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Bengal Luxmi Cotton Mills Ltd. Vs. Income-tax Officer, M-ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 389 of 1969
Judge
Reported in[1973]87ITR618(Cal)
ActsIncome Tax Act, 1961 - Section 148
AppellantBengal Luxmi Cotton Mills Ltd.
Respondentincome-tax Officer, M-ward and ors.
Appellant AdvocateD. Pal and ;R. Dutt, Advs.
Respondent AdvocateB. Bachawat and ;A. Sengupta, Advs.
Cases ReferredCalcutta Discount Company v. Income
Excerpt:
- .....year the petitioner had been given development rebate in respect of certain machinery in the original assessment. it is the case of the petitioner that these machinery were brought into use in the year prior to the previous year relevant for the present assessment year. in that year before the income-tax officer, according to the assessee, the assessee had produced all the relevant documents showing that these machinery had been brought into use by the petitioner and the petitioner was entitled to claim development rebate in accordance with the provisions of the act. the petitioner has, therefore, challenged the issue of the notice on the ground that there were no materials and no reasons for the income-tax officer to form the belief that due to any omission or failure on the part.....
Judgment:

Sabyasachi Mukharji, J.

1. In this application the petitioner challenges the notice issued under Section 148 of the Income-tax Act, 1961, in respect of the assessment year 1960-61. For the aforesaid assessment year the petitioner had been given development rebate in respect of certain machinery in the original assessment. It is the case of the petitioner that these machinery were brought into use in the year prior to the previous year relevant for the present assessment year. In that year before the Income-tax Officer, according to the assessee, the assessee had produced all the relevant documents showing that these machinery had been brought into use by the petitioner and the petitioner was entitled to claim development rebate in accordance with the provisions of the Act. The petitioner has, therefore, challenged the issue of the notice on the ground that there were no materials and no reasons for the Income-tax Officer to form the belief that due to any omission or failure on the part of the petitionerthere has been any under assessment or non-assessment of any income of the petitioner for the relevant assessment year. The officer who issued the notice in this case, Mr. Mannathhazhath Ramanathan, has affirmed an affidavit on the 27th April, 1970. In paragraph 3 of the said affidavit it has been stated that after the original assessment it was found out that some materials and/or particulars produced by the petitioner at the time of the original assessment were false and/or incorrect. It has been denied in paragraph 5 that there were no materials on which the Income-tax Officer should form the belief. In paragraph 10 it has been stated that after the completion of the original assessment it had come to the knowledge of the Income-tax Officer that the petitioner had claimed depreciation and development rebate on these machines which were not in fact purchased at all by the petitioner. The petitioner had been allowed depreciation and development rebate on the said machines during the original assessment. The petitioner was not entitled to such development rebate. In the aforesaid circumstances it was claimed that the reassessment proceedings were validly initiated.

2. Before me, Dr. Pal, learned counsel for the petitioner, contended, firstly, that the original Income-tax Officer had not filed any affidavit to controvert the assertion made on behalf of the petitioner that at the time of the original assessment the petitioner had produced all relevant facts. In the context of the facts of this case I do not think that fact is very relevant. In the affidavit of the accountant of the petitioner in support of this application no particulars have been given of what discussion took place with the Income-tax Officer at the time of the original assessment. When there is a dispute as to the question whether a particular objective fact had been disclosed or not at the time of the original assessment, the fact that the Income-tax Officer who has made the original assessment has not filed any affidavit may become a relevant consideration. But, that is not the position here. It is not a case where there is any serious dispute as to what was disclosed at the time of the original assessment but a case where in view of the facts gathered subsequently it appears that what was disclosed originally was not true and full disclosure of primary facts. It is also not a case where because of the subsequent information the Income-tax Officer had reason to believe that there was escapement or under-assessment of income. This peculiar feature of the instant case distinguishes this case from the decisions of Shiva Lal v. Income-tax Officer : [1970]77ITR999(Cal) , Ramniwas Kanailal v. S. P. Shinde, Income-tax Officer, D-I Ward, Bombay : [1965]56ITR659(Bom) and Narsinghdas Bagree v. Income-tax Officer, ' B ' Ward, District I(1) : [1966]61ITR172(Cal) Calcutta. It was further argued by Dr. Pal that no reasons hadbeen disclosed from which the court could come to the conclusion that therewere materials for the Income-tax Officer to form the belief as alleged. Reliance was placed on the well-known decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer : [1961]41ITR191(SC) as well as the decisions of the Supreme Court in the case of S. Narayanappa v. Commissioner of Income-tax : [1967]63ITR219(SC) and Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmundry : [1967]63ITR638(SC) . I had directed the income-tax department to produce before me the reasons and the records of the income-tax department. The brief history of the case was produced before me as well as recorded reasons. The said brief history of the case as well as the recorded reasons were shown to the learned counsel for the respondent. In the ' brief history it has been stated as follows :

