Skip to content


Assam Forest Products (P.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 36 of 1974
Judge
ActsIncome Tax Act, 1961 - Sections 142(3) and 147
AppellantAssam Forest Products (P.) Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateJ.P. Bhattacharjee, S.N. Medhi, S.C. Tibrewal and U. Baruah, Advs.
Respondent AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Prior history
Pathak, C.J.
1. The following two questions of law have been referred to the High Court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), by the Income-tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as ' the Tribunal ') :
' (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding initiated under Section 147(a) of the Income-tax Act, 1961, by the Income-tax Of
Excerpt:
.....fully and truly all material facts necessary for assessment its income to the extent of rs. the income-tax officer also held that the assessee failed to discharge its onus of proving the genuineness of the credits and so the income-tax officer drew an inference that the loan was bogus in nature. 162 (gau) of 1972-73. before the tribunal also the assessee submitted that all the material facts were disclosed by the assessee fully and truly at the time of original assessment and that in the balance-sheet there was a printing mistake but the income-tax officer was never misled in the original assessment proceeding and the income-tax officer made a note in the balance-sheet relating to its credit, vide examination note, and the detailed account of examination notes prepared in the course..........assessee introduced in its business a sum of rs. 60,000 purporting to be a loan from m/s. surekha jute company. the income-tax officer has pointed out that enquiries were made subsequent to the completion of the original assessment proceedings and it was found that there was no such company as surekha jute company. on further enquiries it was found that there was a jute concern styled, surekha jute company, owned by bidyananda surekha. the income-tax officer also found on enquiries that the said credit in the books of the assessee was not genuine but the amount represented concealed income of the assessee. the income-tax officer held that the assessee did not disclose the real nature of the source of the said amount and thus by omission and failure on the part of the assessee to.....
Judgment:

Pathak, C.J.

1. The following two questions of law have been referred to the High Court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), by the Income-tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as ' the Tribunal ') :

' (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding initiated under Section 147(a) of the Income-tax Act, 1961, by the Income-tax Officer is a valid proceeding ?

(ii) Whether, on the facts and in the circumstances of the case, the. Tribunal was justified in setting aside the order of the Appellate Assistant Commissioner relating to the cash credit of Rs. 60,000 for further enquiry on the finding that the materials on record were not sufficient for deciding the issue '

2. From the statement of the case the following facts appear : The relevant assessment year is 1964-65. The assessee, M/s. Assam Forest Products (P.) Ltd., is a limited company. The original assessment for the assessment year 1964-65 was completed on May 26, 1965, under Section 143(3)/147 of the Act and the total income was assessed at Rs. 1,77,460. The assessee introduced in its business a sum of Rs. 60,000 purporting to be a loan from M/s. Surekha Jute Company. The Income-tax Officer has pointed out that enquiries were made subsequent to the completion of the original assessment proceedings and it was found that there was no such company as Surekha Jute Company. On further enquiries it was found that there was a jute concern styled, Surekha Jute Company, owned by Bidyananda Surekha. The Income-tax Officer also found on enquiries that the said credit in the books of the assessee was not genuine but the amount represented concealed income of the assessee. The Income-tax Officer held that the assessee did not disclose the real nature of the source of the said amount and thus by omission and failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment its income to the extent of Rs. 60,000 escaped assessment: The Income-tax Officer, therefore, initiated proceedings under Section 147 of the Act and issued notice under Section 148 of the Act.

3. On receipt of the notice under Section 148 of the Act the assessee submitted its return of income under protest showing an income of Rs. 1,43,726. The Income-tax Officer asked the assessee to establish the genuineness of the loan and also to produce the alleged creditor for examination. The

assessee objected to the initiation of the proceedings under Section 147 saying that there is positive evidence on the record to show that all material facts were disclosed at the time of the original assessment and they were gone into by the Income-tax Officer at that time. The Income-tax Officer rejected the contention of the assessee. The Income-tax Officer held that the assessee had shown its own income in the form of loan which fact came to the knowledge of the Income-tax Officer subsequent to the completion of the original assessment proceedings and so the Income-tax Officer held that the proceeding for reassessment under Section 147(a) of the Act is in order. The Income-tax Officer also held that the assessee failed to discharge its onus of proving the genuineness of the credits and so the Income-tax Officer drew an inference that the loan was bogus in nature. The Income-tax Officer also found that Bidyananda Surekha had made statements on different dates before the income-tax authorities at Calcutta admitting that he had lent his name to various parties to enable them to bring in their concealed income in the form of loans and this is also a circumstance to show that the loan was not a genuine loan and that it was a bogus cash credit. Hence, the Income-tax Officer treated the cash credit of Rs. 60,000 as the income of the assessee from other sources and he assessed the total income of the assessee at Rs. 2,37,460 by adding Rs. 60,000 to the original assessed income of Rs. 1,77,460.

