1. This is a reference under section 66(2) of the Income-tax Act, 1922 for the decision of the following question.
'Whether the Tribunal was right in holding that the reassessment proceedings against the applicant-company for the assessment year 1945-46 were validly initiated ?'
2. The assessee, Brihan Maharashtra Sugar Syndicate Ltd., Poona, which carries on business in the manufacture and sale of sugar, owns a sugarcane farm, the produce of which is utilised for the production of sugar. If the produce is inadequate to fee its factory which had a capacity of 33 tons per day, the assessee would be required to supplement its produce by outside purchases.
3. For the assessment year 1945-46, the corresponding previous year being the one which ended 30th September, 1944, the assessee showed a loss of Rs. 4,61,337. It filed before the Income-tax officer three types of accounts the 'Gur Manufacturing Account', the 'Sugar Manufacturing Account' and the 'Cane Plantation Account'. The sugar manufacturing accounts shows that during the relevant accounting year, the assessee had crushed 56,884 tons of sugar-cane, the cost of which is calculated at Rs. 29-8-0 per ton. There is no indication in this account as to how the particular rate was arrived at. The account shows that the assessee incurred a loss of Rs. 4,55,890 on the manufacturing of sugar. The cane plantation account which shows an 'agricultural profit free from tax' of Rs. 6,81,553 also contains as entry that 55,884 tons of sugar-cane was sold to the factory of the rate of Rs. 29-8-0 per ton. The income up to the stage of disposal of sugar-cane is agricultural income and while the price of the cane is credited to the cane plantation account for calculating agricultural profit it is debited in the sugar-manufacturing operations. The value of which the sugar-cane is taken to the manufacturing account as cost of raw material is fixed under the relevant part of rule 23 of the Income-tax Rules, 1922 'according to the average price at which it has been so sold during the year previous to that in which the assessment is made'. Adding the loss of Rs. 4,55,890 the depreciation the assessee claimed a total loss of Rs. 4,61,337.
4. By the first assessment order fated the 28th of February, 1947, the Income-tax officer accepted the assessee's books and statements, particularly in regard top the price of the sugar-cane at Rs. 28-9-0 per ton. This rate was accepted on the basis of the statement made by Mr. G. D. Apte, a representative of the assessee, that a small quantity of sugar-cane was purchased by the assessee from other growers at Rs. 29-8-0 per ton. On the basis, the Income-tax Officer arrived at a business loss of Rs. 2,70,233. This amount of loss and the depreciation of Rs. 78,521 were carried forward as there was no other income against which the same could be set off.
5. On the 24th March, 1954, the Income-tax Officer issued to the assessee a notice under section 34 of the Act for reopening the assessment. This notice was followed by correspondence was between the Income-tax Officer the assessee during the course of which the former wrote to the latter letter dated the 22nd on February, 1955, asking him to furnish information pertaining to the accounting year ended 30th September, 1944, regarding persons whom sugar-cane was purchased and the nature of evidence in support of the purchases. The letter proceeds :
'The company claimed the market value of the sugar-cane at Rs. 29-8-0 which was accepted by the department for the assessment purposes. After the assessment for 1954-46 was closed, it has come to any notice that sugar-cane was being sold in the round-about market at Rs. 19-4-0 only per ton as against Rs. 29-8-0 claimed by the company. Thus, the company had reduced the correct assessable income by inflation of expenses. Please, therefore, state your reasons why the assessment for the company for the assessment year 1945-46 should not be revised on the basis of the market price of sugar-cane which prevailed in the round-about locality, viz., at Rs. 19-4-0 per ton.'
6. By its reply of the 15th February, 1956, the assessee stated that 'the company did not purchase any sugar-cane from outsiders', that 'the company has to be reduce its own plantation from 1,600 to 1,250 acres and thus could not and did not purchase any sugar-cane from outsiders for manufacture of sugar' and that 'as there is no purchase from outsiders the question of evidence does not arise'. The assessee submitted a fresh return on the 10th of April, 1954, showing the same loss and was shown the original return.
