D.N. Sinha, J.
1. The facts in this case are shortly as follows; The petitioner is a private limited company incorporated under the Companies Act, 1956. The petitioner carries on the business of manufacturing razor blades. This application is concerned with a notice served upon the petitioner dated 22nd March, 1963 under Section 148 of the Income-tax Act, 1961, purporting to reopen the assessment of the petitioner for the year 1958-59. A copy of the said notice is annexure 'D' to the petition. It is stated in the notice that the Income-tax Officer had reason to believe that the income of the petitioner chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of Section 147 of the said Act. It was therefore, proposed to re-assess the income of the petitioner in the said assessment year. With regard to the assessment and re-assessment, only one point has been canvassed before me and it will? be necessary to state certain facts to understand the same. It is alleged on behalf of the petitioner that it was a pioneer in this country in the field of manufacturing razor blade's and it found it difficult to effect sale of its manufactured good's. It is stated that sometime in the year 1954 a scheme was introduced giving incentive-bonus to dealers who sold the petitioner's goods in the market.
Under the said scheme, bonus was payable to such dealers on the total quantity of blades sold by them during the year. Pursuant to the said scheme, the petitioner from the assessment year 1956-57 onwards provided in its profit-and-loss account for certain amounts which were payable-as incentive-bonus to the dealers as aforesaid. Reference is made to a resolution passed by the Board of Directors (at the meeting) held on the 22nd November, 1958, a copy whereof is annexed? to the petition and marked with the letter 'A'.
That resolution runs as follows: --
'Resolved that the Bonus at the reduced rate of 14 Naya Paisa per packet amounting to Rs. 3,80,038/- allowed to dealers on the sales for the year 1957-58 be approved. However, it is observed that by reducing the rate of Bonus this year the sales have not in any way improved as expected, and as such with a view to serve as an incentive the Managing Director is authorised to increase the rate of Bonus upto 25 Naya Paisa per packetin future if thought necessary and desirable.'
2. It is said that similar provisions were made for the subsequent assessment years. Thefollowing tabular statement sets out the position up to the assessment year 1960-61.
AssessmentyearAccountingyearBonus charged in P/L A/cBonus payable as appears in BalanceSheetActual Payments
3. On or about 26th March, 1962 the Income-tax Officer, 'F' Ward, Company District II issued a notice under Section 34 of the Indian Income-tax Act, 1922 in respect of the assessment years 1957-58. Pursuant to the said notice the Income-tax Officer re-assessed the income for the said assessment years and disallowed the provisions for incentive-bonus on the ground that the same was in the nature of an ex gratia payment. The petitioner has appealed against the said assessment order to the Appellate Assistant Commissioner which appeal is still pending, on 23rd March, 1963the petitioner was served with a notice dated 22nd March 1963, issued under Section 148 of the income-tax Act, 1961 for the assessment year 1958-59. Particulars thereof have already been set out above. In this application, it is this notice and the proceedings had thereunder which have been challenged. Sections 147 to 153 of the 1961 Act correspond to Section 34 of the 1922 Act. In the present case, the Income-tax Authorities are proceeding under Sub-section (b) of Section 147, the relevant provisions whereof are set out below:--
'147(a) * * * * (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 orrecomputed the loss or the depreciation allowance, as the case may be, for the assessment year concerned .
4. It is stated on behalf of the respondentsthat prior to the assessment in the year 1960-61 the assessee represented that It had introduced asystem of incentive bonus and this was broughtinto effect by an adequate resolution passed by theBoard of Directors and by circularising the dealers. In other words, a liability was incurredand this liability was shown in the profit and lossaccount. As the company carried on its business on a mercantile system of keeping accounts, these liabilities were allowed on the footing that they had been incurred and the amounts were payable to the dealers. The original assessment for the year 1958-59 was made under Section 23(3) of the 1922 Acton the 31st December, 1958. In this year, the company charged Rs. 3,80,038/- to the profit and loss account as incentive bonus. The Income-tax Officer asked three questions which were as follows : --
'(i) If you circularised the Scheme among your agents and stockists;
(ii) If the accounts of the agents and stockists to whom the incentive bonus is payable have been credited with the amounts payable to them; and
(iii) If the credit memos have been issued to them notifying them regarding credits given to them.
If the answer to sub-query No. (i) above is yes, please furnish a copy of the circular. If credit memos have been issued, office copies are to be furnished.'