4. The assessee appealed against the order of the Income-tax Officer

before the Appellate Assistant Commissioner. Before the Appellate Assis

tant Commissioner the assessee submitted that all material facts having

been disclosed in the original proceeding there was no justification for start

ing proceeding under Section 147(a). The Appellate Assistant Commissioner, however, found from the records that the balance-sheet showed

unsecured loan of Rs. 60,000 from M/s. Surekha Jute Company Ltd. Later

on, the Income-tax Officer discovered that there was no such company called

M/s. Surekha Jute Company Ltd., but one Bidyananda Surekha was doing

business under the name and style, Surekha Jute Company. The Appellate

Assistant Commissioner, therefore, held that the correct material facts were

not disclosed before the Income-tax Officer at the time of the original assess

ment, inasmuch as the assessee had given a false name, namely,

M/s. Surekha Jute Company Ltd., which was subsequently found to be a bogus

company. The Appellate Assistant Commissioner, therefore, held that the

proceedings were validly started under Section 147(a) of the Act. The

Appellate Assistant Commissioner also found that the credit of Rs. 60,000

was made in a wrong name and obviously was not loan from a'n outsider.

He has, therefore, held that it was rightly treated as income of the assessee

from undisclosed sources. Thus, the assessee's appeal was dismissed by the

Appellate Assistant Commissioner.

5. The assessee then preferred an appeal from the order of the Appellate Assistant Commissioner before the Tribunal. The appeal was numbered as I.T.A. No. 162 (Gau) of 1972-73. Before the Tribunal also the assessee submitted that all the material facts were disclosed by the assessee fully and truly at the time of original assessment and that in the balance-sheet there was a printing mistake but the Income-tax Officer was never misled in the original assessment proceeding and the Income-tax Officer made a note in the balance-sheet relating to its credit, vide examination note, and the detailed account of examination notes prepared in the course of the original assessment proceeding clearly showed that the assessee had disclosed the material facts. The assessee also submitted before the Tribunal that the Income-tax Officer and the Appellate Assistant Commissioner never disclosed any statement of confession made by Bidyananda Surekha concerning the transaction with the assessee and so the inference drawn on the undisclosed material could not be rebutted by the assessee and, therefore, the provisions of Section 142(3) were not complied with. It was further submitted that the onus was on the department to prove that the loan was not a genuine loan and the reassessment order was liable to be cancelled and the amount of Rs. 60,000 was liable to be deleted.

6. The Tribunal in its order has held that the Income-tax Officer rightly initiated the reassessment proceeding under Section 147(a) of the Act and that the proceeding was a valid proceeding. The Tribunal also considered the question whether the addition of Rs. 60,000 as cash credit was justified. The Tribunal found that the assessee did not produce the materials to prove the genuineness of the cash credit and under such circumstances the Income-tax Officer did not try to verify in the reassessment proceeding whether the payments by cheques were actually the payment to the creditor, Surekha Jute Company. The Tribunal found that the Income-tax Officer relied on the statement of Bidyananda Surekha to the effect that he had lent his name to various parties to enable them to bring in their concealed income in the form of loans. But it was necessary for the Income-tax Officer to place the statement of Bidyananda Surekha before the assessee so that the assessee could take necessary steps to prove that the statement of Bidyananda Surekha relating to the cash credit in question was not correct. Thus there was non-compliance with the provisions of subsection (3) of Section 142 of the Act and on that ground the Tribunal set aside the order of the Appellate Assistant Commissioner relating to the confirmation of cash credit of Rs. 60,000 and directed the Appellate Assistant Commissioner to make enquiry on the lines indicated in its order.

7. On the above 'facts, the above-mentioned two questions of law have

been referred.

8. Section 147(a) of the Act reads as follows :

' 147. Income escaping assessment.--If--

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or......

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 Sections 148 to 153 referred to as the relevant assessment year).......'

9. In the instant case, the relevant assessment year is 1964-65. The assessee filed its return and the original assessment was made on May 26, 1965. Thereafter, the Income-tax Officer issued the notice dated January 17, 1967, under Section 148 of the Act wherein he stated that he had reason to believe that the assessee's income chargeable to tax for the assessment year 1964-65 had escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961.

10. The department's case is that the notice under Section 148 of the Act was issued within the meaning of Section 147(a) of the Act. So in order to consider whether the initiation of the proceeding under Section 147(a) of the Act in the instant case was validly made or not, we have to consider whether the Income-tax Officer had reason to believe that, by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year 1964-65, income chargeable to tax has escaped assessment for that year.

