Back
PUNJAB & HARYANA HIGH COURT
Bal Raj Tuli, J.
Hiralal Dewan Chand
Versus
Income-tax Officer
Civil Writ No. 886 of 1972,
Decided On : MAY 10, 1972
INCOME TAX - Reassessment - Notice - Validity - Failure to disclose material facts - Petitioner-firm sold wool-tops at a lower rate than the market rate to Ramesh Woollen Mills - Income-tax Officer issued notice under Section 148 of the Income-tax Act, 1961 - Petitioner-firm challenged the notice - Held, the notice was valid and the Income-tax Officer had jurisdiction to issue the notice - Petitioner-firm had failed to disclose fully and truly all material facts necessary for its assessment.
Fact of the Case:
The petitioner-firm, a registered partnership firm, filed its return for the assessment year 1965-66, showing an income of Rs. 2,02,229. The Income-tax Officer accepted the trading accounts of the petitioner-firm and made the assessment order on August 31, 1966. On January 2, 1969, the Inspecting Assistant Commissioner, Jamnagar, addressed a letter to the Inspecting Assistant Commissioner of Income-tax, Amritsar, enclosing a report of the Income-tax Officer, Jamnagar, who was processing the assessment of Messrs. Digvijay Woollen Mills, Jamnagar. The report indicated that the petitioner-firm was indulging in concealment of its real profits by introducing bogus intermediaries for selling wool-tops to woollen mills. The Income-tax Officer, Amritsar, initiated enquiries into the matter and came to the conclusion that the petitioner-firm had reduced its profits on the sale of wool-tops by introducing bogus intermediaries. After examining the accounts of the petitioner-firm and those of Messrs. Tara Chand Dwarka Dass, the Income-tax Officer recorded reasons for initiating proceedings under Section 147 of the Act against the petitioner-firm on November 14, 1969. The Income-tax Officer issued notice under Section 148 of the Act to the petitioner-firm on November 14, 1969, to reassess the income for the assessment year 1965-66. The petitioner-firm challenged the notice, contending that it had not failed to fully and truly disclose all material facts for the assessment year 1965-66 and that the Income-tax Officer had no jurisdiction to issue the notice.
Finding of the Court:
The court held that the notice issued by the Income-tax Officer to the petitioner-firm on November 14, 1969, was valid and within the jurisdiction of the Income-tax Officer. The court found that the petitioner-firm had failed to disclose fully and truly all material facts necessary for its assessment. The court noted that the petitioner-firm had sold the wool-tops at a lower rate than the market rate to Ramesh Woollen Mills and that this fact was not disclosed to the Income-tax Officer at the time of the original assessment. The court held that the petitioner-firm ought to have brought the market rate of wool-tops on that date to the notice of the Income-tax Officer in order to enable him to make the proper assessment.
Issues: Whether the notice issued by the Income-tax Officer to the petitioner-firm on November 14, 1969, was valid and within the jurisdiction of the Income-tax Officer.
Ratio Decidendi: The court held that the notice issued by the Income-tax Officer to the petitioner-firm on November 14, 1969, was valid and within the jurisdiction of the Income-tax Officer. The court found that the petitioner-firm had failed to disclose fully and truly all material facts necessary for its assessment. The court noted that the petitioner-firm had sold the wool-tops at a lower rate than the market rate to Ramesh Woollen Mills and that this fact was not disclosed to the Income-tax Officer at the time of the original assessment. The court held that the petitioner-firm ought to have brought the market rate of wool-tops on that date to the notice of the Income-tax Officer in order to enable him to make the proper assessment.
Final Decision: The court dismissed the petition with costs.
Bal Raj Tuli, J.
1. The petitioner-firm is registered under the Partnership Act and the Income-tax Act, 1961 (hereinafter called "the Act"). The firms accounting year was from April 13, 1964, to April 1, 1965, which corresponded to the assessment year 1965-66. For that assessment year, the petitioner-firm returned an income of Rs. 2,02,229, and in support thereof produced its account books which showed its sales of shawls for that year at Rs. 15,77,570, yielding a gross profit of Rs. 2,16,502. The rate of profit worked out to 13.7 per cent. as against 13.4 per cent. for the preceding year. The Income-tax Officer noted that the sales had gone down as compared with the previous years but that the petitioner-firm had made much larger profit in the sale of wool-tops. The sale turn-over of wool-tops amounted to Rs. 2,05,927 on which the gross profit shown was Rs. 64,614. The Income-tax Officer accepted the trading accounts of the petitioner-firm after examining its books and did not doubt that the profits from the sale of wool-tops had been under-stated. The assessment order was made on August 31, 1966.
2. On January 2, 1969, the Inspecting Assistant Commissioner, Jamnagar, addressed a letter to the Inspecting Assistant Commissioner of Income-tax, Amritsar, and enclosed therewith a report of the Income-tax Officer, Jam-nagar, who was processing the assessment of Messrs. Digvijay Woollen Mills, Jamnagar, and in that connection made investigations into the purchases made by it. The said Income-tax Officer had gone to Amritsar in connec-tion with the investigation to examine certain parties and found that eleven bales of wool-tops imported under the licence of the petitioner-firm were sold by Tara Chand Dwarka Dass to Digvijay Woollen Mills on March 31, 1965. The Inspecting Assistant Commissioner of Amritsar was requested to make enquiries into the matter as it had come to the notice of the Income-tax Officer, Jamnagar, that the importers of wool-tops were indulging in concealment of their real profits by introducing bogus intermediaries for selling the wool-tops to the woollen mills. On January 27 1969, the Inspecting Assistant Commissioner of Amritsar forwarded that letter along with the report of the Income-tax Officer, Jamnagar, to the Income-tax Officer, Amritsar, in charge of the assessment of the petitioner-firm to make further enquiries and take necessary action under the Act. The Income-tax Officer held enquiries into the matter and came to the conclusion that the petitioner-firm had reduced its profits on the sale of wool-tops by introducing bogus intermediaries. After examining the accounts of the petitioner-firm and those of Messrs. Tara Chand Dwarka Dass, the Income-tax Officer recorded the following reasons for initiating proceedings under Section 147 of the Act against the petitioner-firm on November 14, 1969:
"During the previous year relevant for the assessment year 1965-66, the assessee made sale of imported wool-tops and/or dyes. The sale was actually effected at considerable high rate of profit but it was manipulated and shown to have been made at nominal profit through the agency of one and/or two intermediaries. These intermediaries were created with a view to reduce the incidence of taxation. As such, I have reasons to believe that by adopting this device the assessee had failed to disclose fully and truly all material facts necessary for his assessment and, consequently, correct income chargeable to tax has escaped assessment. Notice under Section 148 should, therefore, be issued so that the escaped income be brought to proper taxation."
3. The reason for the belief of the Income-tax Officer that considerable high profits had been made but nominal profits had been shown in the account books by manipulation was based on the fact that Messrs. Tara Chand Dwarka Dass had sold the very same 11 bales of wool-tops at Rs. 18.37 per pound to Digvijay Woollen Mills on March 31, 1965, which the petitioner-firm sol
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
