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Shree Gouri Shankar Jute Mills (P.) Ltd. Vs. Income-tax Officer, d Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 24 of 1973
Judge
Reported in[1978]112ITR1031(Cal)
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantShree Gouri Shankar Jute Mills (P.) Ltd.
Respondentincome-tax Officer, "d" Ward and ors.
Cases ReferredOfficer v. Lakhmani Mewal Das
Excerpt:
- .....under section 143(3) of the income-tax act, 1961 (hereinafter referred to as 'the act'), for the assessment year 1963-64. from the copy of the assessment order, which is at page 38 of the paper book, it appears that the income-tax officer, who made the assessment, disallowed a sum of rs. 4,06,488 claimed by the appellant on account of loss in p.d.o. transactions because according to the income-tax officer they were speculative in nature as there was no delivery of the goods and he added back the said sum to the assessee's income. thereafter, the appellant preferred an appeal against the said assessment order to the appellate assistant commissioner challenging, inter alia, the disallowance of the said loss of rs. 4,06,488. thereafter, the impugned notice dated august 21, 1970, issued.....
Judgment:

R.N. Pyne, J.

1. This appeal is directed against the judgment and order dated August 1, 1972, passed by P. K, Banerjee J., whereby his Lordship dismissed the appellant's application made under Article 226 of the Constitution challenging the notice dated August 21, 1970, under Section 148 of the Income-tax Act, 1961, and the summons dated December 29, 1970, under Section 131 of the said Act and for cancellation thereof. For proper appreciation of the controversy involved in this appeal it is necessary to refer briefly to the relevant facts leading to the making of the said application under Article 226 of the Constitution.

2. On March 26, 1968, the appellant was assessed under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1963-64. From the copy of the assessment order, which is at page 38 of the paper book, it appears that the Income-tax Officer, who made the assessment, disallowed a sum of Rs. 4,06,488 claimed by the appellant on account of loss in P.D.O. transactions because according to the Income-tax Officer they were speculative in nature as there was no delivery of the goods and he added back the said sum to the assessee's income. Thereafter, the appellant preferred an appeal against the said assessment order to the Appellate Assistant Commissioner challenging, inter alia, the disallowance of the said loss of Rs. 4,06,488. Thereafter, the impugned notice dated August 21, 1970, issued under Section 148 of the Act was served on the appellant by the Income-tax Officer, ' A ' Ward, Jute Circle, Calcutta, on the ground that certain income of the appellant chargeable to tax for the assessment year 1963-64 had escaped assessment within the meaning of Section 147 of the Income-tax Act. A summons dated December 29, 1970 was, thereafter, issued under Section 131 of the Act by the said Income-tax Officer calling upon the appellant to give evidence and produce certain* documents as mentioned in the said summons. Thereafter, certain correspondence passed between the appellant and the revenue (copies whereof will appear from pages 52 to 59 of the paper book) and finally after serving a notice of demand through its solicitor dated 6th March, 1971, the appellant moved this court under Article 226 of the Constitution challenging the notice and the summons as stated herein-above.

3. In the above application an affidavit-in-opposition affirmed by one Subha Narasimham, Income-tax Officer, 'A' Ward, Jute Circle, on February 15, 1972 was filed on behalf of the respondents. In para. 13 of the said affidavit it was stated by the deponent that :

4. The said notice was issued inasmuch as the Income-tax Officer had reasons to believe and bona fide believed that owing to omission or failure of the petitioner to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. The notice was issued after the Income-tax Officer had recorded his reasons in writing, and after the Commissioner of Income-tax had been satisfied on the recorded reasons that it was a fit case for the issue of such notice. A copy of the recorded reasons of the Income-tax Officer annexed to the said affidavit reads as follows :

' Note Re : Action Under Section 147.

Re: Shree Gouri Shankar Jute Mills (P.) Ltd.,

Calcutta.

It has come to my knowledge that the assessee has syphoned off profits through the media of P.D.Os. sold to M/s. Minamull Satyanarain and re-purchased through M/s. Jankidas Kanwarlal. The transactions pertain to the assessment year 1963-64. As such, a part of the income has escaped assessment for the assessment year 1963-64 on account of the said spurious contracts. Hence, the assessment has to be reopened after obtaining the prior sanction of the Commissioner of Income-tax, West Bengal-I.

(Sd.) (S. Narasimham).

Income-tax Officer, ' A ' Ward,

Jute Circle,

Calcutta.'

5. Thereafter, pursuant to the leave of the trial court another affidavit affirmed by the said Narasimham on April 28, 1972, was filed in the said application. In paras. 2 and 3 of that affidavit it was stated as follows :

' 2. I have made an affidavit on the 15th day of February, 1972, to which a note made by me regarding action against the petitioner under Section 147 of the Income-tax Act, 1961, has been exhibited and marked

'A'. 3. A copy of my letter to the Commissioner of Income-tax, WestBengal II, dated August 20, 1970, on which the sanction of the Commissioner was sought for reopening the income-tax assessment of the petitioner for the assessment year 1963-64 and the reasons recorded by me for issuing a notice under Section 148 of the Income-tax Act, 1961, on which the Commissioner duly granted such sanction after applying his mind and being duly satisfied are hereto exhibited and collectively marked ' A'. '

6. The reasons recorded by Narasimham referred to in his secondaffidavit are in the following terms :

'I have reason to believe that the assessee has concealed income particulars by concealing profits through spurious contracts in respect of purchase and sale of P.D.Os. The income as escaped is of the order of above Rs. 4 lakhs, and the said escapement is by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment year 1963-64, Hence, I request the sanction of the Commissioner for reopening the I.T. assessment of the assessee for the assessment year 1963-64, and for issuing notice under Section 148.

(Sd.) S. Narasimham,

(S. Narasimham),

Income-tax Officer,

'A' Ward,

Jute Circle,

Calcutta.'

7. The letter dated August 20, 1970, addressed by the Income-tax Officer, Narasimham, to the Commissioner of Income-tax, West Bengal I, Calcutta, mentioned in the second affidavit of Narasimham is set out hereunder :

' Office of the Income-tax Officer

'A' Ward : Jute Circle,

 Calcutta.;

No. J-C. Dated : 20-8-1970 To

The Commissioner of Income-tax,

West Bengal-I,

Calcutta.

Sub : Re-opening of I.T, assessment

under Section 147,

Shri Gouri Shankar Jute Mills Pvt. Ltd.,

Assessment year 1963-64

regarding.

It has come to my knowledge that there has been an escapement of income in the case of M/s. Shri Gouri Shankar Jute Mills Pvt. Ltd., for the assessment year 1963-64, The modus operandi adopted by the assessee is through the purchase and sale of P.D.Os. arising out of spurious contracts. In fact two of such contracts showed as having registered with the Eastern Jute and Hessian Exchange Ltd. have not been registered at all (sic). As such, I am submitting separately proposals under Section 147 of the, I.T. Act, 1961, for the assessment year 1963-64, and request that sanction may kindly be accorded for re-opening the assessment for the assessment year 1963-64.

Sd. S. Narasimham,

Income-tax Officer,

'A' Ward, Jute Circle,

Calcutta.'

8. Referring to the reasons recorded by the Income-tax Officer mentioned in his second affidavit set out hereinbefore and after considering the same, the learned trial judge was of the view that it prima facie appeared to him that there were some reasons for believing that the assessee had escaped assessment in respect of the year 1963-64 for a sum of Rs. 4 lakhs and the said reasons could not be said to be based on no material whatsoever. Learned trial judge, however, rejected the contention made on behalf of the appellant that the proceedings under Section 147 of the Act would make the pending appeal before the, Appellate Assistant Commissioner, wherein amongst other disallowance of Rs. 4,06,488 was challenged, infructuous. In the above view of the matter the learned trial judge dismissed the appellant's said application and discharged the rule nisi. It appears that the contention regarding the validity of the summons under Section 131 of the Act was not urged before the trial court on behalf of the appellant.

9. The short and the only question that really falls for consideration before us in this appeal is whether the Income-tax Officer before issuing the said notice under Section 148 of the Income-tax Act had any material relevant for the formation of the belief that due to omission or failure on the part of the appellant to disclose fully and truly all material facts, income chargeable to tax had escaped assessment for the assessment year 1963-64. In other words, whether the conditions precedent for exercise of the power under Section 147 of the Act were satisfied in the instant case. Before proceeding further we may indicate that the counsel appearing for both sides agreed that on the basis of three documents, namely, ' Note Re : Action Under Section 147 ', reasons recorded by S. Narasimham, Income-tax Officer, and the letter of the said Income-tax Officer dated August 20, 1970, which are at pages 79, 92 and 93, respectively, of the paper book, the question regarding validity of the said notice under Section 148 of the Income-tax Act would have to be considered and determined in this appeal.

