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Petitioner: EVEREADY INDUSTRIES INDIA LTD. VS Respondent: JOINT COMMISSIONER OF INCOME-TAX JUDGMENT
Court Name: Gauhati High Court Judge(s): A. K. Patnaik Title:EVEREADY INDUSTRIES INDIA LTD. vs JOINT COMMISSIONER OF INCOME-TAX
JUDGMENT
Reported As: 2002 PTD 2040 Result: N/A Judgment JUDGMENT In this application under Article 226 of the Constitution, the petitioner has prayed for a writ of certiorari for quashing the notice, dated October 30, 1998/November 2, 1998, under section 148 of the Income Tax Act, 1961 (for short 'the Act'), and the notice, dated December 4, 1998, under section 142 of the Act for the assessm ent year 1991-92 issued by the Joint Commissioner of Income-tax (Assessm ent), Special Range II, Guwahati (for short "the Assessing Officer"). The petitioner has also prayed for a writ of mandamus commanding the respondents to act according to law and/or to cancel and/or rescind and/or withdraw the impugned notices and for a writ of prohibition prohibiting the respondents from giving any effect to the impugned notices. The relevant facts as stated in the writ petition are that Namdang Tea Company (India) Limited (for short "the company"), owned two tea estates, namely, Namdang Tea Estate and Bogapani Tea Estate, in the State of Assam. The company carried on the business of growing green tea leaves in the said two tea estates and of manufacturing black tea out of the said green tea leaves grown by it as well as purchased from others and selling the same in India and abroad. Under a scheme of arrangement, the aforesaid tea business of the company was transferred to McLeod Russel (India) Limited, which now stands merged with Eveready Industries (India) Limited, the writ petitioner with effect from April 1, 1996. For the assessm ent year 1991-92, Namdang Tea Company (India) Limited, filed its return on December 30, 1991, showing an income of Rs.41,62,030 and alongwith the said return filed profit and loss account and balance-sheet audited as per the provisions of the Companies Act, 1956, and audit report under section 80HHC of the Act and other relevant documents and papers. The
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company then received notices, dated January 24, 1992, under sections 142(1) and 143(2) of the Act. The company also received a letter, dated July 28, 1993, requiring the company to furnish details/documents/informations covering a list of 30 requisitions. The company furnished the information/details/ documents in the course of hearing before the Assessing Officer by letters, dated August 13, 1992, August 16, 1993 and September 22, 1993. The company filed information/details/documents as required by the Assessing Officer by letter, dated November 5, 1993. By letter, dated December 22, 1995, the Assessing Officer required the company to furnish certain further information and documents and in the course of hearing the company furnished information/details/documents by two letters, dated January 28, 1994 and March 2, 1994. Again by a letter, dated March 12, 1984, the company filed further information/details/ documents in the course of hearing. By another notice, dated March 22, 1994, the Assessing Officer required the company to furnish further information and documents which the company filed on March 28, 1994 in the course of hearing. The Assessing Officer then made the assessment under section 143(3) of the Act on March 30, 1994, and computed the total income of the company at Rs.1,16,55,470 as against the returned income of Rs.41,82,030. Aggrieved by the said assessment order the company preferred an appeal before the Commissioner of Income-tax (Appeals), Guwahati, and by order, dated November 27, 1995, the said appellate authority partially allowed the said appeal. Aggrieved by the said appellate order of the Commissioner of Income-tax (Appeals), the Department filed an appeal before the Income-tax Appellate Tribunal, Gawahati Bench, and the company also filed a cross-objection before the said Tribunal. On November, 2, 1998, however, the petitioner received the impugned notice, dated October, 30, 1998/November 2, 1998 from the Assessing Officer under section 148 of the Act alleging that income of the company for the assessm ent year 1991-92 had escaped assessment within the meaning of section 147 of the Act and that he proposed to assess/reassess income of the said company and required the company to file a return within 30 days of the date of service of the said notice. The petitioner in his letter, dated November 26, 1998, to the Assessing Officer contended, inter alia, that no income of the company for the assessment year 1991-92 had escaped assessment and such escapement, if any, was not by reason of any omission and/or failure on the part of the company either to file any return or disclose fully and/or truly all primary and material facts necessary for assessm ent of the said company and, therefore, the conditions precedent for invoking the power under section 147 read with section 148 of the Act was not fulfilled and the Assessing Officer had no jurisdiction to issue the impugned notice. Without