2001 PLP 3573 (PTD)

Now, coming to the facts of this case, Mr. Jhunjhunwala, learned counsel, appearing on behalf of the Revenue, submits that the petitioner company has mentioned the address of Prakash Industries Limited for lease of equipment as at 15 K.M. Stone, Delhi Road, Hissar, Haryana; whereas, in the insurance policy, insuring the equipment, namely, flameless furnace, the address mentioned is as Padma Tower, FS Rajendar Place, New Delhi Mr. Jhunjhunw1a further submits that altogether a different address was mentioned while making correspondence at the Calcutta office. According to. Mr. Jhunjhunwala, all the fictitious addresses were mentioned in order to escape the liability of tax. Mr. Jhunjhunwala has produced the entire communications received from the Ludhiana Office including various Annexures attached thereto in a sealed cover in the course of hearing. It was objected to by Mr. Debi Pal inasmuch as, it was submitted that unless copies of the said documents are served upon the petitioners, neither the respondent authority nor this Court could rely upon such alleged confidential documents. With the consent of Mr. Jhunjhunwala, the entire report, which was submitted during the course of hearing was served upon the petitioners, after taking a photostat thereof in the presence of counsel appearing on behalf of the parties, and, accordingly, the case was adjourned for hearing today. A supplementary affidavit was filed challenging the aforesaid report including the Annexures appended thereto on the ground that those documents have no nexus for initiating the aforesaid proceeding under section 147 of the Act. According to Mr. Pal, the entire report of the Deputy Director of Income‑tax (Investigation), Ludhiana, relates to an investigation in connection with the assessment of Reliance Capital Limited with respect to an air pollution control equipment purchased from Prakash Industries Limited. According to learned counsel, the said report does not mention the name of the petitioner company and/or the purchase made of flameless furnace from Saheb Engineering Works. From the report, it appears that Saheb Engineering Works, was not in existence. According to Mr. Pal, the other documents attached with the report have no relevance whatsoever with reference to the transaction, which the petitioner company had with Saheb Engineering Works. According to the petitioners, the said flameless furnace was purchased by the petitioner company from the said Saheb Engineering Works vide invoice, dated February 7, 1994, but on enquiry, it was found that the said Saheb Engineering Works was non‑existent on the given address. Mr. Pal, however, submits that the said enquiry was made in November, 1994, and, as such; it cannot be presumed, that Saheb Engineering Works was not in existence when the said flamless furnace was purchased in August 1994. The Deputy Director of Income Tax Ludhiana, conducted the investigation in relation to the transaction made by Prakash Industries Ltd. with other limited concerns. According to Mr. Debi Pal, learned counsel for the petitioners; Saheb Engineering Works was very much in existence when the said equipment was purchased by the petitioner company in the year 1994. The, said flameless furnace was purchased from the said Saheb Engineering Works and was leased out to Prakash .Industries Ltd. From the report of the Deputy Director of Income‑tax (Investigation); Bhopal, preliminary enquiry made in the factory premises of Prakash Industries Limited, reveals that such machinery was not installed in the said premises. The report further discloses the fact that the purchases made by Reliance Capital Limited from Saheb Engineering Works through Prakash Industries Limited, and the said machinery was leased out to Prakash Industries Limited but the assessing Authorities ultimately found that no such party lived there. The address of Saheb Engineering Works given by Prakash Industries Limited was entirely different from what has been brought on the record. The report further indicates that the parties in whose names the bank account was opened and the sate proceeds of the machinery are altogether different from the parties in whose names the VDIS is made. On going through the report. Mr. Pal submits that there is absolutely no material on the basis of which any honest and/or reasonable person can form any belief that any income in the assessment year 1995‑96 ever escaped in the assessment within the meaning of section 147 of the Act. In the course of hearing of this writ application, we have gone through the reports submitted by the Director of Income‑tax (Investigation) where from it appears that the petitioners claimed to have purchased one set of flameless furnace from Saheb Engineering, Works, G.T. Road, Mandi, Gobindgarh, Punjab at the cost of Rs.2,78,61,000 under invoice issued by the said firm. The said flameless furnace is alleged to have been leased out to one Prakash Industries Limited, having its factory at Charnpa, in the district of Bilaspur (Madhya Pradesh). The petitioner was allowed depreciation of Rs. 2,78,61,000 in relation to the assessment year 1995‑96 in respect c: the non‑existent asset. From the investigation carried out by the Director of Income‑tax (Investigation), Ludhiana, it transpires that Saheb Engineering Works in non‑existent on the given address. The invoice alleged to have been issued by Saheb Engineering Works relates to A.S. Forging with a different address, who has denied any connection with Saheb Engineering Works. It further emerges from the investigation that the machinery was transported on mopeds and scooters. Further, Saheb Engineering Works has made VDIS declaration before the Commissioner of Income‑tax, Ludhiana, in which it has given its address as shop No. 11, Super Complex, Dhuri Phatak, Ludhiana. The report further discloses, on enquiry, that even the identity of such declarant was not established. The said shop No. 11 belongs to one Mrs. Baljeet Kaur who, on affidavit, has matte a statement to the effect that she has never given her shop to anyone, either on rent or lease. In the facts aforesaid, the question‑that falls for consideration is whether the Assessing Officer is justified in issuing notice in terms of section 148(1) of the Act. Section 147 of the Act of 1961, as amended under which the assessment was completed under section 147 of the Act, reads as follows: "

