TaxTMI 
TaxTMI 
1981 (9) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....ious branches, In the case of any branch, the total of the headquarters expenses incurred by the New York headquarters and the administrative expenses incurred by the area headquarters are termed as the " headquarters expenses ". The headquarters expenses are allocated amongst the branches and each branch is allocated such proportion of the total headquarters expenses as is equal to the proportion of its gross revenue. As regards the expenses incurred by the relevant area headquarters, the same is allocated to a branch in the proportion of the branch's gross revenue to the total gross revenue earned by all the branches coming under that area headquarters. The petitioner had been claiming, deduction for its proportionate share of headquarters expenses for the purpose of assessment of income-tax right from the year of its inception, i.e., from the assessment year 1954-55. The petitioner had been showing the said expenses in the accounts of its Indian branch as separate item. Up to the end of the year 1965, the petitioner's Indian branch came under the charge of and received management, technical and administrative support from the Asia Pacific Headquarters located, inter alia, in Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d been already completed for the assessment years 1959-60 onwards. The petitioner has thereafter approached this court on February 16, 1978, under art. 226 of the Constitution of India and the relief sought is for quashing the impugned notices given under s. 148 of the Act and restraining the I.T. authorities from taking any steps or proceedings in pursuance of the said notices. The petitioner has also claimed for a writ of mandamus restraining the I.T. authorities from reassessing the petitioner in respect of any item other than that in respect of which the impugned notices were received. In answer to the petition, the respondents have filed a return dated September 12, 1980, sworn by Shri S. K. Tyagi, Inspecting Assistant Commissioner of Income-tax, Foreign Companies Range 1, Bombay. It would be convenient to consider the grievance of the petitioner, first in respect of the notices served for the assessment years 1959-60 to 1966-67. Shri Pradhan, the learned counsel appearing on behalf of the I.T. authorities, made it clear that all the notices were issued only under s. 147(a) of the Act. Section 147 of the Act provides for assessment of escaped income. Clause (a) reads as under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the ratio of India branch's turnover to the world turnover of the branches and subsidiaries. The IAC felt that the expenses claimed for the relevant years are unduly excessive and not for the business of the India branch. The officer felt that though India branch is entitled to some amount towards the expenses, what was claimed was the excessive amount and the excess claimed has resulted in the escapement of income liable for assessment. Shri Dastur complained that the reasons furnished do not indicate that the ITO had reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts and such failure had led to the escape (of income liable to be) assessed for a particular year. Shri Dastur also submitted that the change of opinion of the ITO is on the strength of facts which were available to the officer at the time of the earlier assessment. The submission of the learned counsel deserves acceptance. The reasons furnished by the IAC do not disclose that any relevant material facts were not disclosed by the petitioner at the time of completion of the assessment. It is now well settled that it is not a mere chang....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er dated November 22, 1974, addressed by the petitioner to the Commissioner and claimed that the fact that the petitioner voluntarily disclosed the mistake indicates that the petitioner had no knowledge of the said mistake till its disclosure and, therefore, it could not be held that there was wilful default on the part of the assessee to attract the provisions of s. 147(a) of the Act. The submission proceeds on the ground that unless the Department establishes that the assessee knowingly and intentionally withheld certain material or fact relevant for the proper assessment, it is not permissible to reopen the assessment. The perusal of letter dated November 22, 1974, indicates that the writer of the letter has merely stated that on September 27, 1974, the error in (adopting) the principle of allocating headquarters expenses of India have been detected. Save and except this averment, the letter makes no reference as to why the mistake was not detected earlier and the reason why the mistake could not have been discovered by simple precaution. Realising this fact Shri Dastur relied upon the letter dated November 1, 1974, addressed by Shri G. R. Williamson, New York, to the representa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had informed the Department that there was dispute regarding the partnership and the High Court had decided that the assessee had 8 annas share in the partnership but the firm had incurred the losses. The assessee claimed the share of loss and it was disallowed. The assessment for the year 1944-45 was completed without taking into account the assessee's share of profits as the assessment of the firm was not completed. After completion of the assessment which showed a profit, the notice under s. 34(1)(a) of the Indian I.T. Act, 1922, was issued. The High Court held that as the assessment for the year 1944-45 was completed long before the firm's profits were assessed, the assessee could not be said to have failed to disclose the fact as he had no knowledge of the fact. Shri Dastur submits that in the present case the petitioner had no knowledge of the mistake when the assessment was completed as the mistake was detected only in September, 1974. The question whether the mistake was detected in September, 1974, or earlier is a pure question of fact and it is not possible to decide the debatable question in these proceedings under art. 226 of the Constitution of India. The respondents....
X X X X Extracts X X X X
X X X X Extracts X X X X
....years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. " The petitioner claims that the notices were issued by the ITO without obtaining a sanction from the Commissioner and, therefore, the notices are required to be struck down. Shri Dastur also claimed that in spite of the notice given to the respondents, the respondents have failed to give an inspection of the order of sanction given by the Commissioner. At the hearing of this petition, Shri Pradhan, the learned counsel appearing on behalf of the respondents, produced for my perusal the original file containing the sanction obtained under s. 151 of the Act prior to the issuance of the notices. It is obvious that the requisite sanction was secured before the respondent No. 1 took the action of issue of notice. Shri Dastur then submitted that in any event the sanction is not valid because the order does not disclose an application of mind by the Commissioner. In support of this submission, reliance is placed on the decision in the case of Johri Lal v. CIT [1973] 88 ITR 439 (SC). It is not possibl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....item and the reassessment cannot be in respect of other items set out in the return of the respective years. Shri Pradhan, on the other hand, submits that once the officer exercises jurisdiction to reopen the completed assessment, then the investigation is not limited to the items set out in the reasons furnished under s. 147(a) of the Act but it is open to the officer to pass an assessment order in respect of every item. Shri Dastur in support of his submission relied upon the decision of the Kerala High Court in the case of M. O. Thomakutty v. CIT [1963] 47 ITR 872, and the decision of this court in the case of New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. v. CIT [1977] 107 ITR 760 (Bom). In my judgment, the submission of Shri Dastur that the Officer has no jurisdiction whatsoever to reconsider the correctness of the assessment in respect of other items is not justified. The reliance placed by Shri Pradhan on the decision of the Supreme Court in the case of V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, 374 is very appropriate. The Supreme Court, while considering the scope of s. 34 of the 1922 Act, held : " Once proceedings under section 34 are validly initiated the jurisdiction of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he item in respect of which the proceedings were initiated. Daring the course of enquiry, if the ITO comes to a reasonable belief that the income liable to tax has escaped assessment for non-disclosure of information by the assessee, then it is permissible for the Officer to give a proper notice to the assessee in that connection and then consider whether the income should be recomputed, Merely because the Officer finds that in respect of one item of the concluded assessment he can exercise jurisdiction under s. 147(a) of the Act, the Officer should not call upon the assessee to disclose all material facts in respect of each and every item covered by the concluded assessment. In the present case, it is obvious that the ITO, without any reason to believe that income under any other head escaped assessment, has issued various notices to the assessee calling upon them to produce material. This action of the Officer is entirely unsupportable. The ITO is not entitled to call upon the assessee to produce material unless he had reason to believe that by reason of the omission or failure on the part of the assessee to disclose all material facts necessary for the assessment, income chargea....