9911796707
TMI Blog1964 (12) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to the Income-tax Officer, Group Circle J, and at present the respondent is in charge of the assessments of the petitioner-firm for the assessment years 1962-63 and 1963-64. The petitioner-firm has been carrying on business in mill stores and has also been importing certain goods, such as chucks, brass rules, steel rules, diesel engine parts, ball-bearings, etc., besides dealing in other mill stores and general merchandise goods. In the course of its business, the firm has been selling these goods to several mills and merchants and also to Messrs. A.M. Shah and Co. and Messrs. R. Ambalal and Co., which firms are Hindu undivided family firms, the respective kartas whereof are the two partners in the petitioner-firm. The two Hindu undivided family firms started their business in the account year 1958-59 and they also have been importing mills stores and other goods. The two Hindu undivided family firms are established importers in respect of the aforesaid mill stores and general merchandise goods and are dealing with several merchants besides the petitioner-firm. Since the assessment year 1959-1960, the two Hindu undivided family firms are being assessed to income-tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, denying that there was any diversion of profits and stating that the gross profits earned by the petitioner-firm on sales made to the Hindu undivided family firms had gone on increasing during the aforesaid three years, that all the material facts and the books of account with quantitative details of purchases and sales and the list of parties from whom the goods were purchased or to whom the goods were sold in large quantities, were furnished to the Income-tax Officer at the time of the original assessments and that, consequently, the respondent did not possess any information which would justify him to re-open the aforesaid assessments and that the respondent had no jurisdiction to do so. The respondent, however, issued the three impugned notices dated March 29, 1964, under section 148 of the Act, alleging that the income of the petitioner-firm chargeable to tax for the aforesaid three years had escaped assessment and that, therefore, he proposed to reassess its income for the said three years and required the petitioner-firm to file its returns of income within thirty days from the receipt of the said notices. The respondent's case, on the other hand, was that the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to ₹ 10,575, i.e., at a profit of about ₹ 4,800 as against a possible profit of about ₹ 23,000 which the petitioner firm would have made had the fifty-nine chucks been sold to customers other than the two Hindu undivided families at the same price which it charged from the aforesaid Metal Products. He also found that in the quantity account, the size of the chuck which was sold to Messrs. Metal Products had been wrongly stated to be of the measurement of 16? inches, though on scrutiny he found that the size of the chuck was the same, namely 7? inches, as that of the other chucks. This was done deliberately in order to mislead the scrutinizing officer and to show that there was no disparity between the price realised from the said Messrs. Metal Products and the price charged to the two Hindu undivided families. According to the respondent, in the course of discussions which he had with the representatives of the petitioner-firm, he learnt that in the earlier years also the petitioners had effected such sales to the said Hindu undivided families and that over and above the margin of profits earned by the petitioners from the Hindu undivided families, the Hindu u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Hindu undivided family firm was assessed by the Income-tax Officer, Circle IV, Ward E, for the assessment year 1961- 62. He also found out that similar information had been given to that Income-tax Officer in respect of the Hindu undivided family firm of Messrs. R. Ambalal and Co. These statements have been averred in paragraph 16 of the petition and we may observe at this stage that none of these averments has been denied by the respondent in his affidavit in reply. Mr. Nanavati submitted that the information that can be the basis for initiation of reassessment proceedings under section 147 must be one which is acquired by the Income-tax Officer after the original assessments were concluded, but since all this information, upon which the respondent had relied, was already with his predecessor as a result of the books of account, including the said stock ledger having been produced before him, and the Income-tax Officer who had originally assessed the petitioner-firm having already seen the rates at which the petitioner-firm had sold the goods to the two Hindu undivided family firms, there was no question of the respondent having acquired any information other than that which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer can act under this section on evidence, but not on mere surmise or suspicion. As stated in Bhimraj Panna Lal v. Commissioner of Income-tax [1957] 32 I.T.R. 289, a decision under section 34 of the old Act corresponding to the present section 147, there must exist something, either supported by the assessee, or a fact or a point of law which is inadvertently or otherwise omitted to be considered by the Income-tax Officer before he can proceed to act under this section. But a mere change of opinion on the same facts or law is not covered by the section. The Income-tax Officer cannot also institute a fishing investigation or enquiry with the object of finding out facts which would entitle him to reopen a past assessment. But it would be enough, if he, on the information which he has with him and in good faith, considers that he has good ground for believing that the assessee's profits have, for some reason, escaped assessment or been assessed at too low a rate and a notice can be served if he is bona fide of the opinion that income has escaped. At the same time, though his powers are wide, they are not plenary, for the legislature has insisted on the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or apprehension on the part of a subsequent Income-tax Officer was not enough, Chagla C.J. held that mere possession of materials by the original Income- tax Officer would not amount to information, for information must amount to knowledge or mental awareness of the facts revealed by such materials. The mere fact that account books were placed before the Income-tax Officer therefore is not sufficient to give him information as to their contents. Such a fact may amount to constructive notice of their contents but not an actual notice which is what is required by section 147. In a decision which we recently gave in Ambalal Jivabhai Patel v. Income-tax Officer, Ahmedabad [1964] 54 I.T.R. 308, we construed the word information and held that where the annual value of certain house property was returned by the assessee on the basis of the rateable value fixed by the municipal corporation and where the previous Income-tax Officer accepted that value believing that it represented the correct annual value of the property in question, if, subsequently on enquiry made by the Income-tax Officer, the latter officer were to come to know from the assessor and collector of municipal taxes that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment work of all these parties. But that by itself would not mean any information which would justify action under section 147(b). There is also no dispute that at the time of the original assessment of the petitionerfirm, all books of account of that firm were produced and examined by the Income-tax Officer who passed the assessment orders. It is also not in dispute that amongst these books was the sales ledger which disclosed sales and purchases made by the petitioner-firm. quantities and prices both of sales and purchases, as also the parties to whom they were sold. From these books, and particularly from the sales ledger, it must have been clear to that Income-tax Officer that: (a) the two Hindu undivided family firms had started business since 1958, (b) that sales were made to them of goods imported by the petitionerfirm, (c) the type of goods sold to them and their prices, and (d) the type of goods sold to the other merchants and their respective prices. From these facts, it was open to the Income-tax Officer, if he could do so, to come to the conclusion that sales of certain imported goods were made to the two Hindu undivided family firms in such a fashion as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit in reply that the information in regard to the sales of chucks related to transactions which took place in respect of the assessment year 1962-63 and those transactions had no relation to the previous assessment years. It is equally clear that the only other information which he derived as a result of discussions with the representatives of the petitioner-firm consisted of: (1) the fact of sales of certain imported goods by the petitioner-firm to the Hindu undivided families in the earlier years in question, and (2) the fact of these sales having been made at prices lower than those charged in respect of the same imported goods from other merchants and the two Hindu undivided families having made substantial profits on resale of such imported goods, besides the petitioner-firm having also made profit in the sale of such goods to the two Hindu undivided families. It is also clear from the affidavit in reply that it was only from these facts that he felt satisfied that such sales were made to make it possible for the two Hindu undivided family firms to make profits and that the said sales were so made as to divert the profits of the petitioner-firm which the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndu undivided family firms, that only one of them was sold to an outsider, that the fifty-nine chucks were sold at prices lower than the price charged from the outsider, that the petitioner-firm had attempted to mislead the Income-tax Officer by wrongly describing the size of the chucks sold to the outsider and that the Hindu undivided family firms made substantial profits as a result of the resale by them of the aforesaid fifty-nine chucks. According to the petitioner-firm, however, the chucks sold to the outsider had additional fittings and that was why the firm had realised a higher price than the price realised from the Hindu undivided family firms. It is also the case of the petitioner-firm that it has challenged the assessment order for the assessment year 1962-63 and, in the appeal it has filed, this fact has been relied upon by it. But, without going into the merits of that question, since it is a matter still pending before the appellate authority and even assuming that there was disparity in prices and the sale was made to divert the profits, the transaction cited is only a solitary one but relates to the assessment year 1962-63. If from such a solitary transaction whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Income-tax Officer would not reveal the substantial profits made by the Hindu undivided family firms from resale of these goods and, therefore, the knowledge that the Hindu undivided family firms had made profits on resale would amount to new information derived by the respondent. The question then is whether that by itself was such information as would raise reasonable ground to believe that there was escapement of assessment. Now, it is not the case of the respondent that the usual practice of the petitioner-firm as an importer was to sell directly to the retailer or the consumer the goods imported by it, or that the petitioner-firm had, contrary to any such practice, sold the goods to the Hindu undivided family firms to enable the Hindu undivided family firms to resell them to the retailer and to make profits at that intermediate stage. Ordinarily, an importer would sell goods imported by him to wholesalers and the wholesalers would sell them in their turn to retailers or to the consumers. The wholesalers would purchase such goods obviously with the object of reselling them at profit. Therefore the mere fact that the petitioner-firm sold these goods first to the Hindu undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits. The fact, therefore, that both the petitioner-firm and the Hindu undivided family firms made profits out of these transactions is not such an unusual fact as would lead to a reasonable belief that the transactions were meant for diversion of profits or that the Hindu undivided family firms were mere benamidars of the petitioner-firm. The second part of the statement merely shows the total of profits made at the two stages, i.e., (1) at the stage of sale to the Hindu undivided family firms, and (2) at the stage of resale by the Hindu undivided family firms, and the conclusion drawn there as to the total amount of profits that might have been made by the petitioner-firm had that firm sold the goods directly to retailers or to consumers without the Hindu undivided family firms being the intermediaries. It also shows the total amount of income-tax that would have been payable at both the stages. That part of the statement, however, is at best a calculation based on the assumption that the petitioner-firm ought to have sold the goods directly to the retailer or to the consumers without selling them to the Hindu undivided families. Such an assumption is not warranted either un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trivance to divert profits would mean that the Hindu undivided family firms were the benamidars of the petitioner-firm. But, barring the statement that these sales were a subterfuge, there is not a little of evidence to show that the Hindu undivided family firms were the benamidars of the petitioner-firm. To allege that the two Hindu undivided family firms were the benamidars of the petitioner-firm would require some evidence which the respondent must possess before such an allegation can be accepted. The learned Advocate-General, however, contended that we would not be justified in dissecting the information which the respondent received during the three aforesaid stages and that we should really appreciate the cumulative effect of the information he gathered during those three stages. But even if we were to follow that course, let us see what is the result. The fact that the Inspecting Assistant Commissioner entrusted the respondent to carry out the assessments of the petitioner-firm, its two partners and the two Hindu undivided family firms would not constitute any information. At the stage when he took up the assessment for the assessment year 1962-63, he found that during t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
