Shanmugasundaram Textiles vs Third Income Tax Officer

Ramanujam, J.—This is a petition for the issuance of a writ in the nature of prohibition restraining the respondent from pursuing the

reassessment proceedings in pursuance of the notice issued by him u/s 148 of the Income Tax Act, 1961.

The petitioner was a partnership firm which was dissolved on 20th March, 1964. For the assessment year 1960-61, the petitioner filed its return

of income along with a trading and profit and loss account. The petitioner was engaged in the manufacture of handloom goods, and for the purpose

of manufacture, it had imported 4,310 Ibs. of art silk for the value of Rs. 20,772 under an import licence. At the time of the assessment, the

Income Tax Officer appears to have, asked the petitioner to furnish information about the quantity and the value of the imported art silk used in the

manufacture. The petitioner had furnished the above information required by the Income Tax Officer. This is clear from certain entries made by the

Income Tax Officer in the trading and profit and loss account filed by the petitioner which finds a place in the assessment file produced before us.

The Income Tax Officer accepted the petitioner''s return of income and completed the assessment on the basis that the income returned is correct.

The Income Tax Officer then issued a notice u/s 148 of the Income Tax Act, 1961, on April 8, 1968, stating that a portion of the petitioner''s

income had escaped assessment and that, therefore, it has become necessary to initiate proceedings u/s 147 of the Act. The validity of this notice

has been challenged by the petitioner in this writ petition.

It is contended on behalf of the petitioner that there is no material available to warrant the initiation of reassessment proceedings u/s 147, that the

petitioner has disclosed fully all the materials necessary for the assessment even at the stage of original assessment and that, therefore, there is no

scope for invoking the provisions of Section 147(a) in this case. The counter-affidavit filed in this case does not give any material to show that the

materials originally furnished by the petitioner were not complete or untrue. Nor is there any material given by the respondent in his counter-

affidavit to lead to the conclusion that the materials placed by the petitioner before the Income Tax Officer at the stage of the original assessment

were not correct. The counter-affidavit also does not show that the respondent came to a prima facie conclusion that a part of the income of the

petitioner had escaped assessment in view of certain non-disclosure of material facts at the time of the original assessment. The only point that is

made out in the counter-affidavit of the respondent as a ground for initiation of reassessment proceedings u/s 147 of the Act is that the petitioner

furnished only trading and profit and loss account along with the return of income, and that he did not furnish any particulars regarding the details of

import licences granted to him, how he dealt with such licences, the nature of commodities imported, the nature of cloth manufactured out of the

imported art silk yarn, etc. It has also been stated therein that the petitioner has kept back material particulars such as the names of the persons

through whom the goods were imported and the name of the clearing agent through whom the goods were cleared. Even assuming that the above

particulars referred to in the counter-affidavit were not giveri by the petitioner, the question is whether the non-furnishing of those particulars has

resulted in any underassessment or an escapement of income.

The learned counsel for the petitioner referred to the well-known decision of the Supreme Court in Calcutta Discount Company Limited Vs.

Income Tax Officer, Companies District, I and Another, wherein their Lordships of the Supreme Court dealt with the scope of the jurisdiction of

the Income Tax Officer u/s 34(1)(a) of the 1922 Act, which corresponded to Section 147(a) of the 1961 Act. It was held in that case that to

confer jurisdiction u/s 34 to issue notice in respect of assessments beyond the period of four years, but within a period of eight years from the end

of the relevant 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 under-assessed. The second was that he must have also reason to believe that such

underassessment"" had occurred by reason of either,'' (a) omission or failure on the part of an assessee to make a return of his income u/s 22, or

(b) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. It was also

held that both these conditions were conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue a notice for

the assessment or reassessment beyond the period of four years, but within the period of eight years. It was also laid down in that case that the

assessee''s duty to disclose fully and truly all the materials necessary for the assessment does not extend beyond the full and truthful disclosure of

the material facts, that he is not expected to assist the Income Tax Officer to draw proper inference from the material facts placed by him. In The

Commissioner of Income Tax, Calcutta Vs. Burlop Dealers Ltd., the Supreme Court again reiterated the same legal position. In that case, the

assessee had disclosed its books of account and evidence from which material facts could be discovered. The question arose whether the assessee

was under a legal obligation to establish before the Income Tax Officer the truth of the facts which he had placed before him. The Supreme Court

expressed the view that once the assessee has placed all the books of accounts and the evidence from which material facts could be gathered, he

was under no obligation to inform the Income Tax Officer about the possible inference that might be raised against him, and that it was for the

officer to raise such an inference and if he had not done so in the original assessment, the income that escaped assessment could not be brought to

tax u/s 34(1)(a).

In this case, as already stated, the petitioner gave the necessary particulars required by the Income Tax Officer. The Income Tax Officer chose

to accept the materials as furnished by the petitioner without probing into the matter further to find out whether the particulars furnished by the

petitioner were true or not. He proceeded to make the assessment on the basis that the materials furnished were true and complete. Later, the

Income Tax Officer has chosen to issue the notice, which is impugned herein, on the ground that the petitioner could not have imported the art silk,

but could have sold the import licence and had made a profit therefrom. How the Income Tax Officer came to doubt the truth of the information

furnished by the petitioner is not clear either from the counter-affidavit or from the materials available in the assessment records. As pointed out by

the Supreme Court in the various decisions touching on this point, the Income Tax Officer must come to a prima facie conclusion on the question of

escapement of income before he initiates the reassessment proceedings by the issue of notice. But, in this case, there is no material placed before

us either in the counter-affidavit or otherwise to show how and on what material the Income Tax Officer felt that there has been as escapement of

income. In view of the said circumstances, the initiation of proceedings by the respondent u/s 147 of the Act by the issue of the notice should be

held to be without jurisdiction. This writ petition is, therefore, allowed and the rule nisi is made absolute. The petitioner is entitled to its costs in this

petition. Advocate''s fee is Rs. 150.