' For some time past the Fraud section of the special police establishment and the company law administration have been making enquiries into the affairs of this company. In August, 1964, information was received from the special police establishment that purchases of new machineries amounting to Rs. 2,05,622, shown by the assessee in its books for the previous year relevant to the assessment year 1956-57 were not actually made. The company had claimed depreciation and development rebate on the aforesaid machineries in the assessment year 1956-57, which incidentally were allowed (the original assessment for this year was made on February 28, 1957).

There was thus a prima facie reason to believe that the income of the assessee for the assessment year 1956-57 escaped assessment within the meaning of Section 147(a) due to depreciation and development rebate having been granted, on the basis of the assessee's claim on machineries which were not actually in existence. Accordingly, proceedings under Section 148 read with Section 147(a) were initiated for that year after obtaining prior approval of the Commissioner of Income-tax, West Bengal III, Calcutta. The assessee filed a writ petition in the High Court (Matter No. 156 of 1965) and the High Court ordered that the respondents shall be prohibited and restrained from taking any further action under Section 148 till the disposal of the application. This is signed by the deponent, M. Ramanathan, and dated 1st November, 1969. The recorded brief reason is as follows :

' In the original assessment for this year, the assessee-company claimed depreciation allowance of Rs. 14,132 (normal extra shift allowance) on the written down value of machineries shown at Rs. 94,218, which was granted. On the basis of information in my possession I have reason to believe that these machineries did not exist at all. As such the assessee was not entitled to the above depreciation allowance of Rs. 14,132, which the company had claimed and was allowed in the assessment. The income of the assessee has accordingly escaped assessment due to its failure to disclose fully and truly all material facts necessary for the purpose of assessment.'

Learned counsel for the respondent wanted opportunity to file an affidavit, I am, however, unable to accede to his prayer to give him an opportunity to file an affidavit. In this application I am concerned with the belief of the Income-tax Officer on the basis of the aforesaid information alleged to have been received by the income-tax department. I am only concerned, to see whether in fact 'there were some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of underassessment ', in the words of the Supreme Court appearing at page 201 of the report in the case of Calcutta Discount Company v. Income-tax Officer. Whether these grounds are adequate or not for arriving at the conclusion is not for this court to investigate at this stage. In the face of the grounds indicated, in my opinion, it would be unreasonable and improper to hold that there was no reasonable ground at all for thinking that there had been some nondisclosure.

3. Dr. Pal contended that the alleged non-disclosure was regarding an inferential fact and not regarding any primary fact. It was contended that an inference drawn from a fact was also an inferential fact. Dr. Pal contended that whether machinery was purchased or not or whether they were in existence or not was an inferential fact and as such non-disclosure about purchase or bringing into use the machinery would be non-disclosure of an inferential fact. I am, however, unable to accept this contention. Whether a particular machinery was there or not, whether the petitioner had brought into use any machinery in a particular year is a primary fact in the facts and circumstances of this case. If that fact had not been disclosed that would be non-disclosure of primary fact. Merely because a particular fact has to be established by evidence does not automatically make it an inferential fact. The existence or non-existence of a primary fact may be required to be proved by evidence. Anything that requires to be proved by evidence is not necessarily an inferential fact. Therefore, in, the context of the allegations made it is not possible to accept the contention of Dr. Pal. I am not, in this case, concerned with the truth or otherwise of the present information received. If the present information received is true then it would be unreasonable to say that the petitioner had disclosed truly and fully all primary facts. In that view of the matter the conditions precedent required for the issue of the notice have been fulfilled. The contention urged on behalf of the petitioner cannot, therefore, be accepted.

4. The application, therefore, fails and the rule nisi is hereby discharged.. There will be no order as to costs. Interim order, if any, is vacated. Stay of operation is asked for, but in the facts and circumstances of this case I decline to grant any stay.


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