prejudice to the said contention, however, the petitioner filed a return under protest. Thereafter on December 8, 1998, the petitioner received the impugned notice, dated December 3, 1998/December 4, 1998, from the Assessing Officer under section 142 of the Act requiring the petitioner to furnish a return under section 142(1) of the Act by December 21, 1998, and also to produce or cause to be produced before him on December 21, 1998, the books of account, etc., relevant to the assessment year 1991-92. The petitioner then moved the present application under Article 226 of the Constitution for appropriate relief and on December 18, 1998, this Court while issuing notice of motion to the respondents passed an interim order staying further proceedings pursuant to the impugned notices. In response to the notice of motion, respondents Nos.1, 2 and 3 have filed affidavit-in-opposition on October 8, 1999. The said affidavitin-opposition has been sworn by Shri J.C. Pegu, Joint Commissioner of Income-tax, Special Range-II, Guwahati, who is the Assessing Officer. In paragraph 2 of the said affidavit-in-opposition, the Assessing Officer has stated that it is a fact that detailed inquiries were made into the entire matter including the present issues involved at the time of assessm ent and after being satisfied the assessment was made and that the material on the basis of which the impugned notices under section 148 were also examined at the time of
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assessm ent. The present reassessm ent proceedings however have been initiated on the basis of an enquiry conducted by an outside authority and on the basis of that enquiry only, the present notices have been issued. It is further stated in the said paragraph 2 of the affidavit in-opposition that the Assessing Officer has not made any independent enquiry and on the basis of subsequent information received he has reason to believe that income has escaped assessment due to failure and/or omission on the part of the assessee to disclose material facts necessary for the purpose of assessm ent. In paragraph 3 of the said affidavit-in-opposition, the Assessing Officer has further stated that in his order-sheet he has duly and clearly recorded the reasons which led to his belief that income returnable to tax to the tune of Rs.27,25,606 had escaped assessment within the meaning of section 147 of the Act during the assessment year 1991-92 for the failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment at the time of assessm ent proceeding under section 143(3) of the Act. An additional affidavit-in-opposition has been filed on November 29, 1999, by Shri J.C. Pegu, the Assessing Officer, and in paragraphs 4 and 5 of the said additional Affidavit-in-opposition, he has disclosed his reasons for initiating action under section 147 read with section 148 of the Act and for issuing the impugned notices. The said paragraphs 4 and 5 of the said additional affidavit-in- opposition are extracted hereinbelow: "4. That your deponent most respectfully begs to state that the Enquiry Officer on perusal of the D.O. Letter, dated June 11, 1998, of the Commissioner of Income-tax (CIT). West Bengal-II, Calcutta, communicated to the Commissioner of Income-tax, Guwahati, vide his Letter F. No. Con/CIT- 9798/134, dated June 30, 1998, found that a survey was conducted by the Investigation Wing, Calcutta, at the instance of D.C. Range 7 towards the end of March, 1997, at the business premises of following companies. (i) Gladiolai Estate (P.). Ltd. (ii) Rohini Estate (P.) Ltd. (iii) Gagan Properties (P.) Ltd. (iv) Smriti Properties (P.) Ltd. It was found that huge payments were made to above parties by Williamson Magor Group of Companies for rendering services like cow-dung supply, labour quarters repairing, fencing, etc. It was also found that these four above stated companies did not render the kind of services for which it was receiving payment. They claimed that they were getting the services rendered through other parties. A simultaneous survey was also carried out at the premises of the following three parties who were supposed to have rendered services on behalf of the abovementioned four parties. (i) B.S. Consultants (P.) Ltd. (ii) Manoj Commercial Services (P.) Ltd. (iii) Ajanta Commercial & Mercantiles (P.) Ltd. During the survey a common Director of the abovementioned three companies, namely, Shri B.S. Kathria admitted on oath that no service was rendered by the aforesaid three companies in the nature of supply of cow-dung, repairing of labour quarters, fencing, etc., as claimed by the companies, namely, (i) Gladiolai Estate (P.) Ltd., (ii) Rohini Estate (P.) Ltd., (iii) Gagan Properties (P.) Ltd. (iv) Smriti Properties (P.) Ltd. Actually these transactions were merely accommodation entries and the amount paid through cheques were ultimately returned in cash after routing it through four or five bank accounts. Out of the above transactions the assessee, Namdung Tea Company (India) Ltd., made the following payments to the undermentioned parties during the financial year 1990-91 relevant to the assessm ent year 1991-92. Rs.
