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TMI Blog1971 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year being the one which ended 30th September, 1944, the assessee showed a loss of Rs. 4,61,337. It filed before the Income-tax Officer three types of accounts-the "Gur Manufacturing Accounts ", the " Sugar Manufacturing Account " and the " Cane Plantation Account ". The sugar manufacturing account shows that during the relevant accounting year, the assessee had crushed 56,884 tons of sugar-cane, the cost of which is calculated at Rs. 29-8-0 per ton. There is no indication in this account as to how the particular rate was arrived at. The account shows that the assessee incurred a loss of Rs. 4,55,890 on the manufacture of sugar. The cane plantation account which shows an " agricultural profit free from tax " of Rs. 6,81,553 also contains an entry that 55,884 tons of sugar-cane was sold to the factory at the rate of Rs. 29-8-0 per ton. The income up to the stage of disposal of sugar-cane is agricultural income and while the price of the cane is credited to the cane plantation account for calculating agricultural profits, it is debited in the sugar manufacturing account for calculating profits of the sugar manufacturing operations. The value at which the sugar-cane is taken to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company did not purchase any sugar-cane from outsiders ", that " the company has to reduce its own plantation from 1,600 to 1,250 acres and thus could not and did not purchase cane from outsiders for manufacture of sugar " and that " as there is no purchase from outsiders the question of evidence does not arise ". The assessee submitted a fresh return on the 10th of April, 1954, showing the same loss as was shown in the original return. Overruling the objection of the assessee for re-opening the assessment proceedings, the Income-tax Officer held by his order dated the 28th of February, 1955, that, firstly, " the company had represented then that it had bought 80 tons of sugar-cane from outside, whereas it now admits that it did not buy any cane from outside in the accounting period ", and, secondly, that " the company had represented before the Income-tax Officer at the time of original assessment that the cane production in its farm was not sufficient and that in fact it wanted to buy more cane but it could get only a small quantity from neighbouring cultivators. But, it is now admitted that, due to small crushing capacity of the plant, the company could not and did not pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en bought from outside at Rs. 29-8-0 per ton with a view to get higher market value for its sugar-cane and there was failure on the part of the assessee to disclose the material facts, fully and truly, by reason of which the income of the assessee had been under-assessed ". The Tribunal dismissed the cross-appeal filed by the department and confirmed the finding of the Appellate Assistant Commissioner that the average market price of the sugar-cane would be Rs. 25 per ton under rule 23(2)(a). The question for our consideration is whether the Tribunal was right in coming to the conclusion that the reassessment proceedings were validly initiated. Mr. Pandit, who appears on behalf of the assessee, contends that the pre-conditions of section 34(1)(a) of the Act not having been satisfied, the Income-tax Officer had no jurisdiction to reopen the assessment. Section 34(1)(a) which has undergone several amendments read thus at the relevant time : " 34. (1) If- (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief .... The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting the proceedings under section 34 of the Act is open to challenge in a court of law. " But difficulty here is that neither before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 34 of the Act is not legal and proper and valid according to law ". This point has been explained in the memorandum of appeal itself by saying that " really speaking, all the facts were properly placed before the Income-tax Officer by the representative of the company " and that " all books and information having been completely made available to the Income-tax Officer, his conclusion arrived at of the rate of sugar-cane cannot be questioned by reopening an assessment beyond four years ". It is thus clear that none of the three points mentioned in the memorandum of appeal raises the question which Mr. Pandit is now seeking to raise before us. The order of the Appellate Assistant Commissioner dated the 31st of January, 1957, also shows that no such point was urged before him. Paragraph 3 of the order says that two points were urged in the appeal : " Firstly, it was contended that the Income-tax Officer making the assessment had no proper jurisdiction. Secondly, it was stated that proceedings under section 34 have been wrongly initiated. " It is clear from paragraph 4 of the order of the Appellate Assistant Commissioner that the contention regarding want of jurisdiction relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment due to the failure on their part to disclose material facts. Whether the challenge was well founded depended upon how effectively the Income-tax Officer traversed the allegations of the assessee in his affidavit in reply. In the Calcutta Discount Company's case the affidavit of the Income-tax Officer was found to be inadequate. In Kantamani's case the affidavit of the Income-tax Officer was accepted as adequate to show that he had reason to believe that the income was under-assessed on account of the failure of the assessee to disclose material facts. In the case of Madhya Pradesh Industries the Income-tax Officer did not file any affidavit at all. As the proceedings recorded by him before issuing the notices were also not produced nor his report to the Commissioner nor the Commissioner's sanction, the Supreme Court felt it impossible to hold that the Income-tax Officer had any reason to form the particular belief or that the reasons before him were relevant for the particular purpose. Apart from this, it is patent that a misleading statement was made on behalf of the assessee in the original proceedings that the assessee had purchased sugar-cane from outside growers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any material before the Income-tax Officer on the basis of which he could form the belief under section 34(1)(a) of the Act. We see no justification for adopting this course. In the first place, it is a matter of concession that a wholly untrue statement was made on behalf of the assessee in the original assessment proceedings. Secondly at no stage did the assessee repudiate the assertion of the Income-tax Officer that he had reason to believe that the income had escaped assessment due to the failure on the assessee's part to disclose material facts. There is therefore no justification for giving a further lease of life to this old litigation. For these reasons, our answer to the question is in the affirmative. The assessee will pay the costs of this reference. Before concluding, we would like to express our concern that we are considering in 1971 the question whether proceedings of 1945-46 should be reopened. After this court made the rule absolute on the 28th of April, 1960, it was communicated to the Income-tax Appellate Tribunal on the 20th of September, 1960. A question was formulated by this court under section 66(2) and the Tribunal was asked to submit its statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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