Sankar Prasad Mitra, C.J.
1. This is an appeal against a judgment delivered by A. N. Sen J., on July 24 and 25, 1975, dismissing an application under Article 226 of the Constitution. The petition under Article 226 was affirmed on behalf of the appellant by an affidavit of Mohammad Khaliloor Rahaman sworn on the 11th March, 1965. There were some amendments to the original petition and the amended petition, was reaffirmed by the same person on the 9th August, 1972.
2. In the petition, five several notices dated the 4th December, 1964, under section 148 of the I.T. Act, 1961, for the assessment years 1955-56 to 1959-60 were challenged.
3. It appears that the appellant's income for the assessment years 1953-54 and 1955-56 were assessed on an agreed basis at a flat rate of 9 per cent, on the total turnover of each year. The appellant is a registered partnership firm and carries on business, inter alia, in mining and export of manganese, chrome and other kinds of mineral ores.
4. On December 23, 1959, while the assessment for the assessment year 1956-57 was pending, the ITO made an ex parte assessment under section 23(4) of the Indian I.T. Act, 1922, for the assessment years 1957-58 and 1958-59. The appellant preferred appeals against the ex parte assessment.
5. While the appeals were pending before the AAC, the appellant made an application before the CBR for settlement of its tax liabilities for the assessment years 1957-58 to 1959-60. The revenue authorities made enquiries and investigations with a view to a settlement for the assessment years 1952-53 to 1959-60.
6. In December, 1959, the customs authorities searched the appellant's business premises.
7. In 1960, the I.T. authorities inspected the books, papers and documents which the customs authorities had seized and were lying in the custody of the Chief Presidency Magistrate. It is alleged that the I.T. authorities found certain discrepancies in various assessments.
8. On the 18th January, 1961, the ITO wrote to the appellant stating that as many as eleven categories of discrepancies in connection with pending assessment proceedings as well as the settlement petition had been found. The discrepancy No. VIII which the ITO had referred to related to under-invoicing amounting to Rs. 29 lakhs.
9. The appellant gave its reply to the ITO's letter on February 25, 1961.
10. The assessments for the years 1952-53 to 1955-56 were reopened on March 3, 1961, under section 34 of the 1922 Act. The tax authorities made investigations based on the allegations in the letter of the 18th January, 1961.
11. On the 27th March, 1961, a settlement was arrived at between the petitioner and its associate companies on the one hand and the CIT on the other, whereby the assessments and penalties of the petitioner were settled for the assessment years 1952-53 to 1959-60. The total income was settled at Rs. 79,44,963 and the penalty at Rs. 2,72,332.
12. On March 4, 1963, an agreement was executed by and between the appellant and the President of India represented by the CIT, Central, Calcutta, whereby it was agreed that the appellant would pay the outstanding dues by monthly instalments of Rs. 25,000 with retrospective effect from October, 1962.
13. The case of the revenue before us is that information was received from the customs authorities in June, 1963, that as a result of their subsequent raids and seizures a large number of documents had been discovered which tend to show that during the years 1962 and 1963 there was under-invoicing by the appellant to the extent of nearly a crore of rupees.
14. Then came the crucial notices of the 4th December, 1964, for the assessment years 1955-56, 1956-57, 1957-58, 1958-59 and 1959-60, whereby the ITO proposed to reopen the assessments for these assessment years. These are the notices, as we have already said, which have been challenged in the application under Article 226.
15. The appellant then addressed a letter dated the 26th December, 1964, to the CIT, West Bengal II, stating various facts and requesting the Commissioner to drop the proceedings started by the said notices of the 4th December, 1964.
16. The CIT, West Bengal II, by his letter dated the 25th February, 1965, informed the appellant that proceedings under section 148 of the 1961 Act had been started on information which was not there at the time the settlement was made in 1961.
17. The appellant then wrote to the ITO on the 2nd March, 1965, asking him, inter alia, to furnish the reasons and materials on the basis whereof the notices under section 148 had been issued.
18. The ITO by his reply dated the 3rd March, 1965, repeated the statements which the CIT had made on the 25th February, 1965, and requested the appellant to file returns pursuant to the said notices.
