1980 (2) TMI 68 - HC - Income Tax

Assessment Proceedings, Assessment Year, Failure To Disclose Fully And Truly, Original Assessment

Summary

Issues Involved:
1. Legality of invoking Section 34(1)(a) of the Indian Income-tax Act, 1922.
2. Factual determination of whether services were rendered by the Gokulnagar Sugar Mills Co. Ltd.

Detailed Analysis:

1. Legality of Invoking Section 34(1)(a) of the Indian Income-tax Act, 1922:

The primary issue was whether the Tribunal was legally justified in holding that the provisions of Section 34(1)(a) were rightly invoked. The three companies involved had appointed Gokulnagar Sugar Mills Co. Ltd. as their sole selling agent and claimed deductions for commissions paid to it. The Income Tax Officer (ITO) initially allowed these deductions without detailed scrutiny. However, during subsequent assessments for the years 1951-52 and 1952-53, the ITO found that Gokulnagar Co. had not rendered any services as selling agents, and the commissions were merely a device to reduce tax liabilities.

The ITO, therefore, disallowed the deductions and initiated reassessment proceedings under Section 34(1)(a) for the earlier years. The assessees argued that all primary and material facts were already disclosed during the original assessments, and no new facts justified the reassessment. However, the court held that the assessees had failed to fully and truly disclose material facts, as they falsely represented that Gokulnagar Co. was rendering services. This justified the invocation of Section 34(1)(a).

The court emphasized that under Section 34(1)(a), an assessee is required to make a full and true disclosure of all material and primary facts. If the ITO forms an opinion based on these facts, he cannot later change it unless there is a failure to disclose material facts. The court cited the Supreme Court's rulings in CIT v. Burlop Dealers Ltd. and Malegaon Electricity Co. P. Ltd. v. CIT, which clarified that mere production of account books does not amount to full disclosure unless the ITO applies his mind to form an opinion.

In this case, the ITO had not formed any opinion during the original assessments, as there was no reference to the propriety of the deductions. The ITO had merely accepted the assessees' statements without scrutiny, which were later found to be false. This justified the reassessment under Section 34(1)(a).

2. Factual Determination of Whether Services Were Rendered by Gokulnagar Sugar Mills Co. Ltd.:

The court did not delve into the factual determination of whether services were rendered by Gokulnagar Co. as this was treated as a purely factual issue. The Tribunal had already found that Gokulnagar Co. did not render any services and that the commission payments were devices to divert profits. These findings were upheld by the Appellate Tribunal and were not interfered with by the Supreme Court for the assessment years 1951-52 and 1952-53. The court accepted these findings as conclusive and not open for review.

The assessees argued that the commissions were for legitimate services and pointed to similar commissions paid to other agents in the past. However, the ITO found no evidence of services rendered by Gokulnagar Co., such as selling agency agreements or correspondence. The court concluded that the assessees had falsely stated that Gokulnagar Co. rendered services, which justified the reassessment.

Conclusion:

The court upheld the Tribunal's decision that the provisions of Section 34(1)(a) were rightly invoked. The assessees had failed to fully and truly disclose material facts, and the reassessment proceedings were justified. The factual findings that Gokulnagar Co. did not render any services were accepted as conclusive and not open for review. The revenue was entitled to costs.