TaxTMI 
TaxTMI 
1983 (1) TMI 62
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....der art. 226 of the Constitution of India. Petitioner is a company registered under the Indian Companies Act, 1913, and it is engaged in the business of manufacturing textiles for the last several years. The respondent is the ITO having jurisdiction' to assess the petitioner. The relevant assessment years with which this petition is concerned are assessment years 1970-71 and 1974-75, corresponding years of account being financial years 1969-70 and 1973-74, respectively. Petitioner was following the cost method for the purpose of valuing its opening and closing stocks of cloth and yarn for the purpose of income-tax assessments for the last several years. Common method was followed for the purpose of valuing the stocks of cloth and yarn, both for the purposes of income-tax and balance-sheet and profit and loss account up to the assessment year 1965-66. Departure was, however, made in the assessment year 1966-67, that is, financial year 1965-66. In that year, the petitioner changed the method of valuation of stocks of yarn in process and cloth for the purposes of the Companies Act. Balance-sheet and profit and loss account required to be prepared under the provisions of the Compani....
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....p; Rs. Yarn in process 8,74,025 Cloth 60,20,038 Rs. --------- 68,94,063 Cost of stock on new method : Yarn in process 9,79,564 Cloth 60,69,620 --------- 70,49,184 Diffe....
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....bsp; -------- It would thus appear that the working of valuation on the basis of both methods was placed before the ITO. The ITO while framing the assessment for the assessment year 1966-67, on February 17, 1968, stated as follows : " The assessee-company has claimed deduction of Rs. 1,55,127, being over-valuation in closing stock of cotton yarn process and cotton cloth and Rs. 1,70,615 being the over-valuation in closing stock of terry-cotton yarn and cloth, from the profits during the year. It is contended that hitherto the assessee-company was valuing cost of ready yarn, spg. process and wvg. process and cloth by including therein the cost of cotton arrived at by dividing the value of cotton consumed by the quantity of cotton consumed and adding thereto the average percentage of loss of cotton. For balance-sheet purposes, the assessee-company has changed the method of valuing th....
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....of ready yarn. The valuation of closing stock of terry-cotton at cost has been worked out and the overvaluation on March 31, 1966, as per balance-sheet figure works out to Rs. 1,54.892 in the aggregate adjustments on revaluation of closing stock comes to Rs. 3,08,806. " From the assessment year 1966-67, petitioner is consistently following two methods for valuing its closing stock of yarn and cloth, one for the purpose of income-tax and another for the purpose of balance-sheet and profit and loss account as stated above. In the income-tax assessment proceedings income was computed on the basis of valuation of closing stock shown for the purpose of income-tax in each year. Every year, one of the standard queries put by the ITO related to the two different methods of valuation adopted by the petitioner for valuing its opening and closing stock and it is the petitioner's case that from year to year the said query has been replied consistently in the same manner as stated above explaining the difference between the two methods of valuation and pointing out the adjustment which was required to be made as a result of the difference in framing the income-tax assessment. Every year asse....
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....sp; -------- 6,05,642 -------- On the same basis, the opening stock of that year was also revalued for the purposes....
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....; Valuation for Valuation as per Over-valuation income-tax balance-sheet in balance-sheet purpose ------------------------------------------------------------------------------ Rs. Rs. Rs. Cloth including terry-cotton cloth 83,03,657 1,27,86,222 &nbs....
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.... escaped assessment and, therefore, be proposed to reassess the same and called upon the petitioner to file a return of income in the prescribed form within 30 days. This notice was received by the petitioner on March 28, 1979. A similar notice dated March 29, 1979, under s. 148 read with s. 147 of the Act was issued by the respondent for the assessment year 1970-71. In this notice also, the respondent stated that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 1970-71 had escaped assessment, and, therefore, he proposed to reassess the income for the said assessment year. Petitioner was required to deliver to the respondent within 30 days from the date of the service of the notice a return of income in the prescribed form for the said assessment year. Petitioner filed returns in pursuance of the said notice on April 16, 1979, along with a covering letter accompanying the returns. It was pointed out that the returns were filed under protest and without prejudice to the petitioner's right to challenge the validity of the notices and initiation of reassessment proceedings. It was pointed out that the provisions of s. 147(a) or s. 147(b) ....
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....following reasons for reopening the assessment for the assessment year 1974-75: " In this case, in Revenue Audit has pointed out that while valuing the stock in process, the assessee has valued the stock by adopting fixed cost at 12 p., in the balance-sheet the figures adopted are different and, therefore, income to the extent of Rs. 1,34,216 has escaped assessment. In view of the audit objection received, I have reason to believe that due to failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, income chargeable to tax has escaped assessment." It is stated before us that identical reasons were recorded for reopening assessment for the assessment year 1970-71. It is submitted that petitioner was guilty of suppression of material facts and had not fully and truly disclosed all material facts for framing assessment. As the facts which were not disclosed by the assessee came to light subsequently, assessments are sought to be reopened. In paragraph 7(K) of the affidavit-in-reply of the respondent, it is conceded that for the assessment year 1970-71, assessment could not be reopened under s. 147(b) of the Act. It is clari....
