1986 (3) TMI 6 - SC - Income Tax

Supreme Court upholds reassessment under section 147(a) for non-disclosure of material facts in construction work depreciation calculations

Indo-aden Salt Manufacturing And Trading Co. Pvt. Limited Versus Commissioner of Income-Tax, Bombay

The SC upheld reassessment proceedings under section 147(a) of the Income-tax Act, 1961, finding that the assessee failed to disclose material facts ... Validity of reassessment proceedings under section 147(a) of the Income-tax Act, 1961 - failure or omission to disclose fully and truly all material facts necessary for the assessment - Escapement of income - HELD THAT:- It is the admitted Position that the assessee had not disclosed either by a valuation report or by a statement before the Income-tax Officer as to what portion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation, that indubitably was a material fact. If excess depreciation has been allowed on that basis, i.e., that the entirety of the work consisted of masonry work, income might have been under-assessed. The Income-tax Officer can reasonably be said to have material to form that belief. That position is also well-settled by the scheme of the section and concluded by the authorities of this court. The assessee knows all the material and relevant facts-the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. It is sufficient to refer to the decision of this court in Calcutta Discount Co.'s case [1960 (11) TMI 8 - SUPREME COURT (LB)], where it had been held that if there are some primary facts from which a reasonable belief could be formed that there was some non-disclosure or failure to disclose fully and truly all material facts, the Income-tax Officer has jurisdiction to reopen the assessment. This position was again reiterated by this court in Malegaon Electricity Co. P. Ltd. v. CIT [1970 (8) TMI 8 - SUPREME COURT]. Furthermore, bearing these principles in mind, in this particular case, whether there has been such non-disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact. The High Court was right in declining to call for a statement of case on a question of law. The appeals, therefore, fail. Appeals dismissed. Issues:1. Validity of reassessment proceedings under section 147(a) of the Income-tax Act, 19612. Justification of Tribunal's decision in upholding the action under section 147(a) of the Income-tax Act, 19613. Failure to disclose fully and truly all material facts necessary for assessment4. Escapement of income due to non-disclosure of material factsAnalysis:The Supreme Court judgment dealt with appeals arising from the High Court of Bombay's decision regarding the validity of reassessment proceedings under section 147(a) of the Income-tax Act, 1961, and the Tribunal's decision in upholding the same. The primary issue revolved around whether there was a failure to disclose fully and truly all material facts necessary for assessment, leading to income escapement. The Court emphasized the importance of disclosing primary facts and not inferential facts, as established in the Calcutta Discount Co. Ltd. case. It was reiterated that there must be full and true disclosure of all material facts for a valid assessment.In this case, the reassessment was initiated based on the belief that the assessee had obtained depreciation on assets incorrectly classified as masonry works when they were primarily earthwork. The Court examined whether the nature of the assets was fully and truly disclosed by the assessee. The Tribunal found discrepancies in the depreciation allowance granted by the Income-tax Officer, where assets partly made of earth were depreciated at 6%, contrary to the statutory provisions. The Court noted that excessive depreciation had been allowed in the original assessments, leading to income escapement for the relevant years.The Court highlighted that the assessee's failure to disclose the proportion of earthwork and masonry work in the assets was a material fact for calculating depreciation. The Income-tax Officer was deemed to have sufficient grounds to believe that income had escaped assessment due to this non-disclosure. The judgment cited legal precedents, such as Kantamani Venkata Narayana & Sons v. First ITO and ITO v. Lakhmani Mewal Das, to support the principle that the assessee must make a full and true disclosure of all material facts necessary for assessment.Ultimately, the Court concluded that the High Court was justified in declining to call for a statement of case on a question of law. The appeals were dismissed, emphasizing the assessee's obligation to disclose all material facts for a valid assessment. No costs were awarded in the matter.In summary, the judgment underscores the significance of full and true disclosure of material facts by the assessee for a valid assessment under the Income-tax Act, 1961. It reaffirms the principle that non-disclosure of primary facts leading to income escapement can justify reassessment proceedings, as evidenced by the specific case details and legal precedents cited in the judgment.