1972 (5) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer under Section 147(a) of the Income-tax Act, 1961.
3. Full and true disclosure of material facts by the petitioner-firm.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income-tax Act, 1961:
The petitioner-firm challenged the notice issued under Section 148, asserting that it had fully and truly disclosed all material facts necessary for assessment for the year 1965-66. The Income-tax Officer issued the notice on November 14, 1969, believing that the petitioner-firm had manipulated its profits by introducing bogus intermediaries, thereby causing income to escape assessment. The court held that the notice was valid and within the jurisdiction of the Income-tax Officer, as it was issued within the permissible time frame for reassessment under both clauses (a) and (b) of Section 147 of the Act.

2. Jurisdiction of the Income-tax Officer Under Section 147(a) of the Income-tax Act, 1961:
The court examined whether the Income-tax Officer had jurisdiction under Section 147(a) to issue the notice. The petitioner-firm argued that it had not failed to disclose fully and truly all material facts. However, the court found that the Income-tax Officer had reasons to believe that the petitioner-firm had not disclosed the true market rate of wool-tops and had manipulated its accounts to show lower profits. The court noted that the Income-tax Officer had obtained information from the Income-tax Officer, Jamnagar, indicating that the wool-tops sold by the petitioner-firm at Rs. 9.50 per pound were sold by intermediaries at Rs. 18.37 per pound within 15 days. This provided sufficient grounds for the Income-tax Officer to issue the notice under Section 147(a).

3. Full and True Disclosure of Material Facts by the Petitioner-Firm:
The court emphasized that it was the duty of the petitioner-firm to disclose not only the sales but also the prevailing market rates and any reasons for selling at lower rates. The petitioner-firm had disclosed the import and sale of wool-tops but failed to inform the Income-tax Officer of the much higher market rate or any special reasons for selling at a lower rate. This omission led the court to conclude that the petitioner-firm had not fully and truly disclosed all material facts necessary for assessment. The court held that mere production of account books did not amount to full disclosure within the meaning of Section 147 of the Act.

Conclusion:
The court dismissed the petition, holding that the notice issued by the Income-tax Officer on November 14, 1969, was valid and within his jurisdiction. The petitioner-firm's failure to disclose the true market rate and reasons for lower sales constituted a lack of full and true disclosure of material facts, justifying the reassessment proceedings. The petition was dismissed with costs, and the reassessment proceedings were allowed to continue.