TaxTMI 
TaxTMI 
1982 (3) TMI 14
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....estuffs, equipments, washing, bleaching and dyeing materials, raw materials, packing materials, and all other requisites needed for all or any of the above-purposes and of the by-products which can be conveniently produced therefrom and to buy,sell, import, export, distribute, trade, barter, exchange, pledge, make advances upon, speculate, enter into forward transactions or otherwise deal in all or any of the foregoing ", under the provisions of the Companies Act, 1956, and they carry on business, inter alia, of manufacture, process and sale of polymide, polyester, rayons or any other type of man-made fibres of silk, wool, cotton or any other types of natural fibres. It has been stated that on or about 1969, they established an industrial undertaking at Bhosai, Poona, for the manufacture and/or process of nylon yarn and other fibres and the nylon yarn as manufactured by them, at all material times, was known and still they are known as " Enkalon ". The said production, as mentioned above, had commenced in or about October, 1969. Section 80J of the I.T. Act, 1961 (hereinafter referred to as " the said Act "), lays down the provisions or deal with deduction in respect of profits a....
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....mpany that by an application made under art. 226 of the Constitution of India, they challenged the legality and the validity of r. 19A of the said Rules and the concerned assessment order as also the computation of the capital employed by them. Thereafter, on or about 23rd June, 1976, the said company received a notice of that date from respondent No. 1 as mentioned above, under s. 148 of the said Act, for the assessment year 1973-74, wherein it was alleged that the said officer, who was one Shri K. C. Mukherjee, had reason to believe that the said company's income chargeable to tax for the concerned assessment year, had escaped assessment within the meaning of s. 147 of the said Act and, therefore, he proposed to reassess the same and thus required the said company to file a return for the assessment year as mentioned above. The present application is directed against such initiation. The said company has also stated that by letter of 20th July, 1976, they requested the officer concerned to extend the time to file the return under the notice in question, apart from denying and disputing by the letter of 16th August, 1976, all and every allegations as made in the concerned notic....
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....s. On such, it was alleged as mentioned above, that there could be no reasons and materials whatsoever, before the assessing officer, on the basis whereof, he could believe or form any belief bona fide or reasonably that there had been any omission or failure on the part of the said company to disclose fully and truly all materials and primary facts. It was also claimed that escapement, if any, which was denied and disputed, was not due to or caused by any omission or failure on the part of the said company to disclose fully and truly the relevant facts and materials. Apart from the above, the said company also claimed that there was no new information or material as to any new fact or law which came into the possession of the ITO concerned which was not known to him at the time of the original assessment and no information within the meaning of s. 147(b) of the said Act had come to his possession, subsequent to the original assessment in question, in consequence whereof, the said officer could have any reason to form the belief to the effect as mentioned above. It was also alleged by the said company that the reassessment proceeding in the instant case was initiated for collateral....
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....ief, he has stated that the said company started production of nylon yarn during the year ended on 30th September, 1970, corresponding to the assessment year 1971-72 and the original assessment of them for the assessment year 1973-74 was completed on 17th November, 1975. It was his case that subsequent to the completion of the said original assessment he received information from the D.I. (Investigation), New Delhi through the Commissioner of Income-tax, Central-I, to the effect that the manufacturers of synthetic yarn collect security deposits for cops and spools from purchasers of yarn and that if the supply of the cops and spools was an integral part of the sale transaction, then the security deposits for the cops and spools collected by the manufacturer of synthetic yarn from the purchasers of yarn were trading receipts liable to tax in view of the Supreme Court decisions in the cases of Punjab Distilling Industries Ltd. v. CIT[1959] 35 ITR 519 and in the case of CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75. It was the case of the deponent that having received such information from the authorities as mentioned above, he examined the assessment records of the said c....
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....c yarn collect security deposits for cops and spools from purchasers of yarn. Such deposits would be chargeable to business income in accordance with the ratio of the Supreme Court decisions in Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 and CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75, if the supply of cops or spools is an integral part of the sale transaction and the deposits are not held as a trustee or custodian and there is neither any time-limit nor obligation for the return thereof to the supplier and there is merely an undertaking to make refund on their return. Stock position of cops and spools had also to be considered in trading account. Please have the case of Century Enka Ltd., Calcutta, reviewed immediately for appropriate action under s. 147(a) or (b) in respect of years where such actions would get time-barred after 31st March. Letter follows. " The letter as referred to at the above telex message was also produced and the same was dated 24th May, 1976. The same was addressed to the Commissioner, Calcutta (Central-I), by one Shri Harihar Lal, Director of Inspection (Inv.) and the same is quoted hereunder : " A copy of my telex message ....
