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Sterling Machine Tools Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 506 of 1976
Judge
Reported in[1980]122ITR926(All)
ActsIncome Tax Act, 1961 - Sections 147
AppellantSterling Machine Tools
RespondentCommissioner of Income-tax
Appellant AdvocateC.S. Agarwal, Adv.
Respondent AdvocateR.K. Gulati and ;A. Gupta, Advs.
Excerpt:
.....against the assessment order for 1966-67, held that the note dated may 17, 1968, given by sri satish chandra was null and void in law and so in his opinion the initiation of proceedings for the year under consideration was bad and invalid and hence he annulled this reassessment. the tribunal considered this appeal along with three other appeals relating to the assessment year 1966-67. the tribunal did not agree with the aac on the question of the validity of the note dated may 17, 1968, given by satish chandra and held that it was a perfectly valid document which had been written after due deliberation. thus, in the opinion of the tribunal the report of experts and the aforesaid letter of satish chandra constituted information within the meaning of section 147(b) and the initiation..........m/s. sterling machine tools, agra, was a partnership firm consisting of 4 partners including sri satish chandra. the assessee carried on business of manufacture and sale of centering machines and also purchase and sale of spare parts for the assessment year 1965-66. for the previous year ended december 15, 1964, the assessee filed a return showing an income of rs. 34,148-43 on sales of rs. 1,86,000. the ito made the assessment on august 5, 1966, and computed the total income at rs. 37,218. during the previous year relevant to the assessment year 1966-67, the assessee carried on the same business and during the course of assessment for that year, on enquiry from the vigilance bureau and the boards of experts, the ito found that the actual cost of a centering machine came to rs. 7,331,.....
Judgment:

Rastogi, J.

1. The assessee, M/s. Sterling Machine Tools, Agra, was a partnership firm consisting of 4 partners including Sri Satish Chandra. The assessee carried on business of manufacture and sale of centering machines and also purchase and sale of spare parts for the assessment year 1965-66. For the previous year ended December 15, 1964, the assessee filed a return showing an income of Rs. 34,148-43 on sales of Rs. 1,86,000. The ITO made the assessment on August 5, 1966, and computed the total income at Rs. 37,218. During the previous year relevant to the assessment year 1966-67, the assessee carried on the same business and during the course of assessment for that year, on enquiry from the Vigilance Bureau and the Boards of Experts, the ITO found that the actual cost of a centering machine came to Rs. 7,331, whereas the assessee claimed the same at Rs. 9,432. When Satish Chandra, partner, was confronted with that report he gave a note in writing on May 15, 1968, to the ITO stating that though his cost was much more, yet in view of the opinion of the experts he was willing to his income being worked out on that basis. Because of the aforesaid report of the Board of Experts and the note of Satish Chandra, the ITO initiated proceedings under s. 147(b) of the I.T. Act, 1961, for the assessment year 1965-66 and issued a notice to the assessee under Section 148. Pursuant to thatnotice the assessee filed a return showing an income of Rs. 37,218, that is the figure which had been determined in the original assessment. The ITO made the reassessment and in doing so added a sum of Rs. 98,028 representing the difference in cost in the price of the machines as per the note of Satish Chandra and the opinion of the Board of Experts, and as per the assessee's books which came to Rs. 8,169 per machine, and thus the total income computed came to Rs. 1,35,296.

2. The assessee appealed. The AAC had, in the appeal filed by the asses-see against the assessment order for 1966-67, held that the note dated May 17, 1968, given by Sri Satish Chandra was null and void in law and so in his opinion the initiation of proceedings for the year under consideration was bad and invalid and hence he annulled this reassessment. Being aggrieved, the revenue took up the matter in appeal before the Appellate Tribunal. The Tribunal considered this appeal along with three other appeals relating to the assessment year 1966-67. The Tribunal did not agree with the AAC on the question of the validity of the note dated May 17, 1968, given by Satish Chandra and held that it was a perfectly valid document which had been written after due deliberation. Thus, in the opinion of the Tribunal the report of experts and the aforesaid letter of Satish Chandra constituted information within the meaning of Section 147(b) and the initiation of proceedings thereunder was thus perfectly justified. However, coming to the quantum of the income assessed, the Tribunal found that in the first instance the AAC had not dealt with that aspect and, apart from that, the aforesaid admission made by Satish Chandra was relevant to the assessment year 1966-67 and for 1965-66 at best it could be treated as a piece of evidence and not as admission and hence the matter was remanded to the ITO to recompute the income. Now, at the instance of the assessee, the following question has been referred by the Tribunal for our opinion :

'Whether, the Tribual was right in law in holding that the Income-tax Officer had 'information' in his possession within the meaning to be given to that word under Section 147(b) of the Income-tax Act, 1961, from which he could have reason to believe that income chargeable to tax in the assessment year 1965-66 had escaped assessment and that the Income-tax Officer was justified in making the reassessment of the assessee for the assessment year 1965-66 ?'

3. On behalf of the assessee, it was urged before us that it was only a case of change of opinion and as such reopening of the assessment was not justified.

4. There was nothing to show that the ITO had information that the cost of manufacture of these machines as debited in the account books represented an inflated figure. It was brought to our notice that penalty forconcealment under Section 271(1)(c) for the assessment year 1966-67 was quashed by the Tribunal. After hearing counsel for the parties we do not find that there is much substance in this argument.

5. Section 147 of the Act, in so far as it is relevant for our purpose, reads:

'147. If--.....