7. Overruling the objections of the assessee for re-opening the assessment proceedings the Income-tax Officer held by his order dated the 28th of February, 1955 that firstly, 'the company had represented then that it had bought 80 tons of sugar-cane from outside, whereas it was admits that it did not buy any cane from outside in the accounting period', and, secondly, that 'the company had represented before the Income-tax Officer at the time of original assessment that the cane production it s frame was not sufficient and that in fact it wanted to buy more can but it could get only a small quantity from neighbouring cultivators. But, it is now admitted, due to small crushing capacity of the plant, the company could not and did not purchase any sugar-cane from outsiders for manufacture of sugar-cane in the accounting period'. The Income-tax of Officer calculated the average market price of the sugar-cane at Rs. 20-8-0 of the basis of comparable instances and held that the assessee had made a profit of Rs. 1,59,770 during the relevant year.
8. In its appeal before the Appellate Assistant Commissioner, the assessee urged two points one of which is not now relevant. The point which is relevant for the present purpose was that the circumstances of the case did not warrant the reopening of assessment proceedings under sections 34(1)(a) as there was no default on the part of the assessee in not disclosing truly and fully the particulars affecting its assessment. The Appellate Assistant Commissioner fixed the average market price of the sugar-cane at Rs. 25 per ton as he felt that it would be 'fair and reasonable to arrive at the average rate by reference to the companies in the south, instead of confining the 'average' to the rates shown by one or two companies particularly when the rates obtaining there are influence by circumstances, which can have no bearing on, and are markedly dissimilar to the set of facts pertaining to the case of appellant'. On the basis the Appellate Assistant Commissioner allowed a reduction of Rs. 2,69,262 in the profits added by the Income-tax Officer to the income of the assessee.
9. Both the assessee and the departmental field appeals to the Tribunal, the assessee asking for the restoration of the original assessment dated the 28th of February, 1947, and the department asking for restoration of the order of reassessment made by the Income-tax Officer on the 28th of February, 1955. The Tribunal dismissed the assessee appeal observing that the assessee representative bad made an untrue statement in the original assessment proceedings that sugar-cane was purchased from neighbouring cultivators and that the purchase was made at Rs. 28-8-0 per ton. According to the Tribunal no sugar-cane had actually been purchased during the relevant period and that was 'admitted by the assessee'. In these circumstances the Income-tax Officer who made the reassessment had reason to believe that a misrepresentation had been made by the assessee representative before the Income-tax Officer who made and initial assessment to the effect that 80 tons of sugar-cane had been brought from outside at Rs. 29-8-0 per ton with a view to get higher market value for its sugar-cane and there was a failure on the part of the assessee to disclose the material facts, fully and truly, by reason of which the income of the assessee had been under-assessed'.
10. The Tribunal dismissed the cross-appeal filed by the department and confirmed the finding of the Appellate Assistant Commissioner that the average market price of the sugar-cane would be Rs. 25 per ton under rule 23(2)(a).
11. The question for our consideration is whether the Tribunal was right to coming to the conclusion that the reassessment proceedings were validity initiated. Mr. Pandit, who appears on behalf of the assessee, contends that the pre-conditions of section 34(1)(a) of the Act not having been satisfied the Income-tax officer had no jurisdiction to reopen the assessment.
12. Section 34(1)(a) which has undergone several amendment read thus at the relevant time :
'34. (1) 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 of the income under section 22 for any year or to disclose fully and truly a material facts necessary for his assessment for that year, income, profit or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or...
he may in cases falling under clause (a) at any time within the eight years serve on the assessee, or if the assessee, is a company on the principle officer thereof, a notice containing all or any of the requirement which may be included a notice under sub-section (2) of section 22 and may proceeds to assess or reassess such income, profit or gains....and the provisions of this Act shall, so far as may be apply, accordingly according as if the notice were a notice issued under that sub-section.'
13. Now, Mr. Pandit is right that an assessment once made cannot be reopened under section 34(1)(a), unless the two conditions specified therein are satisfied. As held by the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta :
'To confer jurisdiction under this section to issue notice in respect of assessment beyond the period of four years, but within a period of eight years, from the end of the relevant year to two conditions have, therefore, to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profit or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such 'under assessment' have occurred by reason or either (i) omission or failure part on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment for that year. Both these conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years from the end of the year in question.'
