TaxTMI 
TaxTMI 
TaxTMI 
2002 (8) TMI 68
X X X X Extracts X X X X
X X X X Extracts X X X X
....te and Bogapani Tea Estate, both situated in the State of Assam. The said company was carrying on the business of growing green tea leaves in its own tea gardens and manufacturing black tea out of the said green tea leaves grown by it as well as others and further selling it in India and abroad. Under the scheme of arrangement, the tea business of the Said company was transferred to Mcleod Russel (India) Limited. Subsequently, under a scheme of arrangement, the said Mcleod Russel (India) Limited merged with Eveready Industries India Limited with effect from April 1, 1996, and that is how the writ petition is filed by the petitioner company. 3. For the assessment year 1991-92, Namdang Tea Company (India) Limited, filed its return showing an income of Rs. 41,82,030. Along with the said return, the company filed the profit and loss account and the audited balance sheet, as provided under the Companies Act, 1956, and the audit report and other relevant documents and papers. The company then received a notice under section 142(l) and another notice under section 143(2) of the Income-tax Act, 1961 (hereinafter for convenience shall be called as "the Act of 1961"), both dated January 24,....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., relevant to the assessment year. The petitioner at this stage has moved a petition before the High Court under article 226 of the Constitution of India challenging the notices issued by the Assessing Officer under section 147 read with section 148 of the Act of 1961. The High Court admitted the petition and issued notices to the respondent Department. 7. The respondents to the petition, namely, (1) Joint Commissioner of Income-tax (Assessment), Special Range-II, Guwahati, (2) Commissioner of Income-tax, Guwahati, and (3) Union of India, through the Secretary, Government of India, Finance Department, Ministry of Finance, New Delhi, filed counter by way of an affidavit, dated October 8, 1999. The affidavit has been sworn by Shri J.C. Pegu, Joint Commissioner of Income-tax, Special Range-II Guwahati, who was the Assessing Officer. The details of the affidavit filed shall be referred to subsequently. In a nutshell, the contention of the Department was that the proceedings have been initiated on the basis of an enquiry conducted by an outside authority and relying on that enquiry, the present notices have been issued. The Assessing Officer has reason to believe that income has escape....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was reason to believe that income of the assessee for the relevant assessment year has escaped assessment. On the other hand, it is urged by counsel for the respondents that the assessing authority's jurisdiction to issue the notices exercising powers under section 147/148 of the Income-tax Act, 1961, depends on the fact, whether in the facts and circumstances of the case the Assessing Officer can be said to have a reason to believe that any income of the assessee chargeable to tax had escaped assessment for the relevant assessment year; and on the facts found, there is no material evidence on record on the basis of which the Assessing Officer could have arrived at such conclusion, and, further, the reason to believe does not mean a purely subjective satisfaction on the part of the Assessing Officer, the reason must be held in good faith and cannot be merely a pretence. It is further contended that the escaped assessment, if any, should be on account of the fact that the assessee has not produced before the assessing authority at the relevant time true and correct statement of facts necessary for the assessment of his income. On this basis, it is urged that the case is not ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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. 148. Issue of notice where income has escaped assessment.--(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, not being less than thirty days, 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of the proceedings for assessment under section 147 of the Income-tax Act, 1961. 13. While construing section 34 of the Indian Income-tax Act, 1922, which is analogous to the present section, in the matter of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court has held that to confer jurisdiction under section 34 of the Indian Income-tax Act, 1922, to issue notice in respect of assessment beyond the period of four years but within the period of eight years from the end of the relevant assessment year, two conditions are to be satisfied. First, the Income-tax Officer must have reason to believe that income chargeable to tax had been under assessed and the second condition is that he must have reason to believe that the under assessment has occurred by reason of either (1) omission or failure on the part of the assessee to make a return of his income, or (2) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year. 14. In S. Narayanappa v. CIT [1967] 63 ITR 219, the apex court held that if there is a reasonable ground for the Income-tax Officer to believe that there ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is again reiterated by the court that of course the courts are not called upon to investigate into the adequacy or sufficiency of the reasons which have weighed with the assessing authority in coming to the belief, but, at the same time, the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 of the Act. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed in fact and law could reasonably entertain the belief, the conclusion would be inescapable that the assessing authority had no reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. 18. In Coca-Cola Export Corporation v. ITO [1998] 231 ITR 200, the Supreme Court while interpreting section 147 of the Act held that there was no ground for the Income-tax Officer to assume jurisdiction under section 147 of the Act on the basis of some lett....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... filed two affidavits, as hereinabove mentioned, containing the reasons recorded by the Assessing Officer for taking the steps of issuing notice and reassessment under section 147/148 of the Act. In the additional affidavit filed on behalf of the respondents on November 29, 1999, Shri J. C. Pegu, the Assessing Officer, has alleged in paragraphs 4 and 5, as under: "4. That your deponent most respectfully begs to state that the enquiry officer on perusal of the D.O. letter dated June 11, 1998, of the Commissioner of Income-tax (CIT), West Bengal-II Calcutta, communicated to the Commissioner of Income-tax, Guwahati, vide his letter F. No. Con/CIT-97-98/134, dated June 30, 1998, found that a survey was conducted by the Investigation Wing, Calcutta, at the instance of D.C., Range-7, towards the end of March, 1997, at the business premises of following companies (i) Gladiolai Estate (P.) Ltd. (ii) Rohini Estate (P.) Ltd.; (iii) Gagan Properties (P.) Ltd.; and (iv) Smriti Properties (P.) Ltd. 21. It was found that huge payments were made to above parties by Williamson Magor group of companies for rendering services like cow dung supply, labour quarters repairing, fencing, etc. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vestigating Wing, Calcutta, at the instance of D. C., Range-7, in March 1997, at the business premises of (1) Gladiolai Estate (P.) Ltd.; (2) Rohini Estate (P.) Ltd.; (3) Gagan Properties (P.) Ltd.; and (4) Smriti Properties (P.) Ltd., and found that huge payments were made to these parties by the Williamson Magor group of companies for rendering services like cow dung supply, labour quarters repairing, fencing, etc. These companies did not carry out the business of rendering the kind of services for which they had received payments. These companies claimed that the services were rendered through other parties. A simultaneous survey was carried out at the premises of three other parties, namely, (1) B. S. Consultants (P.) Ltd.; (2) Manoj Commercial Services (P.) Ltd.; and (3) Ajanta Commercial and Mercantile (P.) Ltd., who are alleged to have rendered the services on behalf of the abovementioned four parties and during the survey, the common director of these three companies, namely, Shri B. S. Kathria admitted on oath that no service was rendered by the aforesaid three companies in the nature of supply of cow dung, repairing of labour quarters, fencing, etc., as claimed by the fou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter routing it through four or five bank accounts. He has not mentioned as to when and by what transactions specific amounts which have been paid by cheques have been returned back in cash. There is no mention of any dates on which bank transactions between the four parties named in the affidavit and the assessee took place, not even the names of the banks allegedly involved. We also fail to understand when the said B. S. Kathria has no business transactions either with the assessee or the four parties named above, how can he say that the entries in the books of account about the transactions were made and the amount was paid in cheques merely to accommodate the assessee and that the amounts paid in cheques were ultimately returned in cash after routing it through four or five bank accounts. When the said Shri B. S. Kathria has no business transactions with the four parties named or the assessee, it is difficult to comprehend how he could know about the transactions which took place between those parties. In the absence of any material before the assessing authority that the amounts which have been paid through cheques to the four parties have been returned back in cash, we find it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e matter including the present issues involved were examined in details and after being satisfied the assessment was made. The materials on the basis of which the present impugned notice under section 148 of the Income-tax Act has been issued was also examined at the time of assessment in details. However, the present reassessment proceedings have been initiated on the basis of that enquiry conducted by an outside authority and on the basis of that enquiry the present notice has been issued. The Assessing Officer had not made any independent enquiry and on the basis of the subsequent information received the assessing authority has reason to believe that income has escaped assessment due to failure and/or omission on the part of the assessee to disclose material facts necessary for the purpose of assessment." 27. The aforesaid affidavit filed on behalf of the Department clearly disclosed that in the assessment proceedings the issue involved for taking action under section 147/148 of the Income-tax Act, 1961, has been minutely scrutinised and the assessment order was issued only after examination of the entire controversy. In fact the materials on the basis of which the present not....