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(i) Rohini Properties (P.) Ltd. 13,96,000 Gladiolai Estate (P.) Ltd. 13 29 600 Total 27,25,600 5. That the deponent most respectfully begs to state that in view of the above transactions and on scrutiny of the reasons the Assessing Officer had reason to believe that income chargeable to tax to the tune of Rs.27,25,600 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961, during the assessment year 1991-92 for the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment at the time of assessment proceedings under section 143(3)." Dr. Pal, learned counsel for the petitioner, submitted that the Assessing Officer has jurisdiction to initiate proceeding under section 147 of the Act and issue notice under section 148 of the Act after expiry of four years from the relevant assessment year for which the assessment has been made under subsection (3) of section 143, only if two conditions are satisfied: (1) he has reason to believe that any income chargeable to tax has escaped assessment for the assessment year in question; (2) such escapement of income chargeable to tax from assessment is by reason of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessm ent in the year in question. This position of law would be clear from a bare reading of section 147 and the proviso thereto. He explained that similar provisions existed in section 34 of the Indian Income-tax Act, 1922, and in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR' 191, the Supreme Court held that to confer jurisdiction under section 34 of the Indian Income-tax Act, 1922, to issue notice in respect of the assessm ent beyond the period of four years, but within a period of eight years, from the end of the relevant assessment year, two conditions had to be satisfied; the first was that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been underassessed; the second was that he must have reason to believe that such underassessm ent had occurred by reasons of either omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of an assessee to disclose fully or truly all material facts necessary for his assessment for that year. Dr. Pal submitted that in a recent decision of the Supreme Court in the case of Coca-Cola Export Corporation v. ITO (1998) 231 ITR 200, the Supreme Court, while interpreting section 147 of the Act, has held'that the law with regard to the jurisdiction of the Assessing Officer under section 147 of the Act was well-settled on the subject starting from Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) and, therefore, the law laid down in Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) still holds good. Dr. Pal submitted that the facts stated in the present writ petition show that the company had filed the return for the assessm ent year 1991-92 and had from time to time disclosed fully and truly all material facts as required by the Assessing Officer at the time of assessment and that these facts had not been disputed by the Assessing Officer in paragraphs 2 and 2A of the affidavit-in- opposition filed on behalf of respondents Nos. 1, 2 and 3. Hence, the second condition for assumption of jurisdiction by the Assessing Officer under section 147 of the Act that escapement of income chargeable to tax was due to failure on the part of the assessee to disclose fully and truly all material facts did not exist in the present case. Dr. Pal submitted that the first condition required that the Assessing Officer must have reason to believe that any income chargeable to tax had escaped assessment for the relevant assessment year. In ITO v. Lakhmani Amewal Das (1976) 103 ITR 437, the Supreme Court explained that the ground or reasons which led to the formation of such belief of the Assessing Officer must have a material bearing on the question of escapement of income of the assessee from assessment. He submitted that in the aforesaid decision, the Supreme Court further held that 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer and the
