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income-tax Officer and ors. Vs. Calcutta Chromotype Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 109 of 1970
Judge
Reported in[1974]97ITR55(Cal)
ActsIncome Tax Act, 1961 - Sections 147 and 148; ;Income Tax Rules - Rule 19; ;Income Tax Act, 1922
Appellantincome-tax Officer and ors.
RespondentCalcutta Chromotype Pvt. Ltd.
Appellant AdvocateB.K. Bachawat and ;Ajit Sengupta, Advs.
Respondent AdvocateP.P. Ginwala and ;Pronab Pal, Advs.
Cases ReferredP.R. Mukherjee v. Commissioner of Income
Excerpt:
- .....failure to disclose that particular item in the course of the original assessment because in the balance-sheet which was submitted as a part of their return for the relevant year there was not only an entry showing on the liabilities side under the head 'machinery sales suspense' an amount of rs. 2,17,214.50, but also in that balance-sheet there was a note in theseterms : '2. machinery sales suspense rs. 2,17,214.50. this amount represents the sale proceeds of certain old machineries. the original cost of the machineries is not available at the moment and, therefore, the profit or loss on the sale cannot be ascertained for the present; the management prefers not to show this amount as a deduction from the value of the relative assets, until the said profit or loss is ascertained.' 2......
Judgment:

Amaresh Roy, J.

1. This appeal is on behalf of the revenue and has arisen out of an order made by our learned brother, T. K. Basu J., in Matter No. 53 of 1967, by which order his Lordship has granted a writ in the nature of mandamus directing the revenue who were the respondents before his Lordship to 'forthwith recall, cancel and withdraw the notice dated the 16th November, 1966, issued by the respondent No. 1 and a writ in the nature of prohibition restraining the respondents to forbear from giving any effect to the said notice. The respondents would, however, be at liberty to proceed according to law'. That order allowing the reliefs prayed for in an application under Article 226 of the Constitution arose in the following circumstances :

The respondent before us, Calcutta Chromotype (Private) Ltd., is a company incorporated under the Indian Companies Act and carries on business, inter alia, as manufacturers of playing cards, printers and lithographers. The assessment of the total income for the year 1960-61, under Section 23(3) of the Indian Income-tax, 1922, was computed at Rs. 1.62,271. After assessment for the year 1960-61 was completed by the Income-tax Officer, they were served with a notice dated the I5th November, 1966, under Section 148 of the Income-tax Act, 1961, which said that the Income-tax Officer had reason to believe that the company's income chargeable to tax for the assessment year 1960-61 has escaped assessment within the meaning of Section 147 of the Act. The Income-tax Officer by the said notice proposed to reassess the income for the said assessment year and called upon the company to submit the return of its income within the time specified in the said notice. The assessee-company then sent a letter dated the 18th January, 1967, requesting the Income-tax Officer to disclose the reasons upon which he had formed the belief that the company's income has escaped assessment. In that letter the assessee-company contended that the condition precedent for the assumption of jurisdiction under Section 147 has not been satisfied and also that the Income-tax Officer has no materials on which he had reason to believe that the company's income has escaped assessment. Thereafter, the company was informed by the Income-tax Officer who had given the notice by a letter dated the 31st January, 1967, that 'the reasons for reopening the assessment for the above year are that the profits on sale of machineries were not disclosed by you'. In that respect the company contended that there was no omission or failure to disclose that particular item in the course of the original assessment because in the balance-sheet which was submitted as a part of their return for the relevant year there was not only an entry showing on the liabilities side under the head 'Machinery sales suspense' an amount of Rs. 2,17,214.50, but also in that balance-sheet there was a note in theseterms : '2. Machinery sales suspense Rs. 2,17,214.50. This amount represents the sale proceeds of certain old machineries. The original cost of the machineries is not available at the moment and, therefore, the profit or loss on the sale cannot be ascertained for the present; the management prefers not to show this amount as a deduction from the value of the relative assets, until the said profit or loss is ascertained.'

