TaxTMI 
TaxTMI 
1982 (6) TMI 7
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....Smt. Sunanda Devi Birla and Smt. Priyamvada Devi Birla were not incidental to the business and could not be allowed is business expenditure ? 4. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the payments made to Shri A. V. Birla, Smt. Sunanda Devi Birla and Smt. Priyamvada Devi Birla as salaries were not for any service rendered by them to the assessee-company but was only due to extra-commercial consideration is based on any relevant material and evidence and not perverse ? " For the assessment year 1968-69 the following questions have been referred to this court : For the year 1968-69 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no relationship of and employee between the assessee-company and Shri A. A. Birla, Smt. Priyamvada Devi Birla and Smt. Sunanda Devi Birla ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration paid to Shri A. V. Birla, Smt. Sunanda Devi Birla and Smt. Priyamvada Devi Birla were not incidental to the business and could not be allowed as business expenditure....
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.... the assessment proceedings for the assessment year 1968-69, the ITO noticed payment of salary to the following persons: Rs. (1) Shri A. V. Birla 24,000 (2) Smt. Priyamvada Devi Birla 24,000 (3) Smt. Sunanda Devi Birla 18,000 He noticed that the above persons were connected with the management directly or indirectly either as shareholders or otherwise. The ITO gave opportunity to the assessee to prove whether they rendered any services to the assessee-company. The assessee was required to produce Shri A. V. Birla but the assessee-company in its letter dated December 5, 1969, informed the ITO that there was no necessity for his personal appearance. In the letter dated September 9, 1969, the assessee-company stated that the above persons were executives who looked after the gener....
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....sments u/s. 147(a) was objected to by the assessee-company. The ITO held that the assessee did not even furnish the details of salary paid, names of employees, their functions, etc., and hence there were enough material to hold that the assessee failed to disclose material facts at the time of original assessments. He also observed that the point regarding the payment of salary to Shri A. V. Birla, Smt. Sunanda Devi Birla and Smt. Priyamvada Devi Birla had been fully discussed in the assessment order for 1968-69, and for the same reasons given therein he disallowed the payment of salary to the above three persons in the assessment years 1961-62 to 1967-68 in the reassessment orders. The assessee preferred appeals before the AAC who passed a separate order for the assessment year 1968-69, and a consolidated order for the assessment years 1961-62 to 1967-68. In his order for 1968-69, he held that the ITO was justified in disallowing the salaries paid to Shri A. V. Birla and Smt. Sunanda Devi Birla. In coming to this conclusion, he gave the following reasons : I have reached this conclusion for the following reasons: (i) Shri A. V. Birla and Smt. Sunanda Devi Birla stay in Bo....
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....at the original assessment stage and there, was no failure on the part of the assessee of any nondisclosure of the primary facts and the income had not escaped assessments. It was also urged that no reasons been given by the ITO for reopening the assessments and the reasons recorded by the ITO did not have reasonable nexus. It was also urged that the ITO never asked the assessee to furnish the names of the employees. It was also urged that the assessments had been reopened due to change of opinion. It was further urged that the conditions precedent for reopening the assessment u/s. 147(a) had not been satisfied and thus the reassessment proceedings were illegal and invalid. It was further submitted that the Commissioner did not apply his mind before giving necessary sanction for reopening the assessments and in a mechanical way he had granted sanction and no reasonable man would have given sanction on the basis of the reasons recorded by the ITO. Reliance was placed on the decision of the Supreme. Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, and also in the case of CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC) and Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR....
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....ent stage, the total figure for salaries, wages and bonus were separately given. The balance-sheet and profit and loss account were filed. The figures towards payment of salaries were found in the profit and loss account. Thus, it was urged that the ITO in the original assessment stage allowed the entire salary but due to change of opinion by his successor the assessments had been reopened. It was urged that the entire payments to all the three persons should have been allowed. The Tribunal thereafter examined the facts of the case and held Ls under : " According to the assessee, Shri A. V. Birla was appointed as executive by a resolution passed at the meeting of the board of directors held on 20-2-1958, which reads as follows : 'The board decided that Shri Ashok Vardhan Birla be appointed with effect from 1st April, 1958, to look after the business of the company on salary of Rs. 1,000 per month and that the payment of the above sum he made to him by the, Calcutta office of the company. In respect of the appointment of Smt. Priyamvada Devi Birla and Smt. Sunanda Devi Birla, as executives, a resolution is said to have been passed at the meeting of the board of directors....
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....d not have occasion to enquire in respect of the payment of salaries to Shri A. V. Birla, Smt. Sunanda Devi Birla and Smt. Priyamvada Devi Birla as their names were not disclosed to him at that stage. This would clearly show that the assessee did not disclose the primary facts at the original assessment proceedings. It is only in the course of enquiry for the assessment year 1968-69, the Income-tax Officer noticed the names of these three employees and found that they were not employees of the assessee-company and the payments made towards their salaries were not incidental to the business. He found in the course of enquiries for the assessment year 1968-69 that similar payments were made to the above three employees in the assessment years 1961-62 to 1967-68 also, which were not allowed as business expenditure as these persons, according to him, were not in the service of the assessee-company. Thus, he noticed that in the assessment years 1961-62 to 1967-68, the assessee failed to disclose the material facts and hence he had reasons to believe that the income chargeable to tax in those years had escaped assessments due to the omission or failure on the part of the assessee to disc....
