1969 (12) TMI 30 - HC - Income Tax

Court quashes notices under Income-tax Act Section 148. Rule made absolute, proceedings quashed.

The court concluded that the notices issued under Section 148 of the Income-tax Act, 1961 were not justified and should be quashed. The rule was made ... Validity of certain notices issued under section 148 of the Income-tax Act, 1961 on the ground of the petitioner's failure to disclose fully and truly all material facts for the purpose of its assessments Issues Involved:1. Validity of notices issued under Section 148 of the Income-tax Act, 1961.2. Failure to disclose fully and truly all material facts.3. Applicability of Section 147(a) versus Section 147(b) of the Income-tax Act, 1961.4. Duty of the assessee to disclose primary facts.Issue-wise Detailed Analysis:1. Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961:The petitioner challenged the validity of notices issued under Section 148 of the Income-tax Act, 1961, aimed at reopening the assessments for the years 1959-60, 1960-61, and 1961-62. The notices were issued on the grounds that the petitioner failed to disclose fully and truly all material facts necessary for its assessments for these years. The court examined whether these notices were justified under Section 147(a) of the Act.2. Failure to Disclose Fully and Truly All Material Facts:The petitioner argued that it had disclosed all material facts by filing its books of account, profit and loss accounts, and balance-sheets for the relevant years. It claimed an allowance of Rs. 5,000 as financial commission paid to Messrs. Purushottam Chowbey & Co., which was accepted by the Income-tax Officer after due investigation. The respondent-Income-tax Officer contended that the petitioner should have disclosed that the payment was not related to any business assistance rendered by Messrs. Purushottam Chowbey & Co., thus constituting a failure to disclose fully and truly all material facts.3. Applicability of Section 147(a) versus Section 147(b) of the Income-tax Act, 1961:The petitioner's counsel argued that the information obtained from the examination of Man Singh Chaturvedi during the assessment proceedings for the year 1962-63 constituted 'information' under Section 147(b). This would entitle the Income-tax Officer to reopen the assessment within four years as provided in Section 149. Since the notices were issued after the expiry of four years, they should be quashed. The court referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, which clarified that mere production of books of account does not amount to full disclosure if the assessee fails to bring specific material facts to the assessing authority's attention.4. Duty of the Assessee to Disclose Primary Facts:The court examined whether it was the petitioner's duty to disclose not only the payment of Rs. 5,000 as financial commission but also the fact that no services were rendered by Messrs. Purushottam Chowbey & Co. The court held that the petitioner had disclosed the primary fact of the payment, and it was for the Income-tax Officer to investigate whether the payment was for business purposes. The court rejected the contention that the petitioner failed to disclose fully and truly all material facts, as it was not the petitioner's duty to inform the Income-tax Officer that the deduction was not permissible.Conclusion:The court concluded that the impugned notices under Section 147(a) were not justified and should be quashed. The rule was made absolute, and the notices and all proceedings held thereunder were quashed. There was no order as to costs. The operation of the order was stayed for six weeks from the reopening of the court after the Christmas vacation, with the interim order continuing in the meantime.