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.... of the assessee to make returns under s. 139 of the Act for the assessment years in question. The ground which is common to both the assessment years on which the proceedings are sought to be initiated is that there was failure on the part of the petitioner to disclose fully and truly material facts which are necessary for its assessment for the assessment years in question. The law on this aspect is also well settled. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Once he has done that, his duty ends. It is for the ITO to draw correct inferences from those primary facts. It is not the responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If the ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessments. What facts are material and necessary for assessment will differ from case to case. But once those primary facts are disclosed and all the facts which would help the ITO in coming to the correct co....
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.... method of valuation for the purpose of balance-sheet and profit and loss account. Statements containing details of methods of valuation adopted by it were filed along with its returns of income. Balance-sheets in which method different from the one adopted for the purpose of income-tax was followed were also filed in the course of assessment proceedings. In answer to the queries put by the ITO in both the years in question, the petitioner had explained the methods of valuation of stock adopted by it. It was after taking into consideration the valuation of stock for the purpose of income-tax and the valuation of stock for the purpose of balance-sheet that the ITO while framing the assessments for the said years made suitable adjustments and made addition or deduction as a result of such adjustment. The grievance of the respondent is that the petitioner had valued its stock of yarn in process at 12 p. per kg. stating that it was valuing its stock on cost method, though in fact it was not a cost method which it was following. It is contended that the fact that the petitioner was not valuing its stock of yarn in process at actual cost was evident from the method adopted by it in the b....
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....nory Ltd. alleged to have been paid to Ratiram Tansukhrai under the partnership agreement. The assessee contended that it had produced all the relevant accounts and documents necessary for completing the assessment and it was under no obligation to inform the ITO about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment. This contention was negatived by the ITO and the income of the assessee was reassessed by adding Rs. 87,937 to the income returned by the assessee. This view taken by the ITO was confirmed on appeal, by the AAC but further an appeal, the Tribunal accepted the contention of the assessee and held that there was no failure on the part of the assessee to make a full and true disclosure of the material facts and hence the ITO was not justified in seeking to reopen the assessment under s. 34(1)(a) of the said Act. The Revenue applied to the Tribunal for a reference but the application was rejected and the High Court also dismissed the application of the Revenue for calling for a reference from the Tribunal. The Revenue thereupon preferred an appeal to the Supreme C....
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....it appeared to the ITO that the assessee had failed to disclose fully and truly all material facts necessary for its assessment and by reason of such failure a portion of its income had escaped assessment. The learned single judge of the High Court dismissed the writ petition but, on appeal, the Division Bench of the High Court allowed the petition and quashed the notice. On appeal, the Supreme Court held that the case was directly covered by its decision in Burlop Dealers Ltd. [1971] 79 ITR 609 (SC), as here also the assessee had produced in the original assessment proceedings all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not, the assessee could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. The Supreme Court held that there was no distinction at all between Burlofi Dealers' case [1971] 79 ITR 609 (SC), and the aforesaid case and the language ....
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....e erroneous, mere change of opinion with regard to that inference would not justify the initiation of action for reopening the assessment. From all the primary facts and the further facts inferred from them the ITO had to draw the proper legal inference at the relevant time and to ascertain on a correct interpretation the proper tax leviable. We are, therefore, of the view that there is absolutely no justification to reopen the assessment in either of the assessment years under consideration under s. 147(a) of the Act. So far as the assessment year 1974-75 is concerned, the additional contention which is raised on behalf of the respondent is that he had reason to believe that there was escapement of income from assessment in consequence of information in his possession. The information on the basis of which the assessment is sought to be reopened consists of an audit objection a copy of which is placed on record at Ex. A to the affidavit-in reply. The audit objection was in the following terms : " A company engaged in the manufacture of cotton cloth valued its closing stock under the cost method. In valuing the cost of cotton consumed in the manufacture of cotton cloth during....
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....made law and traceable to a formal source competent to enact or declare law. A statement of law by a person or body not competent to create or define law, such as a competent legislature judicial or quasi-judicial authority, cannot be regarded as providing instruction or knowledge as to law. But attention as to the existence of such law may be drawn by any person or authority and thereupon only that part of the communication, which mentions the law and which has escaped the notice of the ITO at the time of the original assessment, would constitute ' information '. It would not be open to the ITO, however, to reopen a completed assessment upon reappraisal of the material considered by him during the original assessment. An error discovered on a reappraisal of the same material, without anything more, does not give him the power to reopen the assessment. " As pointed out by this court in K. Mansukhram & Sons, it would not be open to the ITO to reopen the completed assessment upon a reappraisal of the material considered by him during the original assessment. An error discovered on a reappraisal of the same material, without anything more, does not give him the power to reopen the ....