(b) Notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, 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).....'

6. For the application of Clause (b) the essential ingredient is that the ITO should have had some information in consequence of which he had reason to believe that income chargeable to tax had escaped assessment. What does information in Section 147(b) connote has come up for consideration before the Supreme Court and the various High Courts time out of number. In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , when called upon to construe the corresponding provision as contained in Section 34(l)(b) of the 1922 Act, the Supreme Court held that the word 'information' means not only facts or factual material but includes also information as to the true and correct state of the law. Thereafter, in CIT v. A. Raman & Co. : [1968]67ITR11(SC) , this expression as occurring in s. 147(b) was held to signify instruction or knowledge derived from an external source concerning facts or particulars or as to law, relating to a matter bearing on the assessment. This definition has been reaffirmed in subsequent cases though in some cases a slight departure has also been made. It would not be necessary to refer to the same because of a recent decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT (Tax Reference Cases Nos. 1 to 4 of 1973) dated August 31, 1979 (since reported in : [1979]119ITR996(SC) ). The view expressed in this decision is that in so far as the word 'information' means instruction or knowledge concerning facts or particulars, there is little difficulty, the reason being (p. 1001):

'By its inherent nature, a fact has concrete existence. It influences the determination of an issue by the mere circumstance of its relevance. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality.'

7. As regards the meaning of information with reference to instruction or knowledge as to law the view taken is that when Section 147(b) refers to information as to law, what is contemplated is information as to the law created by a formal source, viz., a competent legislature or a competent judicial or quasi-judicial authority. In the present case, the information which constituted the basis for the formation of belief of the ITO was the information as to a certain fact and that fact was that the cost of centering machine as claimed by the assessee was much more than the cost estimated by the Board of Experts and, further, when one of the partners of the assessee-firm was confronted with that report he agreed to the computation of income on the basis of that report. The question is whether this would constitute information. In our opinion there can be no doubt about it because these two facts had concrete existence and they influenced the determination of the point at issue. They are also relevant for determining this question and that evidence was certainly used by the ITO in the computation of income of the assessee for the assessment year 1966-67. Thus, it was an information, instruction or knowledge derived by the ITO from an external source concerning the facts relating to a matter bearing on the assessment for the year under consideration. The view taken by the AAC, when the matter came up before him in appeal, was that since the letter given by Satish Chandra was invalid in law, the reopening of the assessment as well on the basis thereof was invalid. The Appellate Tribunal did not agree with that view. Apart from that the AAC forgot to take into considera- . tion the other piece of evidence which was in the form of the report of the Board of Experts. The question would be as to whether the formation of belief by the ITO on this basis was reasonable or not. We do not find any reason to hold that the formation of belief was in any way unreasonable. The legal value of an admission is that it is the best evidence that an opposite party can rely upon, and though not conclusive, is decisive of the matter, unless successfully withdrawn or proved erroneous: vide Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi : [1960]1SCR773 . The admission contained in the notice of Satish Chandra had not been withdrawn by the assessee nor had any attempt been made to prove that it was erroneons. On the basis of this admission and the expert's report, the assessment was framed for the assessment year 1966-67 and certainly on the basis of that the ITO could reasonably form a belief that the income for the assessment year 1965-66 had escaped assessment. On this view of the matter, we are not prepared to agree with the assessee's counsel that the reopening of the assessment was as a result of a mere change of opinion.

8. A feeble attempt was made by the counsel for the assessee to challenge the action of the ITO on the ground that the information did not relate to the assessment year under consideration, that is, 1965, and, as such, the formation of belief by the ITO was not justified. We are notimpressed with this argument either. In support of this submission reliance was placed on a decision of the Bombay High Court in Ramkrishna Ramnath v. ITO : [1970]77ITR995(Bom) . With respect to their Lordships of the Bombay High Court, who decided that case, we are not inclined to take that view. In our opinion, what is required is that the information received must be as to fact or law, it must relate to a matter bearing on the assessment and it must be derived from an external source. In Commr. of ST v. Bhagwan Industries (P.) Ltd. : [1973]2SCR625 , where the question was as to whether in the assessment year 1957-58 the assessing officer could have had an honest belief that the turnover had partially escaped taxation so as to start proceedings under Section 21 of the U.P. Sales Tax Act and the action was justified on the basis of facts gathered from the previous and subsequent years. It was found that for the assessment year 1955-56, the sales of atta, maida and sooji had amounted to over Rs, 58,18,425 and during the year 1958-59 to over Rs. 75,00,000. The assessing authority had also material with it to show that the quota of wheat for the respondent had been fixed in August, 1958, on the basis of the average of grinding shown in the past three years. Further, in spite of repeated notices, the respondent had not produced its account books for 1957-58. All these facts were held to be germane to the formation of the belief of the assessing authority that part of the turnover of the respondent had escaped assessment to tax.

9. We are, therefore, of the opinion that the letter of Satish Chandra, one of the partners of the assessee-firm, and the report of the Board of Experts, which materials had come into possession of the ITO during the course of assessment proceedings for 1966-67, were germane to his forming a belief that the assessee's income for the assessment year 1965-66 had escaped assessment. He thus acted well within the ambit of Section 147(b) and, that being so, we agree with the view taken by the Tribunal.

10. Our answer to the question referred, therefore, is in the affirmative, in favour of the department and against the assessee. The respondent-CIT is entitled to get his costs which we assess at Rs. 200 and counsel's fee in like amount.


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