147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income: and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for ‑his assessment, for that assessment year. Explanation 1.‑‑‑Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2: ‑‑For the purpose of this section, the following shall also be deemed to be cases where income chargeable4to 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 Assessing Officer 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 under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive, loss or depreciation allowance or any other allowance under this Act has been computed." In this case, we are concerned with clauses (b) and (c) as quoted above and if those clauses do not apply, in that event, the issuance of notice for reopening of the assessment already made for the year 1995‑96 fails. On scrutiny of the aforesaid provisions, the conditions precedent for the exercise of power to initiate a proceeding for reassessment in terms of section 147 of the Act are that the assessing authority has a reason to believe the income, profits or gains have been under assessed and the said underassessment is by reason of omission or failure to make a return correctly or by reason of failure to disclose the true and material facts necessary for assessment for any particular year. On any of the aforesaid requirements, the assessing authority will serve a notice within four years from the end of the assessment year in terms of section 148 of the Act, which reads as follows: "148(1). Before making the 'assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified 'in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in, the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." The notice is issued by the Income‑tax Officer in the case in hand before the expiry of four years of the end of the relevant year of assessment and the reasons recorded and the Commissioner having been satisfied that it is a fit case for issuance of notice in terms of section 147 of the Act. The dispute in the instant case, merely relates to the fulfilment of the conditions aforesaid, which raises the question regarding the true interpretation "has reason to believe", as envisaged in section 147 of the Act. The income‑tax authority, on the materials and/or the information at his disposal comes to a conclusion that income and profits of a particular year have been under-assessed on account of failure on the part of the assessee to disclose all material facts for the purpose of assessment. Such reason or information must be based on a relevant record. As stated above, the reasons recorded by the assessing authority have been communicated to the assessee after having been approved by the Commissioner. The reasons to believe recorded in the notice cannot be said to have been recorded on mere suspicion, but on the proved facts, which have been found during investigation by the different Investigating Authorities details whereof have already been quoted hereinabove. On facts, as stated above, it is apparent that there had been a failure on the part of the assessee to disclose the relevant facts for the relevant assessment year, which resulted in the issuance of the instant notice. The investigation discloses that the petitioner company has not placed the true and material facts at the time of assessment of the relevant year, which goes to show that those facts have been brought to the notice of the assessing authority subsequently and on such facts, the Income‑tax Officer has reason to believe that underassessment has been made for the assessment year, in question. On consideration of the materials, which was brought during the investigation, we are of the view that there were materials before the Income‑tax Officer, for a reason to believe that due to the failure of the assessee- company to disclose the material facts, its income was grossly underassessed: This Court, sitting in its writ jurisdiction is rot supposed to examine the inadequacy of the materials if the assessing authority on such materials has reason to believe such failure on the part of the assessee to disclose the material facts. It has not been brought to the notice of the Court that such facts were ever brought and/or disclosed before the assessing authority in the course of the proceedings in relation to the assessment of the assessment year, in question. The submission of Mr. Pal that all the relevant facts, which have been disclosed at the time of assessment having been accepted b‑, the authority and cannot be disbelieved only for the purpose of issuing notice in terms of section 147 of the Act. One of the dominant purposes of section 147 is that the assessee cannot go scot free by making a false and untrue disclosure of fact at the time of assessment. The apex Court, in the case of Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 has held (page 478): "We have to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my life, now your hands are tied and you can do nothing. It would be a travesty of justice to allow the assessee that latitude." and, accordingly, it has been held that the Income‑tax Officer has rightly initiated a reassessment proceeding on the basis of the subsequent information, which was relevant and reliable. The first decision in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) relied upon by Mr. Debi Pal will not help him, firstly, on the ground that the said decision relates to the pre‑amended period and, secondly, that the facts of that case are entirely different from that of the present one. The decision in ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC) will also not come to the rescue of the petitioner, inasmuch as in that case, notice was issued after the lapse of four years. Further, the affidavit filed in the writ proceedings, the Income‑tax Officer did not disclose the fact which had weighed with him in coming to the conclusion that the income of the respondent had escaped assessment by reason of failure to disclose fully and truly all material facts only on the ground that such failure will cause prejudice to the interests of the Revenue. In this case, as stated above, apart from disclosing the material facts in the affidavit, the entire investigation report including the various Annexures appended thereto have been produced with a copy to the other side, which clearly go to indicate that the Income‑tax Officer has reason to believe that on account of failure on the part of the petitioner assessee to disclose the true and full facts, which resulted in underassessment. The decision in CIT v. Agarwalla Bros. (1991) 189 ITR 786 (Patna) which has been relied upon by Mr.Debi Pal, has been considered by their Lordships in Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC), as mentioned above. Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR 1 (SC) wherein the facts of that case are entirely different. However, it has been held on the facts of that case that though the Court cannot investigate the adequacy and sufficiency of the reasons, yet the Court cyan certainly examine whether the reasons recorded are relevant and have a bearing on the matters in regard to which the authority is required to entertain the belief before issuance of notice under section

147. As stated above, on going through the‑materials on record including the reasons disclosed in the counter‑affidavit, we are of the view that the Income‑tax Officer has reason to believe that on account of failure on the part of the assessee underassessment has been made for the assessment year, in question. In our view, therefore, this decision will not help the petitioners, in any way. In this connection, reference may be made to a decision in the case of ITO v. Purushottam Das Bangur (1997) 224 ITR 362 (SC). The facts of the case were. that the Income‑tax Officer completed. The assessment after accepting the claim of the assessee in terms of section 143(3) of the Act. Subsequently, the Income‑tax Officer received a letter from the Deputy Director (Investigation) on March 21, 1974, stating therein that on information obtained from the Bombay Stock Exchange Directory the book value per equity share of the company rose from Rs.318.55 in the year ending December 31, 1965 to Rs. 101 in the year ending December 31, 1970, and the earning per share rose from Rs.8.37 per share to Rs.44 per share, during the period, but the quotations of the shares on the Calcutta Stock. Exchange fell from Rs. 168 to 85 per share during, the period, and, accordingly, it was held that the quotations were the results of certain manipulated transactions and could not be said to have reflected the fair market value of the share, in question. The Deputy Director alongwith the said letter has enclosed the information, which he had received on the basis of the Bombay Stock Exchange Directory and other information. Pursuant to the letter received from the Deputy Director, the Income‑tax Officer issued notice in terms of section 147(b) of the Act. The said notice was challenged before the High Court in a writ application. The Rajasthan High Court allowed the writ application on the ground that from the facts disclosed by the Deputy Director, it could not be said that the Income‑tax Officer had reason to believe that there had been an underassessment on failure to disclose the true and material facts at the time of assessment. The decision of the Rajasthan High Court has been reversed on the ground that from the letter of the Deputy Director and the documents annexed thereto, the Income -tax Officer had undoubtedly reason to believe that the fair market value of the share was far more from the Calcutta Stock Association shown by the assessee at the time of assessment were manipulated, as a result the income chargeable to tax had escaped the assessment. Their Lordships have further held that the information received from the Deputy Director was a definite information and relying upon the information, the income‑tax Officer acted under section 147 of the Act. Consequently, the issuance of notice under section 147 of the Act was held to be valid Lastly, Mr. Pal has relied upon a Division Bench decision in the case of Saurabh Kumar Pandey v. CIT (1999) 235 ITR 150 (Patna). We are of the view that the law laid down in the aforesaid decision virtually supports the Revenue, which is apparent from the fact that a similar notice as issued for reassessment on the ground that the income chargeable to tax for the assessment year 1988‑89 had escaped assessment within the meaning of section 147 of the Act. The contention of the writ petitioner before the High Court was that the assessment of the petitioner for the year 1988‑89 had been completed on the basis of the return disclosing all material facts, as envisaged under section 143(1) of the Act and, as such, there was no justification for the Assessing Officer to reopen the assessment. In the said case, the Assistant Commissioner of Income‑tax directed sire Income‑tax Officer to initiate a proceeding under section 263 of the Act, but the Income‑tax Officer instead of taking such action, issued notice under section 148 of the Act. In opposition, however, it was submitted that the proposed notice was issued is per the direction of the Commissioner of Income‑tax. The said direction of the Commissioner was held to be an information within the meaning of section 147(b) of the Act, as has been held in the case, of Kumar Engineers v. CIT (1997) 223 ITR 18 (P&H) and ITO v. Purushottam Das Bangor (1997) 224 ITR 362 (SC). After having herd the parties, it has been held that the case fails within the ambit of section 147(b) of the Act, and the proposed reassessment proceedings pursuant to the notice is quite legal and valid. On consideration of the materials on record including the decisions cited at the Bar, we are of the view that the assessing authority has rightly issued such notice for initiating a reassessment proceeding and, accordingly, we are not inclined to interfere with the same. In the result, this application is dismissed. M.B.A./370/FC Application dismissed.