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2002 Supreme(Cal) 525
High Court Of Calcutta
Barin Ghosh, J.
PEERLESS GENERAL FINANCE AND INVESTMENT CO.LTD. - Appellant
Versus
DEPUTY COMMISSIONER OF INCOME-TAX - Respondent
C. O. 4961 Of 1989
Decided On : 08/08/2002
A.N.CHUNDER, D.N.Chunder, D.PAL, P.K.GHOSH, R.K.Murarka, R.N.Mitra, Soumitra Pal
The requirement of reason to believe and failure to disclose fully and truly all material facts under Section 148 of the Income-tax Act, 1961, for reopening of assessment, was interpreted and applied in the context of the petitioner's case.
Headnote:
INCOME TAX ACT - SECTION 148 - REOPENING OF ASSESSMENT - REQUIREMENT OF REASON TO BELIEVE AND FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS - INTERPRETATION AND APPLICATION - CASE RELATING TO PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD.
Fact of the Case:
The petitioner, Peerless General Finance and Investment Co. Ltd., challenged three notices issued under Section 148 of the Income-tax Act, 1961, for reopening assessments for the assessment years 1973-74, 1980-81, and 1981-82. The Revenue claimed that income exceeding Rs. 50,000 had escaped assessment due to the petitioner's failure to disclose fully and truly all material facts.
Finding of the Court:
The court held that the auditor's report, showing that the Social Welfare Scheme Fund was more than the petitioner's liability towards its depositors, was sufficient to form a prima facie reason to believe that there had been escapement of assessment of income chargeable to tax. The court also found that the petitioner had failed to disclose fully and truly all the material facts necessary for assessment, as it had admitted in its petition that income accrued in a particular year was not shown in the balance-sheet or returns for that year as the forfeiture was delayed by the petitioner.
Issues: 1. Whether the Revenue had a reason to believe that income exceeding Rs. 50,000 had escaped assessment for the relevant assessment years? 2. Whether the petitioner had failed to disclose fully and truly all the material facts necessary for assessment during the relevant assessment years?
Ratio Decidendi: 1. The court held that the auditor's report, showing that the Social Welfare Scheme Fund was more than the petitioner's liability towards its depositors, was sufficient to form a prima facie reason to believe that there had been escapement of assessment of income chargeable to tax. 2. The court also found that the petitioner had failed to disclose fully and truly all the material facts necessary for assessment, as it had admitted in its petition that income accrued in a particular year was not shown in the balance-sheet or returns for that year as the forfeiture was delayed by the petitioner.
Final Decision: The court dismissed the petitioner's writ petitions, holding that the Revenue had a reason to believe that income exceeding Rs. 50,000 had escaped assessment for the relevant assessment years and that the petitioner had failed to disclose fully and truly all the material facts necessary for assessment during the relevant assessment years.
( 1 ) THESE writ petitions were heard analogously inasmuch as the facts relating thereto and law applicable in relation to the same are almost identical. The subject-matter of challenge in C. O. No. 4959 (W) of 1989 is the notice dated March 28, 1989, issued under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), for the purpose of reopening the assessment for the assessment year 1981-82.
( 2 ) IN C. O. No. 4960 (W) of 1989 the subject matter of challenge is a similar notice dated March 28, 1969, for reopening the assessment for the assessment year 1980-81.
( 3 ) IN C. O. No. 4961 (W) of 1989 the subject matter of challenge is a similar notice also dated March 28, 1989, for reopening the assessment for the assessment year 1973-74.
( 4 ) THE grounds upon which power under Section 148 of the said Act has been exercised are identical and the same are as follows :"the PEERLESS GENERAL FINANCE AND INVESTMENT Co. ltd. Reasons for issuing notices under Section 148 of the Income-tax Act for the assessment year 1973-74 On the basis of information available in, (a) the auditors' observations in the annual reports of Peerless for 1986 (assessment year 1987-88) and 1987-88 (15 months ending on March 31, 1988, relevant to the assessment year 1988-89) ; (b) the Supreme Court's observations in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 (SC) ; and (c) the report of the Reserve Bank of India on inspection of the books of Peerless conducted in 1979, the following facts of accounting of income and liabilities of the asses-see-company came to light : (1) The Social Welfare Scheme Fund is in excess of the total liability of the company towards the certificate holders. (2) The company has been retaining in the fund amounts forfeited on surrender of certificates and liabilities already provided thereon on accrual basis. Amounts in respect of unclaimed matured certificates continue to remain in the fund even after maturity. Amounts in respect of lapsed certificates also continue to remain in the fund. (3) The generous distribution of commission among the agents out of the first year's subscription and the class of investors tapped by such agents has resulted in large scale dropouts by the investors after the first year. (4) There was large-scale lapsation of certificates varying between 34. 26 per cent. and 59. 71 per cent. , during the first three years, the forfeiture range. 2. While checking the income accounting for the previous year relevant to the assessment year 1985-86 it was found that the assessee has been furnishing incorrect computation of income on the basis of wrong assumptions and inflated generalisations as under : (i) The provision for refund of subscription at a fixed percentage of the first year's subscription was in respect of pure contingent liability. The quantification of such liability was on the basis of flawed actuarial certificate. (ii) The provision for interest and bonus accrued at fixed percentage of the balance in the Social Welfare Scheme Fund on accrual basis was incorrect even on actuarial basis, which the assessee was supposed to be following. 3. On a check of the above mentioned facts of the accounting of income and expenditure, it emerged that income exceeding Rs. 50,000 has escaped assessment in the following respects as a result of inadequate and incorrect statements, misleading actuarial certificate, wrong basis of calculation and suppression of relevant facts ; (a) Income from forfeiture of lapsed certificate. (b) Profit under Section 41 (1) of the Income-tax Act as a result of cessation of liability already claimed as 'interest and bonus accrued'. (c) Excess deduction claimed under the head, 'interest and bonus accrued', at a fixed percentage of the Social Welfare Scheme Fund on the ground that the fund was in excess of the requirement. (d) Excess deduction claimed under the head, 'interest
