9911796707
TMI Blog2000 (3) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... e State of Assam. The company carried on the business of growing green tea leaves in the said two tea estates and of manufacturing black tea out of the said green tea leaves grown by it as well as purchased from others and selling the same in India and abroad. Under a scheme of arrangement, the aforesaid tea business of the company was transferred to Mcleod Russel (India) Ltd., which now stands merged with Eveready Industries (India) Ltd., the writ petition w.e.f. 1st April, 1996. 3. For the asst. yr. 1991-92, Namdang Tea Company (India) Ltd., filed its return on 30th Dec., 1991, showing an income of Rs. 41,82,030 and along with the said return filed profit and loss account and balance sheet audited as per the provisions of the Companies Act, 1956, and audit report under s. 80HHC of the Act and other relevant documents and papers, The company then received notices dt. 24th Jan., 1992, under ss. 142(1) and 143(2) of the Act. The company also received a letter, dt. 28th Jan., 1993, requiring the company to furnish details/documents/informations covering a list of 30 requisitions. The company furnished the information/details/documents in the course of hearing before the AO by letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der protest, Thereafter on 8th Dec., 1998, the petitioner received the impugned notice dt. 3rd Dec., 1998/4th Dec., 1998, from the AO under s. 142 of the Act required the petitioner to furnish a return under s. 142(1) of the Act by 21st Dec., 1998, and also to produce or cause to be produced before him on 21st Dec., 1998, the books of account, etc. relevant to the asst. yr. 1991-92. The petitioner then moved the present application under Art. 226 of the Constitution for appropriate relief and on 18th Dec., 1998, this Court while issuing notice of motion to the respondents passed an interim order staying further proceedings pursuant to the impugned notices. In response to the notice of motion, respondents Nos. 1, 2 and 3 have filed affidavit-in-opposition on 8th Oct., 1999. The said affidavit-in-opposition has been sworn by Shri J.C. Pegu, Joint CIT, Special Range-II, Guwahati, who is the AO. In para. 2 of the said affidavit-in-opposition, the AO has stated that it is a fact that detailed inquiries were made into the entire matter including the present issues, involved at the time of assessment and after being satisfied, the assessment was made and that the material on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render the kind of service for which it was receiving payment. They claimed that they were getting the services rendered through other parties. A simultaneous survey was also carried out at the premises of the following three parties who were supposed to have rendered service on behalf of the above-mentioned four parties. (i) B.S. Consultants (P) Ltd. (ii) Manoj Commercial Services (P) Ltd. (iii) Ajanta Commercial & Mercantiles (P) Ltd. During the survey a common director of the above-mentioned three companies, namely, Shri B.S. Kathria admitted on oath that no service was rendered by the aforesaid three companies in the nature of supply of cowdung, repairing of labour quarters, fencing, etc., as claiming by the companies, namely, (i) Gladiolai Estate (P) Ltd., (ii) Rohini Estate (P) Ltd., (iii) Gagan Properties (P) Ltd., (iv) Smriti Properties (P) Ltd. Actually these transactions were merely accommodation entries and the amount paid through cheques were ultimately returned in cash after routing it through four or five bank accounts. Out of the above transactions the assessee, Namdung Tea Company (India) Ltd., made the following payments to the undermentioned parties during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. This position of law would be clear from a bare reading of s. 147 and the proviso thereto. He explained that similar provisions existed in s. 34 of the Indian IT Act, 1922, and in Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC) : TC 51R. 779, the Supreme Court held that to confer jurisdiction under s. 34 of the Indian IT Act, 1922, to issue notice in respect of the assessment beyond the period of four years, but within a period of eight years, from the end of the relevant assessment year, two conditions had to be satisfied; the first was that the ITO must have reason to believe that income, profits or gains chargeable to income-tax had been underassessed; the second was that he must have reason to believe that such underassessment had occurred by reason of either omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of an assessee to disclose fully or truly all material facts necessary for his assessment for that year. Dr. Pal submitted that in a recent decision of the Supreme Court in the case of Coca-Cola Export Corporation vs. ITO (1998) 146 CTR (SC) 250 : (1998) 231 ITR 200 (SC) TC S51.4058, the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertained by the ITO must not be arbitrary or irrational and it must be reasonable or, in other words, it must be based on reasons which are relevant and material. He submitted that in the aforesaid decision in Ganga Saran & Sons (P) Ltd. vs. ITO the Supreme Court further held that if there was no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment. Dr. Pal submitted that paras 4 and 5 of the additional affidavit-in-opposition show that the AO has initiated action under s. 147 r/w s. 148 of the Act because it appeared that payment of Rs. 27,25,600 made by the company for services rendered by Rohini Properties (P) Ltd. and Gladiolai Estate (P) Ltd. were not genuine. This was done on the basis of survey in connection with some other cases in West Bengal during which a common director of three parties through whom the aforesaid two parties rendered service to the company had admitted on oath that no services were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notices under s. 148 of the Act mechanically and without application of his own' independent mind to the question as to whether there was reason to believe that any income chargeable to income-tax has escaped assessment for the asst. yr. 1991-92 due to failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for that assessment year. According to Dr. Pal, therefore, the impugned notices issued by the AO in the present case were without jurisdiction and were liable to be quashed. 