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reason must be held in good faith and it cannot be merely a pretence and 'it is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of his belief. He submitted that it has been held by the Supreme Court in ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1, that the existence of reason for the belief of the Income-tax Officer was a justiciable issue and it was for the Court to be satisfied whether in fact the Income-tax Officer had reason to believe that income had escaped assessm ent. He pointed out that in Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 139 ITR 1 the Supreme Court further held that the belief entertained by the Income-tax Officer must not be arbitrary or irrational and it must be reasonable or, in other words, it must be based on reasons which are relevant and material. He submitted that in the aforesaid decision in Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR 1, the Supreme Court further held that if there was no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessm ent. Dr. Pal submitted that paragraphs 4 and 5 of the additional affidavit-in-opposition show that the Assessing Officer has initiated action under section 147 read with section 148 of the Act because it appeared that payment of Rs.27,25,600 made by the company for services rendered by Rohini Properties (P.) Ltd. And Gladiolai Estate (P.) Ltd. Were not genuine. This was done on the basis of survey in connection with some other cases in West Bengal during which a common Director of three parties through whom the aforesaid two parties rendered service to the company had admitted on oath that no services were rendered by the said two parties and that the transactions were merely accommodation entries and the amounts paid through cheques were ultimately returned in cash after routing it through four or five bank accounts. Dr. Pal submitted that the survey at best may indicate some bogus transactions by Rohini Properties (P.) Ltd. And Gladiolai Estate (P.) Ltd. But until and unless there was definite material to indicate that no services were actually rendered by Rohini Properties (P.) Ltd. And Gladiolai Estate (P.) Ltd. To the company in the present case during the financial year 1990-91 and that the payments were ultimately returned, no belief could be reasonably entertained that the income to the tune of Rs.27,25,600 of the company had escaped assessm ent. Dr. Pal submitted that in Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 603 (SC), the Income-tax Officer issued a notice under section 148 of the Act to the assessee on receiving information that the alleged creditors of the assessee were name-lenders and the transactions were bogus, but the Supreme Court found that the Income-tax Officer had not even come to a prima facie conclusion that the transactions between the assessee and the alleged creditors were not genuine and held that the Income-tax Officer did not have reason to believe that due to omission or commission on the part of the assessee to make a return under section 139 or to disclose fully or truly all material facts income of the assessee had escaped assessment for the assessm ent year in question. He vehemently argued that in the present case also no prima facie conclusion has been arrived at by the Income-tax Officer that the transactions between the company and Rohini Properties (P.) Ltd. And Gladiolai Estate (P.) Ltd. Were (not ?) genuine. Dr. Pal finally submitted that it would appear from paragraphs 4 and 5 of the additional affidavit- in-opposition filed on behalf of respondents Nos.1, 2 and 3 that the impugned notices have been issued to the petitioner pursuant to a communication of the Commissioner of Income-tax without any application of mind by the Assessing Officer. He vehemently argued that under sections 147 and 148 of the Act, the Assessing Officer has to apply his own independent mind and record reasons before issuing notice to the assessee and the Commissioner of Income-tax was required to accord sanction under the proviso to section 151 of the Act on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notices. But the Assessing Officer cannot at
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the instance of the Commissioner issue notices under section 148 of the Act mechanically and without application of his own independent mind to the question as to whether there was reason to believe that any income chargeable to income-tax has escaped assessment for the assessment year 1991-92 due to failure on the part of the assessee to make a return or to disclose fully and truly all material facts, necessary for his assessment for that assessment year. According to Dr. Pal, therefore, the impugned notices issued by the Assessing Officer in the present case were without jurisdiction and were liable to be quashed. Mr. K.P. Sarma, learned counsel appearing for the Department, on the other hand, submitted that the impugned notices have been issued to the petitioner on the basis of information sent with the letter, dated June 30, 1998, of the Commissioner of Income-tax, Guwahati, referred to in paragraph 4 of the additional affidavit-in-opposition. He submitted that alongwith the said letter, dated June 30, 1998, of the Commissioner of Income-tax, Guwahati, a D.O. Letter, dated June 11, 1998, of the Commissioner of Income-tax, West Bengal-II, Calcutta, was enclosed in which the results