allowed by our learned brother, Raghuvir J. Writ Appeal No. 410 of 1976, therefore, fails and is dismissed. W.P. No. 1541 of 1976 is, therefore, allowed and the impugned notice dated February 17, 1975, to reopen the assessment for the assessment year 1966-67 is quashed and set aside. The respondents are restrained from giving effect to the notices under section 147(a) in either of these two cases. The respondent, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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