19. On the 8th March, 1965, the appellant's solicitor wrote to the revenue authorities demanding justice.
20. On the 12th March, 1965, a rule was issued by this court and an interim order wa? passed that the appellant would file returns in terms of the notices under section 148 and thereafter all further proceedings under the said notices would remain stayed until further orders of this court. This interim order was vacated by A. N. Sen J. on the 12th July, 1975.
21. Long arguments were advanced before us on behalf of the appellant. Numerous decisions of the Supreme Court and of our court were placed before us. The appellant's counsel emphasised that before effecting the settlement the revenue authorities carried on the fullest possible enquiries and investigations and it was highly improper on their part to reopen assessments for years for which they had made settlements. And the principles analogous to the principles of promissory estoppel should apply to this case. It has been urged that no new source of income has been subsequently discovered.
22. After going through the judgment of the learned trial judge, it seems to us, on the facts and in the circumstances of the case, that the authorities relied on would not assist us in disposing of this appeal.
23. Let us go through some of the relevant provision's of the 1961 Act directly applicable to this appeal. In Section 147(a) it is stated, inter alia, that if the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for any assessment year, income chargeable to tax has escaped assessment for that year, he may, subject to the provisions, inter alia, of Section 148(2) and Section 151 assess or reassess such income.
24. Under this provision, therefore, the ITO has the power to reassess income if he has reason to believe that, by reason of the omission or failure on the part of an assessee to disglose fully and truly all material facts necessary for his assessment for any assessment year, income chargeable to tax for that year has escaped assessment.
25. But to take action under section 147(a) the ITO is subjected to various restrictions. Sub-section (2) of Section 148 requires that the ITO shall, before issuing any notice under section 148, record his reasons for doing so. There are further restrictions in Section 151. Sub-section (1) of Section 151 provides that no notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied, on the reasons recorded by the ITO, that it is a fit case for the issue of such notice. Sub-section (2) of Section 151 prescribes that no notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied, on the reasons recorded by the ITO, that it is a fit case for the issue of such notice.
26. In the instant case, for the assessment year 1955-56, the sanction has been given by the Board. For the assessment years 1956-57 to 1959-60, the sanction has been given by the Commissioner.
27. After the appeal was argued before us for some time, the revenue authorities produced before us the ITO's report in connection with the starting of proceedings under section 147 of the 1961 Act. In this report the ITO says that the cases fall under section 147(a). In giving his reasons for starting proceedings under section 147(a) he has referred to a detailed investigation report which he had submitted on the 7th September, 1964. We have gone through the relevant portions of this investigation report. We set out below certain extracts from this report which speak for themselves. At pages 7, 8, 9 and 10 of the copy of the report which has been handed over to us we find the following statements:
' ......A consolidated estimate of income escaping assessment as a result of under-invoicing in chrome and manganese ores during the assessment years 1954-55 to 1959-60, in the hands of M/s. Serajuddin & Bros, and in respect of M/s. India Ferro Alloy Industries Private Limited, and M/s. Estate Minerals Development Company Private Limited is given below......
In the earlier part of this report, it has been mentioned that a settlement was effected between the department and M/s. Serajuddin & Bros, (including M/s. India Ferro Alloy Industries (P.) Ltd. & M/s. Estate Minerals Development Co. (P.) Ltd.) on 27-3-1961, when the file was in Central Circle, Calcutta. Apart from surplus in the balance sheet as prepared from undisclosed and unadjusted books of accounts relating to the assessment years 1957-58 to 1959-60, which was determined at rupees 26 lakhs (spread over in the above 3 years), a sum of Rs. 29.76 lakhs for ' on money 'as per seized personal note books written in the handwriting of Md. Serajuddin and a sum of Rs. 5.98 lakhs for inflation of expenses were also brought to tax under the terms of the settlement dt. 27-3-61, during the assessment years 1952-53 to 1959-60. The extracts regarding 'on money' recorded in the note books of Serajuddin revealed receipt of cash on various dates from a number of parties to whom sale of manganese and chrome ore was being made. Code words were used for each party. I have already furnished a settlement of year-wise receipt of ' on money' from each party and these amounts were not found recorded in the books of account kept by the assessee. However, in the absence of any particulars, this ' on money ' could not be co-related with reference to any particular contract or shipment. It is also not known whether the above secret record of Serajuddin was full and complete and whether he had fully accounted for all the clandestine receipts for under-invoicing his exports to the foreign customers. In the absence of definite evidence the amount included in the settlement assessments on account of ' on money' cannot be admitted to represent part of the under-invoiced profits estimated in this report, unless the assessee furnishes points of evidence to prove his contention. In the course of the settlement proceedings, the assessee did not admit this ' on money' as representing extra sale proceeds from his foreign shipments, nor in the settlement deed dt. 27-3-61. It has been accepted that these secret extra amounts collected overseas in foreign currency have been repatriated to India by various means to form the subject-matter of the settlement. In fact, in the settlement deed there is no mention at all of any evasion of tax due to under-invoicing of exports.