14. This view was reiterated in S. Narayanappa v. Commissioner of Income-tax in which it was further held :
'...if there are in fact some reasonable ground for the Income-tax Officer to believe that there had been any non-disclosure as regard any fact, which could have there had been any non-disclosure as regards any fact which could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax officer did not hold the belief that there had been such non-disclosure. In other words the existence of the belief can be challenged by the assessee nut not sufficiency of the reasons for the belief.....The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reason s for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open challenge in a court of law.'
15. But the difficulty here is that neither before the Income-tax Officer nor before the Appellate Assistant Commissioner nor before the Tribunal was it contended that the Income-tax Officer had no reason to believe before the issuing the notice under section 34 that income-chargeable to income-tax had been under-assessed and that such under-assessment had occurred by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
16. As started earlier the notice under section 34 for reopening the assessment was served on the assessee on the 24th of March, 1954. During the course of correspondence which followed between the Income-tax Officer and the assessee, certain information was called for by the former from the latter, particular in regard to the sugar-cane alleged to have been purchased from outside growers at the rate of Rs. 29-8-0 per ton. By its reply of the 15th February, 1956, the assessee stated that if it had not purchased any sugar-cane from outsiders during the relevant year and that, therefore, there was no question of supply particular regarding such a purchase. It is significant that in this long and detailed reply no challenge was made by the assessee to the existence of belief in the mind of the Income-tax Officer regarding the conditions mentioned in section 34.
17. In the reassessment order dated the 28th of February, 1955, the Income-tax Officer had started that 'action under section 34 was taken with the previous section of the Commissioner of Income-tax Bombay South, Bombay for this assessment year as there were reasons to believe that the assessee-company had reduced its correct assessable income, inter alia by inflating debits or expenses, particulars in respect of which the company had not disclosed fully and truly'. A concession was made before the Income-tax Officer that the assessee did not buy any cane from outside in the accounting period. No challenge was made to the jurisdiction of the Income-tax Officer to reopen the assessment for want of compliance with pre-conditions of section 34.
18. The memorandum of appeal before the Appellate Assistant Commissioner shows that three points were taken on behalf of the assessee. The second point concerns the rate, while the third concerns the allowance set-off in respect of certain losses. The first point read to say that 'the action taken under section 34 of the Act is not legal and proper and according to law'. This point was been explained in the memorandum appeal itself by saying that 'really speaking, all the facts were properly placed before the Income-tax Officer by the representative of the company' and that,'all, books and information having been completely made available to the Income-tax Officer, his conclusion arrived at of the sugar can cannot be questioned by reopening an assessment beyond four years'. It is thus clear that none of the three points mentioned in the memorandum of appeal raises the question which Mr. Pandit is now seeking to raise before us.
19. The order of the Appellate Assistant Commissioner dated the 31st of January, 1957, also shows that no such pointy was urged before him. Paragraph 3 of the order says that two such points were urged in the appeal : 'Firstly, it was contended that the Income-tax Officer making the assessment had no proper jurisdiction. Secondly, it was stated that proceedings under section 34 have been wrongly initiated.'
20. It is clear from paragraph 4 of the order of the Appellate Assistant Commissioner that the contention regarding want of jurisdiction related to a wholly different point, namely, that the order by which the Central Board of Revenue transferred the case of the assessee to the special offer was discriminatory and therefore void. This contention was negatived. The second point which was urged before the Appellate Assistant Commissioner concerned itself with the question whether there was any default on the part of the assessee is not disclosing truly and fully particulars regarding the income during the relevant year.
21. Five points were taken by the assessee in his memorandum of appeal before the Tribunal from out which the first point is relevant. It says : 'That the learned Income-tax Officer, Spl. Circle, B.S., Poona, had reopened the assessment under section 34(1)(a) of the Act. This opening is objected to as not legal and proper. According to section 34(1)(a) all conditions precedent for reopening the assessment are not fulfilled nor proper procedure has been followed.' It is clear that from this point that it contains a challenge to the fulfillment of conditions for reopening the assessment and not to the fulfillment of conditions to the issuance of a notice under section 34.
22. The judgment of the Tribunal dated the 27th of March, 1958, also shows that the arguments advanced on behalf of the assessee were confined to two question : one, whether sugar-cane was purchased by the assessee during the relevant period, on which question there was a concession that no purchase was made, and, two, whether the rate fixed by the Appellate Assistant Commissioner was correct, on which question also concession was made that if the contention regarding the legality of reassessment failed the assessee would not press the claim for enhancement of the rate from Rs. 25 to Rs. 29-8-0 per ton.
