1973 (7) TMI 24 - HC - Income Tax

Validity of notice u/s 138 - In the balance sheet filed with the original returns, sale of machinery was shown with a note that profit or loss by that transaction was yet to be ascertained - This explanation was accepted in the original assessment. Whether notice under section 148 could be issued on the plea that the profit by sale was not disclosed

Summary

Issues:
1. Validity of the notice issued under section 148 of the Income-tax Act, 1961.
2. Disclosure of material facts by the assessee-company during the original assessment.
3. Interpretation of Explanation 2 to section 147 of the Income-tax Act.
4. Duty of the assessing authority to inquire into statements contained in the balance-sheet.
5. Relevance of additional information provided by the Wealth-tax Officer.

Analysis:
The High Court of Calcutta heard an appeal by the revenue challenging an order granting a writ of mandamus and prohibition directing the recall of a notice issued under section 148 of the Income-tax Act, 1961. The respondent, a company, contested the notice based on the alleged omission of disclosing profits from the sale of machinery during the original assessment. The court analyzed whether the balance-sheet filed by the company, along with a note on machinery sales, constituted sufficient disclosure of material facts. The court held that the balance-sheet, being part of the return, disclosed relevant information, and the company had fulfilled its duty to disclose all material facts within its knowledge during the assessment proceedings.

The court considered the interpretation of Explanation 2 to section 147, emphasizing that the balance-sheet submitted by the company was more than mere books of account and constituted a disclosure of relevant information. Additionally, the court noted that the company had provided a detailed list of machinery sold during the original assessment, further supporting their contention of full disclosure. The court rejected the revenue's argument that the notice under section 148 was valid due to alleged non-disclosure of profits, ruling that the Income-tax Officer had acted on the information available during the original assessment.

Regarding the additional information provided by the Wealth-tax Officer, the court held that it was not relevant to the issue of disclosure under section 147(a) of the Income-tax Act. The court upheld the trial judge's order, dismissing the appeal by the revenue and emphasizing that there was no omission to disclose material facts, rendering the notice under section 148 issued in excess of jurisdiction. The court also directed the quashing of any assessment proceedings if already conducted during the pendency of the appeal. Both judges concurred with the decision, and the appeal was dismissed without costs.