11. The Tribunal, in its judgment, has observed as follows :

' From the original assessment order of the Income-tax Officer relating to the assessment year 1964-65 which is dated May 26, 1965, it is evident that the assessee manufactures and deals in tea chests, shooks, veneer fittings, linings, commercial plywood, sawn timber, etc. The Income-tax Officer, Shri K. J. Mukherjee, assessed the total at Rs. 1,77,460 by his original assessment order dated May 26, 1965. There is nothing in the assessment order to show that the Income-tax Officer considered the cash credit of Rs. 60,000. However, we have also perused the return filed by the assessee relating to the assessment year 1964-65 on November 13, 1964. Along with this return the assessee filed various statements but these statements do not relate to cash credit. Along with the return the assessee only filed a copy of the report and statement of account for the year ended 31st December, 1963, and from the balance-sheet of this report we find that on the liabilities side an unsecured loan of Rs. 60,150 has been shown

in the name of Surekha Jute Co. Ltd. Against this entry the Income-tax Officer has noted ' copies taken out--vide examination notes '. Attached to

this balance-sheet is the examination note of the Income-tax Officer which is to be found at page 2 of the notes where the Income-tax Officer has simply noted that according to ledger folio No. 262, cash loan of Rs. 60,000 was taken from Surekha Jute Co. Ltd., on December 20, 1963, and interest was payable from December 20, 1963, to December 31, 1963, to the extent of Rs. 150 and thus the balance came to Rs. 60,150. Thus, even in the examination note the Income-tax Officer believed the loan to be from Surekha Jute Co. Ltd. It appears that as the loan was shown to have been taken from Surekha Jute Co. Ltd., the Income-tax Officer did not feel the necessity of making further enquiry and accepted the loan as genuine and it was due to this that in the original assessment this amount was not treated as income from undisclosed sources. It appears that enquiries were made subsequent to the completion of the original assessment proceedings and the Income-tax Officer found that there was no such company as Surekha Jute Co. Ltd., and, on enquiry, the Income-tax Officer also found that there was a jute concern styled, Surekha Jute Co., owned by Shri Bidyananda Surekha.'

12. The Tribunal also has observed :

' From the aforesaid documents, it is evident that after the report and statement of account for the year ended 31st December, 1964, was produced that the Income-tax Officer could find out that the cash credit did not relate to a limited company but was to a proprietary concern. It was due to this that the Income-tax Officer issued a notice under Section 148 of the said Act.'

13. The Tribunal has again observed :

' The Income-tax Officer has clearly mentioned that Sri Bidyananda Surekha had made statements on different dates before the income-tax authorities at Calcutta admitting that he had lent his names to various parties to enable them to bring in their concealed income in the form of loans. Thus, it cannot be doubted that the Income-tax Officer had materials for initiation of the proceeding under Section 147(a).'

14. The contention of the assessee is that along with the original return it filed a balance-sheet as on 31st December, 1963, and an unsecured loan amounting to Rs. 60,150 was shown therein against Surekha Jute Company Limited. But the word ' Limited ' was printed through mistake, it was really Surekha Jute Company and this mistake could easily be found from the ledger folio from which the Income-tax Officer took notes wherein it was shown as Surekha Jute Company. The assessee, therefore, submits that it disclosed fully and truly all material facts necessary for its assessment for the relevant year.

15. The Tribunal, however, has found that the balance-sheet which was filed along with the original return clearly stated that this unsecured loan

of Rs. 60,150 was from Surekha Jute Company Ltd. From annexure ' D ' in the paper book it is found that two unsecured loans have been shown in the balance-sheet--one is Rs. 60,150 from Surekha Jute Company Ltd. and the other is Rs. 95,000 from Shaw Wallace & Company Ltd. Of course, in the ledger, a copy of which is found at page 37 of the paper book, we find the account of Surekha Jute Company showing the sum of Rs. 60,150. But when the printed balance-sheet is seen by the Income-tax Officer and when he finds that the unsecured loan of Rs. 60,150 was from Surekha Jute Company Ltd., the Tribunal has correctly observed :

' It appears that as the loan was shown to have been taken from Surekha Jute Co. Ltd., the Income-tax Officer did not feel the necessity of making further enquiry and accepted the loan as genuine and it was due to this that in the original assessment this amount was not treated as income from undisclosed sources. '