5. The answer given was as follows:--
'i) As regards the Incentive bonus we beg to enclose herewith a copy of the circular issued to our customers in this respect which is self-explanatory.
ii) We have maintained a Register in which we have credited the amounts payable to each customer together with the quantity of blades sold and the total of this Register has been shown as a liability in the Balance Sheet to the customers on account of incentive bonus.
iii) No credit memos have been issued! to the customers as it is not our system to issue any credit memos. The amount has duly been admitted as a liability.'
6. Although the answers are unsatisfactory, it appears that the original assessment was completed and the amount shown as incentive bonus was allowed. It is stated that while enquiring into the assessment for the year 1960-61, two things were discovered. One was that a substantial part of incentive bonus which was stated to be due to dealers remained outstanding since 1955-56 and on an analysis of the accounts, the position was revealed as has been set out in the tabular statement set out above. It is stated that on further enquiries being made, it was found that in 1959 the company had introduced a scheme for payment of incentive bonus and it issued a circular. A copy of the circular has now been put on the record and marked as Ext. A. The relevant part of this circular is as follows: --
'Sub. Ex-Gratia Bonus Payment.
To facilitate the payment of Ex-Gratia Bonus which we intend giving to our dealers on the sales of our Safety Razor Blades during the years 1955-56, 1956-57 and 1957-58, the following scheme is introduced: --
'Out of the amount of bur Bills for the supply of 6-Morning Thin Gold and/or Panama ThinGold Blades at the above rates to such dealers who are eligible under the scheme and concur herein,a sum calculated at the rate of Rs. 2/- per packet of 100 Blades will be deducted and adjusted towards the Bonus mentioned in para 2 above and only the balance amount of the bill will be recovered from them. Bonus will not be paid in any other form except us stated above.
Please confirm your acceptance of the abovearrangement.
7. It is on the strength of these new materials that the Income-tax Officer served a notice under Section 34 of the Income-tax Act, 1922 for the assessment year 1957-58 and a notice under Section 148 of the Income-tax Act, 1961 for the assessment year 1958-59, with which we are concerned in this case.
8. The argument put forward on behalf of the petitioner is that the matter does not come within the scope of Section 147(b) of the 1961 Act. In order to come within that provision of law, it must be established that the Income-tax Officer has, in consequence of information which has come to his possession, reason to believe that income chargeable to tax has escaped assessment in any assessment year. It is argued that the duty of an assessee is to place all the primary facts before the Income-tax Authorities and if it has done so, it has done its entire duty and if the assessing authority came to a wrong conclusion on the disclosed fads then it cannot be corrected under Section 148 or its previous counterpart namely, Section 54 (i) (b) of the 1922 Act. Reference is made to a Supreme Court decision, Calcutta Discount Co. Ltd. v. Income-tax Officer, : 41ITR191(SC) . It has been laid down in that case that so far as primary facts are concerned, it is the assessee's duty to disclose all of them including particular entries in account books, particular portions of documents, and documents and other evidence which could not have been discovered by the assessing authority, from the documents and other evidence disclosed. The duty however does not extend beyond the full and truthful disclosure of all primary facts.
It is not the duty of the assessee to give any assistance beyond it. It is for the assessing authority to decide as to what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. A reference has also been made to a Division Bench judgment of the Madras High Court Sankaralinga Nadar v. Commr. of income-tax, Madras (1963) 48I. T. R. 314 (Mad). The learned Judge deciding the case there said as follows: --
'The question for consideration is whether theIncome-tax Officer had information in his possessionin consequence of which he had reason to believethat income, profits or gains had escaped assessment. It is true that 'information' and 'reason tobelieve' constitute the essential requisites and the basic foundation to set in motion themachinery of reassessment under Section 34 (1) (b)of the Act. There is no jurisdiction on the partof the officer to start upon a venture of re-assessment in a haphazard fashion on mere suspicion in the hope of unearthing an escapement of tax. Whether the officer had reason to believe, in consequence of information in his possession, may not be a justiciable issue in a proceeding of this court under section 66 of the Act and to that extent it may really be a matter of subjective satisfaction of the officer concerned, but it is open to the assessee to assail the jurisdiction of the officer on the ground that he had no information upon which he could reasonably believe that any income had escaped assessment. While the complete absenceof information might knock the bottom out of the jurisdiction of the officer, so long as there is some information in his possession upon which a belief of escapement of assessment could be said to be not unreasonably entertained, the jurisdiction is well founded.'
