9911796707
TMI Blog1990 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... stocks from it. The petitioner had also obtained an irrevocable revolving letter of credit from the Corporation Bank, Guntur, in favour of ITC Ltd.., subject to the condition that the draft shall be drawn at sight without recourse to the drawee, to a limit of rupees fifty lakhs if the drafts were to be accompanied by commercial invoices and an undertaking that the goods mentioned in the invoices were despatched to the drawee. In addition to the above letter of credit facility, the Corporation Bank had allowed cash credit facility for rupees forty-five lakhs to the petitioner. The petitioner's case is that there was an understanding between the petitioner-firm and the bank that the bills drawn under the letter of credit facility would be promptly cleared before the expiry of the period of 20 days from the date of presentation of the individual bills. It is also the petitioner's case that this period of 20 days would take in the period for transit of supplies as well. The petitioner submits that ITC Ltd. was drawing on this account at the rate of rupees four lakhs per working day from the bank, irrespective of whether the goods mentioned in the bills had actually been received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 148 of the Income-tax Act in respect of each of the assessment years. The petitioner received those notices on September 25, 1986. It challenges the notices so received under section 148 of the Act and seeks issue of a writ of certiorari to quash those notices. Counsel for the petitioner submits that the notices are unsustainable, since, the preconditions necessary for action under sections 147 and 148 did not exist nor have they been found to exist. According to him, those requirements are (1) that the Income-tax Officer should have reason to believe that income chargeable to tax has escaped assessment, (2) by reason of omission or failure of the assessee either to make a return, or (3) to disclose fully and truly all material facts necessary for the assessment for that year. He also submits that existence of and compliance with these conditions is justiciable and, therefore, the records of the Income-tax Officer should disclose such compliance. He also submitted that section 148(2) of the Income-tax Act requires the Income-tax Officer, before issuing notices under that section, to record his reasons for doing so. He submits that such record of reasons, if any, is open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief on the basis of some relevant material, it is not open to this court to probe any further. The adequacy or sufficiency of the material to form the belief are all matters which are beyond the scope of judicial scrutiny in proceedings under the extraordinary jurisdiction of this court. Such matters shall be relegated to determination by the Income-tax Officer in accordance with the provisions of the statute. His submission, in other words, is that only a limited scrutiny can be made and the merits of the matter have to be considered elsewhere in other proceedings where the assessee gets more than adequate opportunity to advance all his defences. We have adverted to the fact that this question was considered quite often by various courts. Counsel for the petitioner referred to the decisions in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), ITO v. Madnani Engineering works Ltd. [1979] 118 ITR 1 (SC), CIT v. Labala Haribandhu Sahu [1983] 142 ITR 21 (Orissa), Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714 (Cal), T. M. Kousali v. Sixth ITO [1985] 155 ITR 739 (Kar), Acchut Kumar S. Inamdar v, P. R. Hajarnavis [1981] 132 ITR 331 (Bom), and Sirpur Paper Mills Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Again, the expression 'reason to believe' in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. 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 proceedings under section 34 of the Act is open to challenge in a court of law" The same principles should apply to reopening of assessment under section 147 of the Act, 1961, as well. The only two questions which we need, therefore, ask are: "(1) Whether the Income-tax Officer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act and consisting of letters dated May 15, 1986, May 28, 1986 and July 2, 1986, and the petitioner's replies dated June 15, 1986 and July 10, 1986, seems to us to bear out the case of the respondent. Those materials which are produced by the Revenue are sufficient to make out that the Income-tax Officer had reason to believe that, by reason of non-disclosure, fully and truly, of all material facts relating to the actual stock position in respect of the assessment years in question, the income of the petitioner must have escaped assessment. We hasten to add that what the Income-tax Officer was required by the provisions of section 147 of the Act to do was to form bona fide belief and record his reasons indicating that income assessable to tax had escaped assessment by reason of the failure or omission on the part of the assessee to disclose material facts fully and truly. That belief is only tentative, and does not amount to a final finding of fact adverse to the assessee. Though tentative, the belief must be reasonable, and it must be based on relevant and cogent material having nexus with the assessable income of the assessee. On a scrutiny of the material referred to abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. If the value of the stock-in-trade is not taken into account, in the ultimate result the profit or loss resulting from trading is bound to get absorbed or reflected in the stock-in-trade unless the value of the stock-in-trade remains unchanged at the commencement of the year and the end of the year." We have, therefore, no doubt that the statements regarding stock were very material for assessment of the petitioner. We also note that the petitioner had, as a matter of fact, produced one set of statements of stock and bank statements for assessment. But they did not, according to the Assessing Officer, amount to true and full disclosure of the actual stock held by it. Counsel for the petitioner submitted that the only duty of the assessee is to disclose material facts necessary for the purpose of assessment. Once they are disclosed, there is no further obligation to inform the Assessing Officer of any inference which he could drawn from such facts. He relied on the decision of this court in Sirpur Paper Mills Ltd. v. ITO [1978] 114 ITR 404 as also the decision of the Supreme Court in Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 and of the Madhya Pradesh High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort and the replies received from the bank with specific reference to this contention. That may be an aspect of the matter which may require closer scrutiny during the course of the reassessment proceedings. We need only state that the availability of the explanations to the assessee does not preclude the Income-tax Officer from adverting to the obvious in arriving at a bona fide belief that the divergence of the stock between the two statements of the assessee for the relevant period indicated omission or failure to make a true and full disclosure of facts material for assessment. We find force in the contention of counsel for the respondent that we may not accept any submission which may give legitimacy to the duplicity of the assessee in maintaining books of account and statements of stock. He brought to our notice the decisions in Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad) and V. Rajan v. CIT [1974] 96 ITR 64 (Mad) in support of his submission that we shall not accept the proposition that stocks were inflated in the statements to the bankers to avail of higher credit facilities. As we have indicated above, we do not propose to finally pronounce on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar) wherein Puttaswamy J. held that non-disclosure of the pendency of the claim for enhancement of compensation under the Land Acquisition Act is not failure to disclose material facts necessary for assessment. The principle of that decision is the same as in Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC) and does not, therefore, render any further assistance to the petitioner. The point in question is concluded against the petitioner in Kantamani Venkata Narayana and Sons' case [1967] 63 ITR 638 (SC). Dealing with the same question, the Supreme Court adverted to the fact that (at page 643) : "The Income-tax Officer has said that no attempt was made by the assessee to furnish some reasonable proof of the source of the additional wealth ; the partition deed was not produced ; the books of account prior to 1948-49 were withheld on the plea that all the books were lost; no evidence was tendered to show that the father-in-law of the manager was possessed of sufficient means to give and did give any large cash amounts to him; and there was also no explanation why a large amount exceeding lakh of rupees was not invested in the money-lending or other business. The Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