2. Below that note on the auditor's report to the shareholders in that balance-sheet it had been said that the balance-sheet and the trading and profit and loss account dealt with by the report are in agreement with the books of account. The petitioner-company also contended in their application under Article 226 of the Constitution that during the assessment proceedings for the said, assessment year as desired by the Income-tax Officer a representative of the company gave a list of the machineries which were sold during the year before the said Income-tax Officer and the said officer duly considered the accounts and the statements which were produced in the course of the assessment proceedings.

3. Against that contention of the assessee-company on behalf of the revenue their learned counsel sought to contend that the relevant item of the profit was included in that balance-sheet and the balance-sheet of the company for the relevant assessment year was before the Income-tax Officer. That is not sufficient disclosure because the learned counsel for the revenue relied on the Explanation to Section 147 of the Act which provides that production before the Income-tax Officer of account books and other evidence from which material evidence could with due diligence has been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of Section 147 of the Act. This contention urged on behalf of the revenue was negatived by the learned trial judge, T. K. Basu J., by holding that Explanation 2 to Section 147 is confined to cases of books of account and other evidence which are produced in the course of assessment proceedings but the balance-sheet of a company is statutorily required to be filed along with the return of the company and so is a part of that return. In other words, the learned trial judge also proceeded to observe that once the statements contained in the balance-sheet are before the assessing authority, there is a duty cast on the assessing authority to enquire into those and find out whether they are relevant for the purpose of computation of the total income and the amount of tax consequent to that view ; the learned judge upheld the contention on behalf of the assessee-company and held that the notice under Section 148 has been without jurisdiction; not only so, the learned judgealso accepted the contention of the assessee-company that at the time of the original assessment the accounts and statements were fully discussed and the Income-tax Officer on a full consideration of the facts disclosed with regard to the sale of the machinery did not include any profits arising therefrom in the relevant year. He also pointed out that there was no affidavit filed by the Income-tax Officer who passed the original assessment order, namely, J. Nath, denying these assertions in the petition on behalf of the assessee-company under Article 226 of the Constitution. Upon that view which the learned judge said in his judgment and was fully dealt with by him in his judgment delivered in another case, namely, the case of Shiva Lal v. Income-tax Officer, 'L' Ward : [1970]77ITR999(Cal) , he allowed the reliefs prayed for in the petition under Article 226 of the Constitution.

4. Against that order the present appeal has been preferred by the revenue. Mr. Sengupta, the learned counsel for the revenue, contended before us that the inclusion of the entry in the balance-sheet which was filed along with, the return of income for the relevant year and also the note that was appended in that balance-sheet did not sufficiently disclose the material particulars in so far as the assessee-company had omitted to disclose the profit or capital gain that had been earned by the sale of these machineries and the primary duty of disclosure of material facts not having been performed, the notice under Section 148 was contended to be valid act under Clause (a) of Section 147 of the Income-tax Act, 1961. Mr. Sengupta in support of his contention relied on the judgment of the Division Bench of this court in Commissioner of Income-tax v. Hoosen Kasam Dada (India) Ltd. : [1973]91ITR453(Cal) , He also relied on the two well-known decisions of the Supreme Court :(1) in the case of S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) and (2) in the case of Kantamani Venkata Narayana and Sons v. First Addl. Income-tax Officer, Rajahmundry, : [1967]63ITR638(SC) . The learned counsel for the revenue also contended that the view that if it is shown that from what has been disclosed by the assessee the Income-tax Officer by diligent enquiries could have discovered further material particulars that would be sufficient disclosure for the assessee to preclude taking action under Section 147(a) by giving notice under Section 148 has been deprecated on those high authorities cited by Mr. Sengupta before us.

