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Shanmugasundaram Textiles Vs. Third Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 2104 of 1968
Judge
Reported in[1973]92ITR31(Mad)
ActsIncome Tax Act, 1961 - Sections 147
AppellantShanmugasundaram Textiles
RespondentThird Income-tax Officer
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredLtd. v. Income
Excerpt:
.....or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. it was also held that both these conditions were 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......by the petitioner were true or not. he proceeded to make the assessment on the basis that the materials furnished were true and complete. later, the income-tax officer has chosen to issue the notice, which is impugned herein, on the ground that the petitioner could not have imported the art silk, but could have sold the import licence and had made a profit therefrom. how the income-tax officer came to doubt the truth of the information furnished by the petitioner is not clear either from the counter-affidavit or from the materials available in the assessment records. as pointed out by the supreme court in the various decisions touching on this point, the income-tax officer must come to a prima facie conclusion on the question of escapement of income before he initiates the.....
Judgment:

Ramanujam, J.

1. This is a petition for the issuance of a writ in the nature of prohibition restraining the respondent from pursuing the reassessment proceedings in pursuance of the notice issued by him under Section 148 of the Income-tax Act, 1961.

2. The petitioner was a partnership firm which was dissolved on 20th March, 1964. For the assessment year 1960-61, the petitioner filed its return of income along with a trading and profit and loss account. The petitioner was engaged in the manufacture of handloom goods, and for the purpose of manufacture, it had imported 4,310 Ibs. of art silk for the value of Rs. 20,772 under an import licence. At the time of the assessment, the Income-tax Officer appears to have, asked the petitioner to furnish information about the quantity and the value of the imported art silk used in the manufacture. The petitioner had furnished the above information required by the Income-tax Officer. This is clear from certain entries made by the Income-tax Officer in the trading and profit and loss account filed by the petitioner which finds a place in the assessment file produced before us. The Income-tax Officer accepted the petitioner's return of income and completed the assessment on the basis that the income returned is correct.

3. The Income-tax Officer then issued a notice under Section 148 of the Income-tax Act, 1961, on April 8, 1968, stating that a portion of the petitioner's income had escaped assessment and that, therefore, it has become necessary to initiate proceedings under Section 147 of the Act. Thevalidity of this notice has been challenged by the petitioner in this writ petition.

4. It is contended on behalf of the petitioner that there is no material available to warrant the initiation of reassessment proceedings under Section 147, that the petitioner has disclosed fully all the materials necessary for the assessment even at the stage of original assessment and that, therefore, there is no scope for invoking the provisions of Section 147(a) in this case. The counter-affidavit filed in this case does not give any material to show that the materials originally furnished by the petitioner were not complete or untrue. Nor is there any material given by the respondent in his counter-affidavit to lead to the conclusion that the materials placed by the petitioner before the Income-tax Officer at the stage of the original assessment were not correct. The counter-affidavit also does not show that the respondent came to a prima facie conclusion that a part of the income of the petitioner had escaped assessment in view of certain non-disclosure of material facts at the time of the original assessment. The only point that is made out in the counter-affidavit of the respondent as a ground for initiation of reassessment proceedings under Section 147 of the Act is that the petitioner furnished only trading and profit and loss account along with the return of income, and that he did not furnish any particulars regarding the details of import licences granted to him, how he dealt with such licences, the nature of commodities imported, the nature of cloth manufactured out of the imported art silk yarn, etc. It has also been stated therein that the petitioner has kept back material particulars such as the names of the persons through whom the goods were imported and the name of the clearing agent through whom the goods were cleared. Even assuming that the above particulars referred to in the counter-affidavit were not giveri by the petitioner, the question is whether the non-furnishing of those particulars has resulted in any underassessment or an escapement of income.

5. The learned counsel for the petitioner referred to the well-known decision of the Supreme Court in Calcutta Discount Co, Ltd. v. Income-tax Officer, : [1961]41ITR191(SC) wherein their Lordships of the Supreme Court dealt with the scope of the jurisdiction of the Income-tax Officer under Section 34(1)(a) of the 1922 Act, which corresponded to Section 147(a) of the 1961 Act. It was held in that case that to confer jurisdiction under Section 34 to issue notice in respect of assessments beyond the period of four years, but within a period of eight years from the end of the relevant year, two conditions had to be satisfied. The first was that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under-assessed. The second was that he must have also reason to believe that such 'underassessment' had occurred by reason of either,'(a) omission or failure on the part of an assessee to make a return of his income under Section 22, or (b) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. It was also held that both these conditions were 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. It was also laid down in that case that the assessee's duty to disclose fully and truly all the materials necessary for the assessment does not extend beyond the full and truthful disclosure of the material facts, that he is not expected to assist the Income-tax Officer to draw proper inference from the material facts placed by him. In Commissioner of Income-tax v. Burlop Dealers Ltd., : [1971]79ITR609(SC) the Supreme Court again reiterated the same legal position. In that case, the assessee had disclosed its books of account and evidence from which material facts could be discovered. The question arose whether the assessee was under a legal obligation to establish before the Income-tax Officer the truth of the facts which he had placed before him. The Supreme Court expressed the view that once the assessee has placed all the books of accounts and the evidence from which material facts could be gathered, he was under no obligation to inform the Income-tax Officer about the possible inference that might be raised against him, and that it was for the officer to raise such an inference and if he had not done so in the original assessment, the income that escaped assessment could not be brought to tax under Section 34(1)(a).

6. In this case, as already stated, the petitioner gave the necessary particulars required by the Income-tax Officer. The Income-tax Officer chose to accept the materials as furnished by the petitioner without probing into the matter further to find out whether the particulars furnished by the petitioner were true or not. He proceeded to make the assessment on the basis that the materials furnished were true and complete. Later, the Income-tax Officer has chosen to issue the notice, which is impugned herein, on the ground that the petitioner could not have imported the art silk, but could have sold the import licence and had made a profit therefrom. How the Income-tax Officer came to doubt the truth of the information furnished by the petitioner is not clear either from the counter-affidavit or from the materials available in the assessment records. As pointed out by the Supreme Court in the various decisions touching on this point, the Income-tax Officer must come to a prima facie conclusion on the question of escapement of income before he initiates the reassessment proceedings by the issue of notice. But, in this case, there is no material placed before us either in the counter-affidavit or otherwise to show how and on what material the Income-tax Officer felt that there has been as escapement of income. In view of the said circumstances, the initiation of proceedings by the respondent under Section 147 of the Act by the issue of the notice should be held to be without jurisdiction. This writ petition is, therefore, allowed and the rule nisi is made absolute. The petitioner is entitled to its costs in thispetition. Advocate's fee is Rs. 150.


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