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High Court Of Calcutta
S. C. GHOSH, R. N. PYNE
INCOME-TAX OFFICER - Appellant
Versus
BURMAH SHELL OIL STORAGE AND DISTRIBUTING CO.OF INDIA LTD. - Respondent
Appeal 278 Of 1975
Decided On : 04/23/1982
INCOME TAX - Penalty proceedings - Initiation of - Conditions precedent - Satisfaction of the Income-tax Officer - Materials necessary for the formation of the required satisfaction - Absence of - Interference by the court in exercise of its power and discretion under Article 226 of the Constitution - Held, that the court should interfere for the sake of justice.
Fact of the Case:
The respondent, a company incorporated under the English Companies Acts, carried on business in India, including the importation and sale of petroleum and allied products. For the assessment year 1967-68, the respondent claimed a devaluation loss, greater depreciation, and development rebate on account of the devaluation of the rupee. The Income-tax Officer disallowed the claims and added back an amount of Rs. 8,19,01,945 to the respondent's income. The respondent filed an appeal with the Appellate Assistant Commissioner, who upheld the Income-tax Officer's order. The respondent then filed a further appeal with the Income-tax Appellate Tribunal, which was pending at the time of the hearing of the writ application.
Finding of the Court:
The court held that the conditions precedent for invoking penalty proceedings were absent in the facts and circumstances of the case. The respondent had disclosed all the necessary materials, papers, and documents before the assessing authority and raised various legal contentions in support of its claim for devaluation loss, development rebate, and depreciation at an enhanced rate. The claims and contentions of the respondent were rejected by the Income-tax Officer, which were upheld by the Appellate Assistant Commissioner. The determination of the above questions was pending before the Tribunal in the appeal before it. Therefore, in the facts and circumstances of this case, when the respondent company had disclosed all the necessary papers and documents and raised legal contentions and when such contentions were not accepted, it could not be said that there were materials before the authority concerned upon which he could base his satisfaction that there was concealment of income or furnishing of inaccurate particulars of income by the assessee. As, in the facts and circumstances of this case, the materials necessary for the formation of the required satisfaction of the authority concerned are absent, the conditions precedent for invoking penalty proceeding are also absent.
Issues: Whether the court should interfere in penalty proceedings initiated against the respondent company.
Ratio Decidendi: The court held that the conditions precedent for invoking penalty proceedings were absent in the facts and circumstances of the case. The respondent had disclosed all the necessary materials, papers, and documents before the assessing authority and raised various legal contentions in support of its claim for devaluation loss, development rebate, and depreciation at an enhanced rate. The claims and contentions of the respondent were rejected by the Income-tax Officer, which were upheld by the Appellate Assistant Commissioner. The determination of the above questions was pending before the Tribunal in the appeal before it. Therefore, in the facts and circumstances of this case, when the respondent company had disclosed all the necessary papers and documents and raised legal contentions and when such contentions were not accepted, it could not be said that there were materials before the authority concerned upon which he could base his satisfaction that there was concealment of income or furnishing of inaccurate particulars of income by the assessee. As, in the facts and circumstances of this case, the materials necessary for the formation of the required satisfaction of the authority concerned are absent, the conditions precedent for invoking penalty proceeding are also absent. It is true that giving of the notice is not a jurisdictional factor but when, in the facts and circumstances of this case, the materials to support the required satisfaction which is a condition precedent for exercise of the jurisdiction and power of initiating penalty proceedings are also absent, the court should in exercise of its power and discretion under Article 226 of the Constitution interfere for the sake of justice.
Final Decision: The appeal was dismissed. There was no order as to costs.
( 1 ) THIS appeal is directed against, the judgment and order of A. N. Sen J. , dated July 3, 1975 (Burma Shell Oil Storage and Distributing Co. of India Ltd. v. Income-tax Officer allowing the respondent's application made under Article 226 of the Constitution challenging two notices issued in connection with initiation of penalty proceedings against the respondent. The facts of this case may be briefly stated.
( 2 ) THE respondent which is a company incorporated under the provisions of the English Companies Acts with liability of its members limited by shares and has its registered office at Burmah House, Piper Sway, Swindon in the United Kingdom, carries on business, inter alia, at Burmah Shell House, Ballard Street, Bombay-1, and also at No. 31, Binoy Badal Dinesh Bag in the town of Calcutta. The respondent's business consists in the importation and of purchase and storage, sale and distribution of petroleum and allied products. The capital of the respondent has been contributed in pounds sterling and as on December 31, 1966, the authorised capital of the respondent consisted of 25,000,000 divided into 12,500,000 'a' ordinary shares of pound one each and 12,500,000 'b' ordinary shares of pound one each. All the shares of the respondent were issued and fully paid up. The respondent's accounts including profit and loss account were expressed in terms of pound sterling. The respondent was obliged by law to lay before its shareholders at its annual general meeting a profit and loss account expressed in terms of pounds sterling. The financial year of the respondent is from January to December. The respondent company had been assessed to income-tax in India for a number of years. For the assessment year 1967-68, it duly filed its return and the assessment year involved in the proceeding in the court of the first instance and in this appeal is the assessment year 1967-68. On June 5, 1966, the rupee was devalued and as a result of the devaluation of the rupee, the respondent in respect of its trading for the financial year 1966 claimed to have suffered a loss in consequence of the fall in the sterling value of its current assets held in India including oil stocks. It appears that the respondent had further provided in respect of depreciation an amount based on its original actual cost in terms of sterling of its capital asset, which, by reason of the said devaluation, was greater in terms of rupees than it would otherwise have been, and it claimed in its income-tax return for the assessment year 1967-68 depreciation on the enhanced basis on account of the devaluation. The development rebate and terminal or balancing charge in respect of assets discarded or sold on the basis of their original actual cost in sterling were also claimed. Assessment year 1967-68 was the first year in which these questions fell to be considered and the respondent had in its return for the said year claimed deduction for the loss on devaluation and the said greater depreciation on its fixed asset and also the said development rebate.
( 3 ) THE respondent's return for the assessment year 1967-68 was duly filed and sent with a covering letter and in the said letter as also in the return, it was specifically pointed out that it was claiming devaluation loss and the said greater depreciation. In the course of the assessment proceedings on the basis of the said return filed by the respondent for the assessment year 1967-68, the Income-tax Officer made several queries and asked for several clarifications all of which were duly furnished by the respondent. A revised return under cover of a letter dated May 20, 1971, was also filed in the course of the said proceedings. In the said revised return, the respondent again made it clear that it had claimed devaluation loss and the said greater depreciation as well as development rebate and terminal charge on the aforesaid basis of devaluation of the rupee. After the filing of the revised return, the
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