of a survey conducted by the Investigation Wing, Calcutta, have been communicated. He explained that this information was not available with the Assessing Officer when he made the original assessm ent in the year 1994 on the basis of the materials disclosed by the assessee. He cited the decision of the Supreme Court in Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287, in which the Supreme Court while interpreting section 34 of the Indian Income-tax Act, 1922, held that the Income-tax Officer would have jurisdiction to reopen the original assessment even on the basis of information derived from an external source of any kind including discovery of new and important matters or on knowledge of fresh facts which were not present at the time of original assessment. Mr. Sarma further submitted that although the information was received from the D.O. Letter, dated June 11, 1998, of the Commissioner of. Income-tax, West Bengal-II, Calcutta, the Assessing Officer after applying his own mind to the said information entertained the belief that income of the company chargeable to tax had escaped assessment for the assessment year 1991-92 and issued the impugned notices to the petitioner under section 148 of the Act. Mr. Sarma argued that it will be clear from the averments made in the affidavit-in-opposition and the additional affidavit-in- opposition that all the conditions for assuming jurisdiction under section 147 of the Act and for issuing the impugned notice under section 148 of the Act were satisfied in the present case. He contended that it is only in the course of such reassessment proceedings that the Assessing Officer would record a clear finding as to whether or not the income of the company chargeable. To tax has escaped assessm ent and the purport of the impugned notices to the petitioner is to give an opportunity to show that there is no such escapement of income chargeable to tax from assessm ent. Mr. Sarma relied on the observations of the Supreme Court in ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 to the effect that the production of the books of account and other documents before the Income-tax Officer will not necessarily amount to disclosure of material facts as contemplated by law and that it was the duty of the assessee to make a full and true disclosure of primary facts at the time of assessm ent ... He further submitted that in the said case, the Supreme Court further clarified that once there existed reasonable grounds for the Income-tax Officer to form the belief that income of the assessee had escaped assessment, that would be sufficient to clothe him with jurisdiction to issue notice and whether the grounds for issue of such notices are adequate or not is not ,a matter for the Court to investigate. He also relied on the decision of the Supreme Court in S. Narayanappa v. CIT (1967) 63 ITR 219, wherein the Supreme Court held that the legal position is that if there are in fact some reasonable ground for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact which could have a material bearing on the question of underassessm ent, that would be sufficient to give jurisdiction to, the Income-tax Officer to issue notice under section 34 of the Indian Income-tax, Act, 1922, and whether the grounds are adequate
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or not, is not a matter for the Court to investigate. He also cited the decision of this Court in Bhadarmal Hazarimal v. ITO (1975) 100 ITR 159, wherein a Division Bench of this Court held that if material facts or primary facts necessary for assessment as disclosed by the assessee at the time of assessm ent are subsequently on investigation found to be false or nonexistent, it cannot be said that the assessee disclosed fully and truly all material facts necessary for the assessment. Mr. Sarma submitted that it will be clear from the information revealed in the D.O. Letter, dated June 11, 1998, of the Commissioner of Income-tax, West Bengal-II, Calcutta, and which has been stated in paragraph 4 of the additional affidavit-in-opposition that Rohini Properties (P.) Ltd. And Gladiolai Estate (P.) Ltd. Were actually not rendering any service like cow-dung supply, labour quarters repairing, fencing, etc., and that payments made to the said two companies were actually accommodative entries and the amount paid through cheques were ultimately returned in cash after routing it through four or five bank accounts. Thus the transactions with the said two parties by the company in the present case needed fresh examination by the Assessing Officer in the reassessm ent proceedings under section 147 of the Act. In a similar kind of racket of…
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