5. In answer to these arguments for the appellant the learned counsel for the respondent, Mr. Ginwalla, contended that the balance-sheet had to be filed along with the return by virtue of the provisions of Rule 19 framed under the Indian Income-tax Act, 1922, and that makes the balance-sheet so filed part of the, return itself. It cannot be characterised as merely books of account or evidence within the meaning of Explanation 2 underSection 147. That is the view that has prevailed with the learned trial judge in this case. We are inclined to take the same view; but at the same time we have to point oat that in the present case even if the balance-sheet is viewed as no more than a statement of accounts or evidence even then the note that has been appended in the balance-sheet concerning that particular entry which the auditors in their report have certified to be in accordance with the books of account by itself would be much more than mere books of account and a disclosure of the state of things up to the further knowledge of the assessee-company. Moreover, the assertion of the assessee-company is that during the proceedings of assessment as desired by the Income-tax Officer a detailed list of the old machinery sold was produced' before the Income-tax Officer; that list has been appended as an annexure to the petition. There is no effective denial for the revenue as to that assertion made on behalf of the assessee-company. That detailed list taken with what appears in the balance-sheet both in the entry and in the note appended are enough to show that the assessee-company had done their duty to disclose all material facts within their knowledge. It was brought to the notice of the Income-tax Officer at the original proceeding and he formed his own opinion as to how to act on those materials. To say now that it is reasonably believed that income has escaped assessment for the reason of any non-disclosure tends too bad to an expectation that an assessee has any duty to disclose matters which are not within his knowledge. That lack of knowledge of any further detail was asserted before the Income-tax Officer in the proceedings of original assessment for the relevant year. He had accepted that confession of ignorance and acted on it. By saying that he should not have acted that way, the Income-tax Officer who has issued the present notice is really acting on a different opinion regarding the same facts which the Income-tax Officer in the original assessment proceeding himself had the option. Mr. Ginwalla has submitted that no one, not even an assessee before the Income-tax Officer, can be expected to disclose what he does not know and was able to place before us an observation occurring in the judgment of a Division Bench of this court in P.R. Mukherjee v. Commissioner of Income-tax, [1956] 30 I.T.R. 535, 544 (Cal.). The judgment of the court was delivered by Chakravarti C.J. and the material portion relied on by Mr. Ginwalla reads thus :

'It may well be said, and I should think said correctly, that a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. A similar implication is carried by the word 'disclose', because one cannot be expected to disclose a thing or said to have failed to disclose it, unless it is a matter which he knows or knows of.'

6. We respectfully agree with the observations of the learned Chief Justice and in the present case, we, therefore, hold in agreement with the view of the learned trial judge that there has not been any omission to disclose material facts to enable the revenue to reopen the assessment for the year 1960-61 under Clause (a) of Section 147 of the Income-tax Act, 1961. The notice under Section 148 that has been issued for that purpose upon the purported ground of omission to disclose the profits must, therefor, be held to have been issued in excess of jurisdiction. There was no occasion in this case for the Income-tax Officer to gather further facts by enquiry. What he could have done in the original assessment instead of acting upon the view he has taken, to act upon the other view and proceeded to exercise the other powers under the Income-tax Act.

7. On behalf of the revenue Mr. Sengupta has referred to the material included in the affidavit-in-reply to say that the new information was provided to this Income-tax Officer who issued the notice under Section 148 by what the Wealth-tax Officer had known with respect to the same entry in the balance-sheet regarding the proceeds of sale of old machinery. That, in our view, is of no assistance to the revenue in this case because the reason for issue of the notice under Section 148 as disclosed is not any new information which is relevant under Clause (b) of Section 147 but its omission to disclose is relevant under Clause (a) of that section. Not only so, what the Wealth-tax Officer did in the state of ignorance of the assessee-company and also in the state of assumption is not relevant at all; it would be relevant only if with respect to the amount of proceeds of the sale of old machinery there would be additional information gathered and that also only under Clause (b) of Section 147. The view of the Wealth-tax Officer is not relevant at all.

8. In the result we uphold the order of the learned trial judge. The appeal fails and is dismissed without costs.

9. During the pendency of the appeal by an interim order the revenue had been allowed to proceed with the assessment proceeding and had been restrained only from issuing any demand notice or to realise the tax that might be assessed. It could not be stated before us with any firmness, how far assessment proceeding on reopening of the assessment has proceeded. If any assessment has already been made in addition to the order made in the trial court, there will also be an order to quash that assessment proceeding and the order of assessment, if any, made.

Amiya Kumar Mookerji, J.

10. I agree.


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