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TMI Blog1980 (2) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... h April, of every year. These three companies, as their names suggest, have been carrying on, the business of manufacture and sale of sugar. They were controlled by the' Narang Group which was headed by late Shri Gokulchand Narang. Since common questions of facts and law were involved, the Tribunal has considered it appropriate to submit this consolidated statement. In each year and case the question referred for the opinion of this court, has been as under "Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the provisions of section 34(1)(a) were rightly invoked?" The three companies had, in the course of their business, appointed selling agents in different areas for sale of the sugar produced by them. They were being paid commission at the rate of twelve annas per cent. on sales effected through them. However, during the second world war, sugar became scarce and, therefore, in the year 1942, the Government introduced Central control on the sale and distribution of sugar. Thereunder. it could be sold only under the directions and with the permission of the Government. In the same year, another company known as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of the other two assessees as well. The ITO, thereafter, completed the assessments of all these years and without specifically discussing, in his orders, the nature and basis for allowing the commissions paid to the Gokulnagar Co., allowed those deductions. Thereafter, assessments for the assessment years 1951-52 and 1952-53, came to be effected by the ITO of the present three assessees. During the course of the same, the ITO probed in detail into the nature and basis for allowance of commission to the Gokulnagar Co. and whether the latter had, in fact, rendered any service as selling agents in order to earn those commissions. He then found that there were no selling agency agreements executed between the parties nor the terms and conditions or the period of agencies had been settled. No resolution of Gokulnagar Co. beside existed, whereby it had agreed to act as selling agents of the assessees. It was further observed that with the Government control on sale and distribution of sugar in the year 1942, there was little which the selling agents were to perform. Gokulnagar Co, was found running in loss. Under the circumstances, the creation of the so-called sole selling age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all primary and material facts were already before the ITO when the original assessments were completed and he had, in fact, applied his mind to the propriety of the commissions paid. No change of opinion at the reassessment stage, it was pleaded, was permissible. Reference was made to the specific enquiries which the ITO had made about the nature of these commissions at the original assessment stages and the replies which the assessees, as already reproduced above, had submitted. On merits also, the assessees vehement pleaded that there was no warrant for assuming that the Gokulnagar Co. was a mere figure-head and had not rendered any service as selling agents. Ample material and circumstances, it was pointed out, existed which showed that services were in fact rendered and the commission payments were normal commercial transactions. Reference was made to similar commissions which the assessees had been earlier paying to their such selling agents. In this process, it was pleaded the assessees were able to absolve themselves of the work and responsibilities of dealings with subagents or buyers and thus secured themselves from incidental losses which could accrue in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees failed to get those findings interfered with or set aside up to the Supreme Court. The facts involved in those years were substantially similar as in the present years. Rather in these years the control over, the sale and distribution of sugar to a considerable extent was more rigorous. We, therefore, advert to the controversy whether the reassessment proceedings under s. 34(1)(a) of the Indian I.T. Act, 1922, were legally justified. The sum and substance of the case of the assessees in this regard has been that all primary and material facts were already before the ITO when the original assessments were made. The Govt. control over the sale and distribution of sugar was known to the ITO and the assessees too had apprised of the appointment of Gokulnagar Co. as their selling agents. The deductions of commissions paid to it were duly claimed and were allowed. The ITO, it is next pointed out, had not as a matter of course without applying his mind permitted their deductions. Rather he made specific enquiries about the nature and basis of these payments and what work the selling agents had actually been doing. The assessees then submitted their written replies elabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter precluded from changing that opinion by way of resort to reassessment. There should, however, be something positive to show that there was in fact such formation of opinion at the original assessment stage. If initially no opinion was formed, the question of change therein could not be said to take place. Rather the Explanation added to s. 34 made it clear that the mere production before the ITO of account books or other evidence from which material facts could with due diligence have been discovered by the ITO would not necessarily amount to disclosure within the meaning of that section. The Explanation thus plainly postulated appliance of mind by the ITO and formation of some opinion. The Supreme Court has thus in the case of Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466, held from the cryptic statement of the ITO in the original assessment order that " no adjustment is necessary ", that the Tribunal was not justified in drawing the inference that the ITO had considered all the relevant facts. There the assessee had in the course of original assessment proceedings, informed the ITO about the sale and how the sale price was determined and brought to his notice, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter completed without including that amount. However, subsequently, the investigation revealed that the assessee in fact received the sum of Rs. 1,50,000. The reassessment proceedings were, therefore, resorted to. The Supreme Court upheld their validity. In the present cases, there was not even a passing reference made by the ITO at the original assessment proceedings that he had applied his mind and formed any opinion on the propriety of deductions claimed by the assessees of commissions paid to the Gokulnagar Co. He appeared to have just accepted the disclosure by the assessees that those payments were towards services rendered as sole selling agents. This material fact which had been ex facie accepted then, was later found to be false. Enough information in this direction was rendered available on the completion of assessments for the years 1951-52 and 1952-53. This could be the basis for commencing reassessment proceedings. In our considered opinion, when the material or primary facts disclosed were themselves false, the provisions of s. 34(1)(a) were attracted. A distinction has to be drawn between falsity of the material facts disclosed by the assessee and the erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance. Having made a claim for deduction, it would not be possible nor be the assessee's duty to disclose at the same time that the deduction was not permissible. In our considered opinion, however, this decision does not come to the aid of the present assessees. As already referred to above, the Supreme Court has in clear terms held in the case of CIT v. T. S. PL. P. Chidambaram Chettiar [1971] 80 ITR 467 (SC) that the mere fact that the ITO could have made further inquiry into the matter but did not do so did not take the case out of s. 34(1)(a). The significant thing to be considered in the present cases was whether the material fact of rendering of services was truly stated by the assessees at the original assessment proceedings or not. This was found to have been wrongly stated, and, therefore, could justify recourse to reassessment. We have, therefore, nothing to differ with the conclusions arrived at by the Income-tax Appellate Tribunal. The question referred is answered in the affirmative. The revenue will be entitled to costs. Before concluding we may also refer to the view taken by the Settlement Commission for the assessment years 1960-61 and 1966-67 in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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