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....facts, it was hold therein that the Income-tax Officer did not have prima facie grounds for taking action under section 148 and also held on those facts that if the Commissioner had read the report carefully be could never have come to the conclusion on the material before him that this was a fit case for issuing a notice under section 148. In the instant case before us the Income-tax Officer had clearly recorded proper reasons and also stated that due to assessee's failure to disclose material facts, the assessee-company has been under-assessed. The Commissioner, after agreeing with the reasons recorded by the Income-tax Officer, had accorded sanction by affixing his signature. In these circumstances, the case cited by the learned counsel is not applicable to the instant case. The decision in the case of Commissioner of Income-tax v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC), relied on by the learned counsel, is also clearly distinguishable. In that case, in the original assessment, the assessee had disclosed the agreement and claimed that the payment of Rs. 87,927, being half of the profit earned from H. Manory Ltd., was paid to Ratiram Tansukhrai under a partnership agreement. ....
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....ht to raise certain questions u/s. 256(1) of the I.T. Act, 1961. On the refusal by the Tribunal to refer any question to this court, the assessee came up before this court in an application u/s . 256(2) of the I.T. Act, 1961, and the questions, is referred to hereinbefore, were directed to be referred to this court. In order to sustain the reopening, there must be reasons for the ITO, which would have rational nexus with the formation of belief that due to failure or omission on the part of the assessee to disclose fully and truly all material or relevant facts, the income of the assessee had escaped assessment. Now, that reason may, under certain circumstances, come to the knowledge of the ITO through information received by him subsequently or otherwise and on that basis he can change his opinion on the original assessment. It is well settled that a mere change of opinion would not sustain the assessment. The change of opinion is based on the formation of a belief that there was failure or omission on the part of the assessee to disclose fully and truly all relevant and material facts at the time of original assessment and that belief, which is based upon relevant and material....
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.... with the Exchange Bank of India and Africa, and other banks. The assessment was made on September 13, 1946. The ITO came to know later that the assessee had taken a draft for Rs. 1,10,000 from the Bombay branch of the aforesaid bank and deposited it on July 17, 1944, in the Ahmedabad branch of the said bank. The ITO issued notice for reassessment u/s. 34(1)(a) on March 24, 1954, and by revised assessment order, added the sum of Rs. 1,10,000 on October 15, 1954. The order was upheld by the AAC but the Tribunal, after considering the account books and examiner's report, reversed this order on the ground that it could not be said in the facts and circumstances of the case that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year 1945-46. An application for reference to the High Court was rejected by the Tribunal. There, the question posed before the Tribunal was as follows : " Whether, on the facts and in the circumstance of the case, and having particular regard to the fact that the return and the statements accompanying the return furnished by the assessee during the course of the a....
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.... and truly all material facts necessary for his assessment was a question of fact and we are unable to accept the argument of the learned advocate for the appellant to the contrary." This principle was again reiterated by the Supreme Court in the case of CIT v. Kamal Singh Rampuria [1970] 75 ITR 157. There the question posed before the court was as follows " Whether, on the facts and in the circumstances of the case, the assessment made under section 34(1)(a) of the Income-tax Act was justified in law ? " By its judgment dated September 12, 1963, the High Court answered the question in the negative and in favour of the assessee. The Supreme Court had observed that it appeared to the High Court that the ITO could have no reason on the materials before him to believe that there was any omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, as stated, and the High Court was further of the view that the finding of the Tribunal in this regard was not justified. Regarding this aspect, the Supreme Court observed at p. 161 of the report as follows : " It is well established that the High Court is not L court of appeal i....
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....nt for the assessment year 1959-60 completed on August 23, 1960, certain interest paid by it to creditors from whom it claimed to have borrowed monies on hundis was allowed as deductible expenditure. Subsequently on January 25, 1968, after a lapse of four years from the end of the assessment year, a notice was issued by the ITO to reopen the assessment of the respondent on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors and interest was wrongly allowed. The respondent challenged the validity of the notice by filing a writ petition in the High Court. On December 5, 1968, the ITO in his counter-affidavit declined to disclose the facts on the ground that if such facts were disclosed it would cause great prejudice to the interests of the Revenue and would frustrate the object of reopening the assessment. Thereafter, he filed a further affidavit on January 27,1970, stating that in the course of the assessment of the respondent for the assessment year 1963-64 it was discovered that various items shown as loans against the security of hundis in the respondent's books of account for the assessm....
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....ces or no document had been indicated from which a conclusion could be based that there was failure or omission on the part of the assessee to disclose fully and truly all the material or relevant facts necessary for assessment. The Supreme Court at pp. 5 and 6 of the said report (118 ITR) observed as follows : " We may also point out that though it was contended in the writ petition that the ITO could have no reason to believe that any part of the income of the respondent had escaped assessment by reason of its failure to make a full and true disclosure of material facts, the ITO did not disclose in his affidavit any material on the basis of which it could be said that he had come to the requisite belief. All that the ITO stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus. The ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the ITO could reason....