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....ct, that is, where there is merely an undertaking to make a refund on their return. 3. You are requested to direct the Income-tax Officer assessing M/s. Century Enka Ltd., to examine the assessability of the security deposits of the type referred to above in the light of the ratio of the decisions of the courts as explained before and to initiate action u/s. 147(a)/(b) of the Income-tax Act if it is found on the facts of the case that the security deposits are assessable as income and have escaped assessment. It is presumed that in respect of pending assessments necessary action would have been taken on receipt of my telex message. 4. It is requested that a report on the results of this enquiry may please be sent to the Directorate by the end of June, 1976." After placing the pleadings as mentioned above, Dr. Debi Prosad Pal, who continued the arguments on behalf of the said company after Mr. Murarka, in short claimed and contended that the stand taken by the ITO concerned, viz., the said deponent, who also initiated the concerned proceedings, has left no other way but to hold that the said officer was not really acting on his own or on an application of his mind, but he i....
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....es were repaid as and when the bottles were returned whereas the additional sums were repaid in full when 90 per cent. of the bottles were returned affect the question; (ii) as the wholesalers were clearly under no obligation to return the bottles the additional sums taken were not security deposits and the fact that they were described as such all along was not sufficient to create an obligation to return the bottles; there could be no security given for the return of the bottles unless there was a right to their return ; and (iii) as the additional amounts taken were an integral part of the commercial transaction of the sale of liquor in bottles and when they were paid they were the moneys of the assessee and remained thereafter the moneys of the assessee, they were the assessee's trading receipts; and, therefore, the balance of these additional sums left after the refunds made thereout were assessable to tax. The above decision was explained and applied in the case of CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75 (SC). The relevant facts of the case were that the assessee-company, a distiller of country liquor, in selling its liquor in bottles, collected from the who....
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....mber, 1958, at least on, 24th March, 1964 and, as such, that the statement of the deponent of the affidavit-in opposition, who incidentally was the ITO concerned, was not either well aware of the taxability of the concerned security deposits received by the said company or such fact of taxability was brought to his knowledge after the original assessment for the assessment year, would not hold good and such explanation was not a bona fide one and so it must be held and observed that even though the officer concerned was acting on such information as received from the D.I. (Investigation), New Delhi, through the Commissioner of Income-tax, Central-I, it was really a case of acting or initiation of proceeding on change of opinion. It should also be noted that by the subsequent determination, the Supreme Court had applied and restated the law as disclosed by or in the earlier judgment and had not expressed any contrary view and, as such, also, Dr. Pal claimed and contended that such subsequent determination could not also be treated as furnishing any subsequent knowledge to the officer concerned or information to him under s. 147(b) of the said Act. In support of such submissions, rel....
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.....T. Act, 1922, was expressed and, overruling such view, it has now been observed by the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, that such view in the case of Kalyanji Mavji was stated too widely and travelled further than the requirements of the statute in so far as it be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO concerned discovered that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. An error discovered on a reconsideration of the same material (and no more) does not give him that power. In the case reported in [1979] 119 ITR 996, it was urged that the expression " information " in s. 147(b) refers to the realisation by the ITO that he has committed an error when making the original assessment. It is said that, when upon receipt of the audit note the ITO discovers or realizes that a mistake has been committed in the original assessment, the discovery of the mistake would be " information " within the meaning of s. 147(b) and such submissions appeared inconsistent with the terms of s....
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....be ' information ' within the meaning of s. 59 of the E.D. Ac t, 1953, on the basis of which the CED was held entitled to entertain reasonable belief that property assessed to estate duty had been undervalued. The circumstances that the opinion of the Board was rendered in an appeal filed before it under the E.D. Act against the assessment made by the Asst. CED was apparently not brought to the notice of this court when it heard R. K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC). The opinion of the Board represented its view as a quasi-judicial authority possessing jurisdiction to lay down the law. Although the Board did not enhance the valuation of the securities in the appellate proceeding because of the argument advanced by the appellant, none the less its observations amounted to information as to the law. It was not a case where the Board was functioning as an extra-judicial authority, performing administrative or executive functions, and not competent or authorised to pronounce upon the law. The Delhi High Court in CIT v. H. H. Smt. Chand Kanwarji [1972] 84 ITR 584, held that the scrutiny note of revenue audit constituted 'information' within the meaning of s. ....
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....109 ITR 537 (SC) were erroneous. Dr. Pal further claimed that the views, as expressed through the telex message and the following letter, were, at best, the opinion of the D.I. (Investigation), New Delhi, and such views, not being the views of the ITO concerned, acting on the basis of them by him, was also improper. It was his specific submission on the basis of the cases as cited above that such views either of the Board or of the Bureau of Investigation or the Director of the same, could not constitute the information of the ITO concerned, for the purposes of s. 147 of the said Act. Mr. Sengupta, appearing for the Revenue, claimed, after placing the telex message and the following letter, that there was really no direction to the ITO concerned. In view of the fact that the point relevant for such answer was not ultimately pressed by Dr. Pal, I am of the view that no determination is required to be made on that aspect. It was further claimed and contended by Mr. Sengupta that if the conditions as laid down by the two judgments of the Supreme Court, Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 and CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75, have b....