16. The assessee has a duty to disclose fully and truly all material facts necessary for his assessment. In the instant case, the printed balance-sheet, which is generally relied upon by the authorities, shows that this unsecured loan of Rs. 60,150 was taken from Surekha Jute Company Ltd. and the Income-tax Officer cannot be blamed to have shut his eyes if he accepts this item as genuine on seeing it on the printed balance-sheet. If there was any mistake, that is, if Surekha Jute Company Ltd. has not been correctly printed in the balance-sheet but it should have been Surekha Jute Company, then it was the duty of the assessee to point it out at the time of assessment. Now, the argument that since in their ledger the particular loan was shown in the account of Surekha Jute Company, the Income-tax Officer ought to have accepted Surekha Jute Company Ltd. as shown in the balance-sheet, as Surekha Jute Company cannot absolve the assessee from the duty of disclosing fully and truly all material facts necessary for its assessment which would debar initiation of the proceeding under Section 147(a) in the instant case.

17. Putting definitely wrong things in the balance-sheet which is very likely to mislead and confuse the Income-tax Officer, cannot be stated to

be sufficient on the part of the assessee to discharge the burden of disclosing fully and truly all material facts necessary for its assessment as contemplated under Clause (a) of Section 147 of the Act.

18. The learned Tribunal has correctly observed :

' The learned counsel for the assessee has stated that in the balance-sheet for the year ended 31st December, 1963, there was a printing mistake and instead of printing it as Surekha Jute Co., it was printed as Surekha Jute Co. Ltd. But then this printing mistake made a lot of difference. '

19. If Surekha Jute Company was a proprietary concern and not a limited company as printed in the balance-sheet, it was the duty of the assessee to

point it out specifically at the time of assessment proceeding. But this was not done in the instant case.

20. The Tribunal has correctly observed that when a loan is shown from a limited company the accounts of which are audited, the Income-tax Officer is likely to accept the credit as genuine. Subsequently, on enquiry, the Income-tax Officer could find that there was no Surekha Jute Company Ltd. but there was a jute concern styled as Surekha Jute Company owned by one Bidyananda Surekha and who is also found to have made some statements on different dates before the income-tax authorities at Calcutta admitting that he lent his name to various parties to enable them to bring in their concealed income in the form of loans.

21. Under the facts and circumstances of the case, it can be safely held that the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year 1964-65, in the instant case, income chargeable to tax has escaped assessment for that year.

22. In the result we hold that the initiation of the proceeding under Section 147(a) of the Act, in the instant case, was justified.

23. We accordingly answer the first question of law in the affirmative and in favour of the department.

24. The learned counsel for the petitioner has drawn our attention to the assessment orders relating to the assessment years 1965-66, 1966-67 and 1967-68, wherein the Tribunal allowed deduction in respect of the interest of this particular sum of Rs. 60,000. The learned counsel for the petitioner also has submitted that the interest due on this loan of Rs. 60,000 in subsequent years were paid by cheques, etc. But it should be remembered that the reference court is not an appellate court and the findings of fact arrived at by the Tribunal in its order are binding on the reference court and there cannot be reappreciation of evidence by the reference court in the light of subsequent findings of the Tribunal in subsequent assessment orders.

25. Though, the Tribunal held that the initiation of the proceeding under Section 147(a) was valid, it held that addition of Rs. 60,000, as sustained by the .Appellate Assistant Commissioner relating to the cash credit in question,' was unjustified for non-compliance of Section 142(3) and accordingly it set aside the order of the Appellate Assistant Commissioner relating to the confirmation of cash credit of Rs. 60,000. The Tribunal also directed the Appellate Assistant Commissioner to make further enquiry regarding this sum of Rs. 60,000 on the lines indicated in its order.

26. The Tribunal has held that there was no sufficient material before it to decide whether the loan of Rs. 60,000 was genuine or spurious. The

Tribunal also has held that in the addition of this sum of Rs. 60,000 as income of the assessee from undisclosed sources there was non-compliance with the provisions of Sub-section (3) of Section 142 of the Act. The Tribunal has correctly held that the alleged statements of Bidyananda Surekha, made before the income-tax authorities at Calcutta admitting that he had lent his name to various parties to enable them to bring in their concealed income in the form of loans, were not placed before the assessee and this is in complete violation of the provisions of Sub-section (3) of Section 142 of the Act. It is also not known whether those alleged statements of Bidyananda Surekha referred to the particular loan of the assessee. In the circumstances, the Tribunal was correct in setting aside the order of the Appellate Assistant Commissioner relating to the cash credit of Rs. 60,000 and remanding the matter for further enquiry by the Appellate Assistant Commissioner.

27. In view of the facts and circumstances of the case, we answer the second question of law also in the affirmative and in favour of the department.

28. The reference is answered accordingly. In the facts and circumstances of the case, we, however, make no order as to costs.

M. Sadanandaswamy, J.

29. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //