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1975 Supreme(Cal) 303
High Court Of Calcutta
M. N. ROY, S. K. MUKHERJEE
GRAHAMS TRADING CO.(INDIA) LTD. - Appellant
Versus
INCOME-TAX OFFICER, CENTRAL - Respondent
F. M. A. 391 Of 1971
Decided On : 09/29/1975
B.L.PAL, D.PAL, MONISHA SEAL, N.L.PAL, P.K.PAL
The ITO has jurisdiction to initiate reassessment proceedings under Section 147 of the Act, if there are materials on record for enabling the ITO to form the opinion or belief that there had been no true and faithful disclosure by the assessee as a result whereof there had been concealment and consequent under-assessment.
Headnote:
The court held that the Income Tax Officer (ITO) had jurisdiction to initiate reassessment proceedings under Section 147 of the Income Tax Act, 1961, as there were materials on record for enabling the ITO to form the opinion or belief that there had been no true and faithful disclosure by the assessee as a result whereof there had been concealment and consequent under-assessment.
Fact of the Case:
The assessee, a company, received notices under Section 148 of the Income Tax Act, 1961, for the assessment years 1950-51 to 1961-62, on the ground that the ITO had reasons to believe that the income of the assessee chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. The assessee challenged the notices, contending that there was no material on the basis of which the ITO could have reasons to believe that any income had escaped assessment. The ITO had relied on a report of the Central Bureau of Investigation (CBI), which alleged that the assessee had been selling Ovaltine in India on consignment basis on behalf of M/s. A. Wander Ltd. and was also in charge of the Ovaltine propaganda department, and that the assessee had failed to disclose fully and truly certain amounts which had escaped assessment.
Finding of the Court:
The court held that the ITO had jurisdiction to initiate reassessment proceedings under Section 147 of the Act, as there were materials on record for enabling the ITO to form the opinion or belief that there had been no true and faithful disclosure by the assessee as a result whereof there had been concealment and consequent under-assessment. The court also held that the subsequent disclosure of the report for initiating the proceedings and which constitutes the very basis for the formation of the belief is in substantial compliance with the requirements of the statute and the primary material, viz., the report of the CBI which is the basis for the formation of the belief and initiation of the proceedings, need not have been disclosed earlier.
Issues: Whether the ITO had jurisdiction to initiate reassessment proceedings under Section 147 of the Act.
Ratio Decidendi: The court held that the ITO had jurisdiction to initiate reassessment proceedings under Section 147 of the Act, as there were materials on record for enabling the ITO to form the opinion or belief that there had been no true and faithful disclosure by the assessee as a result whereof there had been concealment and consequent under-assessment. The court also held that the subsequent disclosure of the report for initiating the proceedings and which constitutes the very basis for the formation of the belief is in substantial compliance with the requirements of the statute and the primary material, viz., the report of the CBI which is the basis for the formation of the belief and initiation of the proceedings, need not have been disclosed earlier.
Final Decision: The court dismissed the assessee's appeal and upheld the ITO's jurisdiction to initiate reassessment proceedings under Section 147 of the Act.
( 1 ) THIS appeal is directed against a judgment and order dated February 26, 1971, passed in Civil Rule No. 2262 (W) of 1966 by P. K. Banerjee J. By the said order the learned judge was pleased to discharge the rule obtained by the appellant against initiation of proceedings under Section 148 of the Income-tax Act, 1961, for the assessment years 1950-51 to 1961-62, by the Income-tax Officer, Central Circle I, respondent No. 1.
( 2 ) THE appellant, which carries on business, inter alia, in export and import and also trade in general merchandise, is alleged to have been regularly assessed under the Indian Income-tax Act. It has been alleged that for the assessment year 1950-51 they were assessed on March 29, 1955, under Section 23 (3) of the Indian Income-tax Act, 1922, and the total income was computed at Rs. 5,52,829. Similarly, for the assessment years 1951-52 and 1952-53, they were assessed under the said section and the total income was computed at Rs. 34,562 and Rs. 2,09,486, respectively. The appellant has also alleged that similarly for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57, assessments were made under the said section and the Income-tax Officer concerned determined the loss at Rs. 4,57,239, Rs. 6,12,343, Rs. 3,03,073 and Rs. 91,453, respectively. It has also been alleged that for the assessment year 1957-58, although the total income was computed at Rs. 1,54,696, ultimately there was a nil assessment for the said years after carrying forward the loss in respect of the earlier assessment years, and for the assessment year 1958-59 a loss to the tune of Rs. 1,07,988 was determined under the said section. It has further been alleged that for the assessment year 1959-60, assessment was completed under Section 23 (4) of the Act of 1922 and the income was determined at nil. It has also been alleged that for the assessment year 1960-61 the income was computed at nil after setting off the loss of Rs. 2,25, 196 in respect of the assessment year 1953-54 and Rs. 3,40,813 representing a portion of the loss for the assessment year 1954-55.
( 3 ) THEREAFTER, notices under Section 148 of the Income-tax Act, 1961, were issued by the respondent No. 1 asking the appellant to submit returns of its income for the assessment years 1950-51 to 1961-62 as he had reasons to believe that the income of the appellant chargeable to tax for the said assessment years hat! escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961, and as such the said Income-tax Officer proposed to reassess the income of the appellant for the assessment years in question. The brief reasons for starting the proceedings under Section 147 (1) of the said Act of 1961, a specimen copy whereof has been disclosed with the affidavit-in-opposition dated November 24, 1966, is reproduced here-under as reference will have to be made to the same for the purpose of determining the points that were urged, the more so, as the validity, bona ikies and sufficiency of the reasons stated therein and the formation of the belief on the basis thereof have been challenged. The brief reasons as disclosed are in the following terms :"the premises of M/s. Grahams Trading Co. Ltd. were searched by the officials of the Enforcement Directorate and Customs Department in February, 1964, and a large number of files and documents were seized. The company was selling Ovaltine in India on consignment basis on behalf of M/s. A. Wander Ltd. , London, and was also in charge of the Ovaltine propaganda department of the non-resident. A scrutiny of the seized documents has shown that for the period 1949 to 1955 the expenses of the Ovaltine propaganda department were debited by the Indian Co. in their books under appropriate headings. The dues from the non-resident on this account amounting in all to Rs. 12,28,054 for the 6 years from 1949 to 1955 were not brought into the assessee-company's books thereby deflating the aggregate profits for the perio