23. Therefore, the point which Mr. Pandit seeks to raise before use was never raised at the any stage of the proceedings and it does not arise out of the order of the Tribunal. It is therefore not open to the counsel to raise it.
24. In the cases cited by Mr. Pandit, Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmundry and Madhya Pradesh Industries Ltd. v. Income-tax Officer, Nagpur, the assessees had challenged the assertion of the Income-tax officer that he had reason to believe that the income had escaped assessment due to the failure on their part to disclose material facts. Whether the challenge was well founded depended upon how effectively the Income-tax Officer that transversed the allegations of the assessee in his affidavit in reply. In the Calcutta Discount Company's case the affidavit of the Income-tax Officer was found to be inadequate. In Kantamani's case the affidavit of the Income-tax was accepted as adequate to show that he had reason to believe that the income was under-assessed on account of the failure of the assessee to disclose material facts. In the case of Madhya Pradesh Industries the Income-tax officer did not file any affidavit at all. As the proceedings recorded by him before issuing notice were also not produced nor his report to the Commissioner nor the Commissioner sanction, the Supreme Court felt it impossible to hold that the Income-tax Officer had any reason before him were relevant for the particular purpose.
25. Apart from this it is patent that a misleading statement was made on behalf of the assessee in the original proceedings that the assessee had purchased sugar-cane from outside growers at Rs. 29-8-0 per ton. The Income-tax Officer had made calculation below of the cane plantation account as follows :
'56,804 tons80 tons purchased at Rs. 29-8-0 per ton------------56,884 ..The company could get only 60-tons. It could not obtain accepting the accounts of the assessee the Income-tax Officer was wholly influenced by the figures supplied to him regarding the outside purchased made by the assessee and the rate at which the purchased were made.
26. It was conceded at all stages of the reassessment proceedings that a such purchases were in fact made. For the matter of that the assessee wrote a letter to the Income-tax Officer on the 15th of February, 1956, stating in unambiguous words that the company had not purchased sugar-cane from outsiders.
27. It is therefore, difficult to accept the argument that the Income-tax Officer had no reason to believe when he issued the notice under section 34 that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts the income chargeable to income-tax had escaped assessment or was under-assessed.
28. The whole of Mr. Pandit submission is founded on the negative basis that till the 2nd February, 1955, the Income-tax Officer did not call upon to the assessee to furnish particulars regarding the purchases made from outsiders and that instead the Income-tax Officers asked for particulars regarding matters apparently unconnected. It is true that the letters written by the Income-tax Officer to the assessee prior to the 2nd February, 1955, do not shows explicitly that he had reason to believe that the income of the assessee was under-assessed on account of his failure to disclose fully and truly facts in regards to purchases made from outsiders but it is important to bear in mind that the letters do not negative the existence of such a belief. We cannot, therefore, accept the contention of the learned counsel that the Income-tax Officer was conducting a sort of a finishing or roving inquiry during the course of which he stumbled across material relevant for the application of section 34.
29. Mr. Pandit finally submitted that we should call for a supplementary statement of the case from the Tribunal on the question whether there was any material before the Income-tax Officer on the basis of which that he could form the belief under-section 34(1)(a) of the Act. We see no justification for adopting this course. In the first place, it is matter of concession that a wholly untrue statement was made on behalf of the assessee in the original assessment proceedings. Secondly at no stage did the assessee repudiate the assertion of the Income-tax Officer that he had reason to believe that the income had escaped assessment due to the failure on the assessee's part to disclose material facts. There is no justification for giving a further lease of life to this old litigation.
30. For these reasons, our answer to the question is in the affirmative.
31. Before concluding, we would like to express our concerns that we are considering in 1971 the question whether proceedings of 1945-46 should be reopened. After this court made the rule absolute on the 28th of April, 1960 it was communicated to the Income-tax Appellate Tribunal on the 20th September, 1960. A question was formulated by this court under section 66(2) and the Tribunal was asked to submit it statement of the case. It was on the 1st February 1963, that the Tribunal drew up the statement of the case, but then it was not until the 25th May, 1963, that the statement was forwarded to this court. It is difficult to the understand the cause of this enormous delay. We hope that the President of the Tribunal will look into the matter and see that such delays are avoided in future.