5. Mr. K.P. Sarma, learned counsel appearing for the Department, on the other hand, submitted that the impugned notices have been issued to the petitioner on the basis of information sent with the letter dt. 30th June, 1998, kf the CIT, Guwahati, referred to in para 4 of the additional affidavit-in-opposition. He submitted that along with the said letter dt. 30th June, 1998, of the CIT, Guwahati, a D.O. lepter dt. 11th June, 1998, of the CIT, West Bengal-II, Calcutta, was enclosed in which the results of a survey conducted by the Investigation Wing, Calcutta, have been communicated. He explaine` that this information was not availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds for issue of such notices are adequate or not is not a matter for the Court to investigate. He also relied on the decision of the Supreme Court in s. Narayanappa vs. CIT (1967) 63 ITR 219 (SC), wherein the Supreme Court held that the legal position is that if there are in fact some reasonable grounds for the ITO to believe that there had been any nondisclosure as regards any fact which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the ITO to issue-notice under s. 34 of the Indian IT Act, 1922, and whether these grounds are adequate or not, is not a matter for the Court to investigate, He also cited the decision of this Court in Bhadarmal Hazarimal vs. ITO (1975) 100 ITR 159 (Gau) : TC 51R.1089, wherein a Division Bench of this Court held that if material facts or primary facts necessary for assessment as disclosed by the assessee at the time of assessment are subsequently on investigation found to be false or non-existent, it cannot be said that the assessee disclosed fully and truly all material facts necessary for the assessment. Mr. Sarma submitted that it will be clear from the information revealed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary for his assessment for that assessment year. Explanation 1.---Production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.---For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return : (c) where an assessment has been made, but : (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment for the asst. yr. 1991-92. 7. The reasons which have been recorded under s. 148(2) by the AO before issuing the impugned notice under s. 148(1) have been disclosed in paras. 4 and 5 of the additional affidavit-in-opposition filed on behalf of respondents Nos. 1, 2 and 3 quoted above. From the said reasons in paras. 4 and 5 of the additional affidavit-in-opposition quoted above, it appears that the company had made payments amounting to Rs. 27,25,600 during the financial year 1990-91 relevant to the asst. yr. 1991-92 to Rohini Properties (P) Ltd., and Gladiolai Estate (P) Ltd. for rendering some services, but in a survey conducted by the Investigation Wing, Calcutta, it was revealed that Williamson Magon Group of Companies had made huge payments to Rohini Properties (P) Ltd. and Gladiolai Estate (P) Ltd. for rendering services like cowdung supply, labour quarters repairing, fencing, etc., and the said two companies claimed that they were getting services rendered through other parties. But a common director of three of these other parties had admitted on oath that no services were rendered for supply of cowdung, labour quarters repairing, fencing, etc., as claimed by Gla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All that he says is that from those communications 'it appears that these persons (alleged creditors) are name-lenders and the transactions are bogus. 'He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of s. 151(2). What that provision requires is that he must give reasons for issuing a notice under s. 14B. In other words he must have some prima facie grounds before him for taking action under s. 148. Further, his report mentions : 'Hence proper investigation regarding these loans is necessary." In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under s. 148. Before issuing a notice under s. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under s. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port. To infer from that confession that it relates to the period from 1st April, 1957, to 31st March, 1958, and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather far-fetched. As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live-link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the reason to believe that the income had escaped assessment was based on specific information received by the ITO regarding the two parties. In the present case, on the other hand, there is no specific information indicated in the reasons disclosed in paras. 4 and 5 of the additional affidavit-in-opposition by the AO that the particular transaction of Rs. 13,96,000 between Numdang Tea Company (I) Ltd. and Rohini Properties (P) Ltd. and the particular transaction of Rs 13,36,600 between Numdang Tea Company (P) Ltd. and Gladiolai Estate (P) Ltd. were fictitious and were not genuine. The AO, therefore, could not possibly entertain a belief that the income of the said company had escaped assessment warranting initiating of action under s. 147 of the Act. I am, therefore, of the considered opinion that the AO in fact has no reason to believe that any income of the assessee chargeable to tax has escaped assessment for the asst. yr. 1991-92 and that the initiation of the proceedings under s. 147 r/w s. 148 of the Act was without jurisdiction. In view of this conclusion, it is not necessary to deal with the other contentions raised by Dr. Pal, learned counsel for the petitioner. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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