1977 (1) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue notices under sections 147 and 148 of the Income-tax Act, 1961.
2. Whether the assessee disclosed all primary facts necessary for assessment.
3. Validity of reopening assessments based on subsequent findings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Issue Notices under Sections 147 and 148 of the Income-tax Act, 1961:
- The department sought to reopen assessments for the years 1965-66 and 1966-67 by issuing notices under sections 147 and 148. The assessee challenged these notices, arguing that the Income-tax Officer lacked jurisdiction as the circumstances justifying the exercise of power under these sections did not exist.
- The court examined the scope of section 147(a), which allows the Income-tax Officer to reassess if there is reason to believe that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts.
- The court referred to the Supreme Court's decision in Calcutta Discount Co Ltd. v. Income-tax Officer [1961] 41 ITR 191, which established that if the assessee disclosed all primary facts at the time of the original assessment, there could be no concealment of income, and sections 147(a) or 34(1)(a) could not be invoked.
- The court reiterated that the belief held by the Income-tax Officer must be in good faith and not merely a pretence. The sufficiency of the grounds for this belief is not a justiciable issue.

2. Whether the Assessee Disclosed All Primary Facts Necessary for Assessment:
- The assessee disclosed an item of Rs. 20,000 under "Workmen and staff welfare expenses" in its returns for the relevant years. The explanation provided was that the amount was spent by the vice-president at his discretion for pacifying troublesome elements among the workmen.
- The court held that the assessee had disclosed all primary facts, and it was the duty of the Income-tax Officer to draw the appropriate inference from these facts. The assessee was not obligated to instruct the Income-tax Officer on the possible inferences from the disclosed facts.
- The court cited the Full Bench decision of the Gujarat High Court in Poonjabhai Vanmalidas and Sons v. Commissioner of Income-tax [1974] 95 ITR 251, emphasizing that the assessee's duty is to disclose primary facts and not to guide the Income-tax Officer on the inferences to be drawn.

3. Validity of Reopening Assessments Based on Subsequent Findings:
- The Income-tax Officer issued notices for reassessment based on findings from the assessment year 1971-72, where a similar deduction was disallowed due to the absence of vouchers.
- The court pointed out that the primary facts were already disclosed by the assessee at the time of the original assessments for 1965-66 and 1966-67. The subsequent change in the Income-tax Officer's view did not justify invoking section 147(a).
- The court referred to the Supreme Court's decision in Parashuram Pottery Works Co. Ltd. v. Income-tax Officer [1977] 106 ITR 1, which held that an assessee cannot be held responsible for the Income-tax Officer's failure to apply the law correctly at the time of the original assessment.
- The court concluded that the provisions of section 147(a) could not be invoked merely because the Income-tax Officer later regarded his earlier inference as erroneous.

Conclusion:
The court held in favor of the assessee, concluding that the Income-tax Officer did not have jurisdiction to issue notices under section 147(a) for the assessment years 1965-66 and 1966-67. The writ appeal was dismissed, and the writ petition was allowed, quashing the impugned notices. The respondents were restrained from giving effect to the notices under section 147(a) in both cases, and the Income-tax Officer was ordered to pay the costs of the assessee-company.