Even assuming that consideration may be given for the amount already included in settlement the final position would be as under:
Asstt. yr.Total estimated under-invoicingAmount considered as on money in settlementBalance to be taxed now
From the above table it is apparent that even after making allowance for overlapping substantial income has escaped assessment and actionUnder section 147 is necessary to re-open the proceedings for the assessment years 1955-56 to 1959-60. ...
It is regretted that this report has become unusually lengthy on account of the complicated nature of the case and the huge revenue involved in this group. The technique adopted by the cunning and ingenious devices adopted by the assessee required elaborate discussion on the entire background and operational activities of the business. In the end, it is submitted that though every effort has been made to obtain and extract as much relevant material as possible from the seized books of account, it is not possible to say at this stage that the evidence collected is full and complete. The volume of the seized records (about 2,000 files and documents) and the difficulties experienced in having access to the 1959 seizure books and also the fact that the records are kept somewhere else in the custody of other departments, are the factors responsible in this respect. Moreover, in the course of the reopened proceedings additional material and facts may have to be gathered for which further references will have to be made to the seized records as and when necessary under these circumstances.
Sd. P. L. Kanojia,
' A ' Ward, Dist. V(2),
28. Learned counsel for the appellant has urged before us that in the investigation report which has been shown to us, the ITO has merely made a proposal to reopen the assessments for the assessment years in question. There is no indication at all in this report of the formation of any belief that due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant years, the income chargeable to tax has escaped assessment. On the basis of such an investigation report, therefore, neither the Board nor the Commissioner should have given sanction to reopen the assessments and as such all the purported notices under section 148 dated the 4th December, 1964, should be struck down.
29. Now, Sub-section (2) of Section 148 requires that before issuing any notice under section 148 the ITO must record his reasons for issuing the notice. This subsection does not also require that he should state that he has formed the belief that, by reason of the omission or failure of the assessee, income has escaped assessment. This belief of his can be inferred from the reasons recorded and the manner in which the recording has been made. Each case has to be determined on its own facts. This is a case in which at no point of time the assessee has produced on its own any books, papers or documents relating to the assessee's income. Some of these books, papers and documents were seen by the revenue authorities before the settlement was arrived at in 1961. It is apparent from the report of the 7th September, 1964, that after the settlement the revenue authorities have examined other books, papers and documents which had not been either discovered or examined at all before the settlement and from the examination of these other books, papers and documents, the ITO has reached the conclusion in his report that the assessee had adopted cunning and ingenious devices in its operational activities which resulted in escapement of assessment. Upon consideration of this investigation report of the 7th September, 1964, we are clearly of opinion that in the instant case all the requirements of Sections 147(a), 148 and 151 have been complied with before the issue of the notices under section 148 dated the 4th December, 1964. Had this report been placed earlier before us, we would not have spent such a long time on this appeal. The recorded reasons, in our opinion, establish sufficiently that there was failure on the part of the assessee to disclose fully and truly all material facts relating to the relevant assessments. It is clear that many of the under-invoicings concerning transactions in chrome and manganese ores were not known to the I.T. authorities when they made the settlement in 1961.
30. We are, therefore, inclined to agree with the conclusions which the learned trial judge has reached. We dismiss the appeal, discharge the rule that was issued by this court and dismiss the application under Article 226 of the Constitution. Interim orders, if any, are vacated. We are making no order as to costs.
31. We direct that an engrossed copy of the extracts from the investigation report of the ITO dated the 7th September, 1964, which have been placed before us, be kept in the records of this appeal and be preserved in this court. We direct further that the revenue authorities shall preserve the entire records including the said report at least for a period of five years.
S.K. Datta, J.
32. I agree.