10. Counsel appearing on behalf of the appellant submitted that in this case the recorded reasons and the documents mentioned above did not show that there was any material relevant for the purpose of the formation of the required belief or opinion by the Income-tax Officer. It was further submitted that the recorded reasons on which sanction of the Commissioner was given does not disclose any materials relevant for formation of the requisite belief. According to counsel the materials disclosed in this case could not be said to have any rational connection or relevant bearing upon the formation of the requisite belief. The belief of the Income-tax Officer was a mere pretence. It was submitted by the counsel that loss of Rs. 4 lakhs and odd claimed by the appellant as loss in respect of the P.D.O. contracts was disallowed by the Income-tax Officer and against which appeal was preferred by the appellant to the Appellate Assistant Commissioner. Therefore, as the said loss was disallowed by the Income-tax Officer it could not be said that the said sum escaped assessment and as such there could not be any ground for formation of the belief by the Income-tax Officer that the said sum had escaped assessment. Counsel further submitted that the revenue did not say that the said disallowed sum of Rs. 4,06,488 was not the sum of Rs. 4 lakhs and odd which according to the revenue had escaped assessment for which the assessment for the assessment year 1963-64 was sought to be reopened. It was also the submission of the counsel that the recorded reasons only referred to some spurious contracts without giving any particulars of such contracts. Referring to the letter dated August 20,1970, counsel submitted that in this letter, it is stated that ' the modus operandi adopted by the assessee is through the purchase and sale of P.D.Os. arising out of spurious contracts ', but it does not appear in that letter that the sale price was higher than the purchase price. Therefore, according to the counsel, there was no material for formation of the requisite belief under Section 147 of the Income-tax Act and, therefore, the notice under Section 148 was invalid. Counsel referred to the case of Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax : [1971]82ITR147(SC) and Income-tax Officer v. Lakhmani Mewal Das : [1976]103ITR437(SC) .

11. Counsel for the revenue has submitted that reading the said three documents it is quite clear that there were enough materials before the Income-tax Officer to form the requisite belief. He has submitted that in judging the validity of a notice under Section 148 the court is not concerned with the adequacy or sufficiency of the materials but would only see that there are materials relevant for the formation of the requisite belief. He has further submitted that two of the spurious contracts regarding P.D.O. transactions are mentioned in the note of the Income-tax Officer which is at page 79 of the paper book. It is also stated in the letter dated August 20, 1970 (page 93 of the paper book) why such contracts are spurious. Counsel has also submitted that it cannot be said that the sum of Rs. 4 lakhs and odd referred to in the recorded reasons, which is at page 93 of the paper book, is the same amount which was disallowed by the Income-tax Officer in the assessment order as stated hereinbefore.

12. From the said three documents it appears that there were materials before the Income-tax Officer for formation of the requisite belief for invoking jurisdiction under Section 147 of the Act. The said documents show that, according to the Income-tax Officer, escapement of income to tax was by means of syphoning off of the profits through the media of P.D.O. transactions, spurious in nature. Particulars of some such transactions are mentioned and why they were spurious is also indicated. In the document at page 92 of the paper book, it is stated that concealment of profit was through spurious contracts in respect of purchase and sale of P.D.Os. and escapement of income is of the amount of above Rs. 4 lakhs. But from the assessment order (at page 40 of the paper book) it appears that disallowance of loss was in respect of speculative transaction in P.D.Os. These speculative transactions do not necessarily mean that they are spurious in nature. Contracts regarding speculative transactions in P.D.Os. are not fictitious but are genuine contracts. Under such contracts parties do not intend giving or taking delivery of goods but that only difference between the purchase price and sale price would be paid. Therefore, it cannot be said that the amount disallowed by the Income-tax Officer on account of loss as aforesaid is the same as that mentioned in the recoided reasons at page 92 of the paper book. They may or may not be the same but at this stage it is not necessary for us to decide that question because at this stage we are not concerned with the adequacy or sufficiency or with the correctness of the materials relied upon by the Income-tax Officer. In judging the validity of a notice under Section 148 of the Income-tax Act we are only concerned with the question whether the concerned Income-tax Officer had any relevant materials for formation of the requisite belief. Beyond that the court is not concerned at this stage. On the materials disclosed in this case it appears to us that the reasons for the formation of the belief contemplated by Section 147(a) of the Income-tax Act for reopening the assessment have a rational connection and relevant bearing on the formation of the belief. It appears that there existed a direct nexus or live link between the materials coming to the notice of the Income-tax Officer and the formation of his belief that there had been escapement of income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The belief of the Income-tax Officer in the instant case cannot be said to be a pretence. In the instant case, the conditions precedent for reopening of the assessment as laid down in Section 147(a) of the Act being satisfied the notice given under Section 148 must be held to be valid. As the learned trial judge came to a correct finding his judgment and order should be upheld. This appeal is, therefore, dismissed. There shall, however, be no order as to costs.

S.C. Ghose, J.

13. I agree.


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