9. The next case cited is a Bench decision of the Patna High Court Bhimraj Pannalal v. Commr. of Income-tax, B and O. : 32ITR289(Patna) . The learned Judge deciding that case said as follows:
'Clause (b) of Section 34 (1) also requires that the Income-tax Officer must have reason to believe in consequence of information in his possession, that income has wholly or partly escaped assessment. All that Clause (b) of Sub-section (1) requires is that the Income-tax Officer must have in his possession information, and, in consequence of such information, he must have reason to believe that income has escaped tax. Further, where the assessee has failed to make a return of his income, or to disclose fully and truly all material facts necessary for his assessment leading to a reasonable belief that this income has wholly or partly escaped assessment, Clause (a) comes into operation, and, that clause does not require any other condition to be fulfilled. Under the amended Section 34, the Income-tax Officer cannot institute afishing investigation or enquiry merely with the object of finding out facts which would entitlehim to re-open a past year's assessment; but if in the course of the assessment of a subsequent year some information conies into his possession, from which he has reason to believe that income has escaped assessment, he would be entitled to proceed under this section.'
10. With respect, I think that these are some of the recognised tests to be applied to the facts of each case. It is, therefore, necessary to decide as to whether in the instant case the Income-tax Officer could be said to have received any fresh information which could reasonably have induced him to believe that in respect of a year for which assessment has already been completed, has escaped assessment. In this particular case, the Income-tax authorities did not tax the bonus said to be payable to dealers as incentive bonus since the assessment years 1956-57. While making enquiries In course of assessment for the year 1960-61, a very important document was discovered namely the circular issued to the dealers in 1959. This circular relates to bonus payable during the years 1955-56, 1956-57 and 1957-58 retrospectively and to the following assessment years prospectively. It is found that the circular characterises the bonus as being 'ex gratia'. This would naturally requirecertain other facts disclosed before the income-tax authorities to be re-examined. The amount shown as payable on the heading of incentive bonus in the profit and loss accounts had been allowed in the past on the basis that they were legally due and owing and that the liability was complete although payment had not actually been made for the full amount.
As the accounting was on a mercantile basis, the amount which the company was liable to pay was taken to have been paid. The scheme as envisaged in the circular of 1959, however, states that thepayment was not one which the company was liable. to pay in law but was a mere 'ex gratia' payment. The following facts would then have to be re-examined. It was previously stated that the Board of Directors passed a resolution to the effect that incentive bonus would be paid and this was communicated to the dealers by circular. The authorities called upon the assessee to produce evidence to show that this circular had been actually served on the dealers. No such evidence has been; produced. Next, it is found that ever since the year 1956-57, only a fraction of the amount said to be due has been paid. For example, in the year 1956-57 no amount was at all paid. In the year 1959-60 a sum of Rs. 17,35,935/- was said to be due out of which only Rs. 62,407/- has been paid, in the year 1960-61 a sum of Rupees 25,57,343/-was said to be due out of which only Rs. 2,64,361/- has been paid. This goes towards proving that the amount payable was really 'ex gratia' and that the dealers had no legal right to claim payment. Mr. Chowdhury has argued before me that at best, the 1959 scheme made provision for the payment of sums already due and owing and merely laid down a method of payment. In my opinion, that is begging the question.
It may be that there was a completed legal liability and the scheme was merely evolving a method of payment, but on the other hand, it may equally be that the payments were not legally due but were merely payments to be made 'ex gratia',at the sweet will of the assessee. Otherwise, it is difficult to understand how a condition was being laid down that the amounts would not be paid in cash but would be deducted from the dues of the dealers in subsequent years. Supposing a dealer had stopped doing business of the company, how would he fit-in with the scheme? It is not for me at this stage to come to a conclusion on this point. At the present moment all I am concerned with is to decide as to whether the conditions laid down in Section 147(b) are fulfilled. If I am satisfied that the Income-tax Officer had sufficient information and had bona fide formed the belief that income had escaped assessment then I cannot possibly stop the proceedings Under Sections 147 to 153. I cannot prejudge as to what conclusions the Income-tax Officer would arrive at after he has fully investigated the position. In my opinion, the conditions laid down in Section 147(b) are full filled upon the facts and circumstances of the present case. The Income-tax Authorities were proceeding previously on the assumption that the amounts shown as due in the profit and loss account as incentive bonus were amounts in respectof which a legal liability had accrued fully and completely.
Information has now been received that the payments were of an 'ex gratia' nature. In other words, information has reached the assessing authority that the dealers had no right to claim these amounts but the assessee could pay them at its own sweet will or not pay them at all or impose condition of payment. Such facts would have a vital bearing on the question as to whether they should be allowed as expenditure or liability, even in a mercantile system of accounting, it is necessarythat the matter should be investigated from this new angle. It is still open to the assessee to satisfy the Income-tax Officer that the liability was an absolute one.
11. For the reasons aforesaid, this application fails and must be dismissed. The rule is discharged. Interim orders, if any, are vacated. There will be no order as to costs.