TaxTMI 
TaxTMI 
1978 (7) TMI 80
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....esponding financial year of which was 1st January, 1967, to 31st December, 1967. The first return was filed on 19th July, 1968, disclosing a loss of Rs. 6,36,43,978. The second return was filed on August 14, 1969, disclosing a loss of Rs. 6,25,43,001. This was, however, revised by the petitioner-company by filing a third return on 10th January, 1972. In this third return the figure of loss was enhanced to Rs. 7,37,95.020. By the assessment order dated 5th January, 1973, the ITO 'A' Ward, Circle I, Varanasi, substantially accepted the return filed by the petitioner-company and made the assessment order. By the said order, the ITO assessed the petitioner's loss, depreciation, development rebate, and tax holiday benefit under s. 80J of the Act as under : Rs. Business loss 49,36,143 Unabsorbed depreciation 1,32,30,037 Development rebate 4,52,99,722 Tax holiday benefit 99,93,853 The assessment order dated 5th January, 1973, was, however, subsequently rectified by the order made on March 16, 1974. On March 12, 1976, the ITO issued a notice under s. 148 of the Act in respect of the assessment year in question on the allegations that, as certain income chargeable to ta....
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....existed in the instant case, recorded his satisfaction on the report submitted by the ITO and granted the requisite sanction. The ITO denied that the petitioner-company had furnished all the requisite details, statements and books of accounts relevant for the purposes of the assessment of its income in respect of the said assessment year 1968-69. The petitioner-company filed a rejoinder-affidavit to the counter-affidavit of respondent No. 1. It reiterated the stand taken by it in the main writ petition. Dr. Pal, learned counsel appearing for the petitioner-company, submitted that as the requirements of s. 147(a) of the Act are not satisfied in the present case, the ITO had no jurisdiction to issue a notice under s. 148 of the Act against the petitioner and to initiate proceedings for reassessment. He also contended that the material on the basis of which the ITO initiated these proceedings for reopening the assessment did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure of the facts at the time of the original assessment. In order to deal with the submission made by the learned counsel for the petitioner-compa....
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....he could have drawn the inference that the income had escaped assessment. His vague feeling that there might have been some escapement of income from assessment is not sufficient. The same view was taken by the Supreme Court in Sheo Nath Singh v. AAC [1971] 82 ITR 147. Another important decision, which may be mentioned in this connection is in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. In this case, the Supreme Court held : "The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of its failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue ...... The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for....
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....tioner-company was only to disclose primary facts and that it was not required to indicate what factual and legal inferences had to be drawn therefrom. He submitted that as all the materials had been placed before the ITO and he drew inferences which appeared to be erroneous subsequently, it would not justify initiation of proceedings under s. 147 of the Act. After having considered the submissions made by the learned counsel for the petitioner as well as of Sri Ashok Gupta, learned counsel appearing for the department, and perusing the record, we are unable to hold that the notice issued under s. 148 of the Act can be quashed in this case on the basis of the submissions advanced by the learned counsel for the petitioner. There is no quarrel with the proposition of law advanced by the learned counsel. The whole controversy, however, is whether these principles applied to the facts of the instant case. As noted above, the proceedings for reassessment were started by the ITO on the basis of the audit note dated 10th February, 1976. After scrutinising the said audit note, the ITO found that income chargeable to tax had escaped assessment due to the omission and failure of the petit....
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....on under s. 147(a) were present. This view of the High Court was reversed by the Supreme Court. It held that it was plainly a case of oversight and could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. It pointed out : "In the case before us the assessee did not disclose the transactions evidenced by the drafts which the Income-tax Officer discovered. After this discovery the Income-tax Officer had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessm....
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....d assessment due to the omission or failure of the petitioner to produce materials and he proceeds to reassess on that ground, the action of the ITO would be justified under s. 147(a) of the Act. It also appears to us that an ITO would have ample jurisdiction to proceed with the reassessment proceedings in a case where his opinion was that the income had escaped assessment due to the untrue disclosure of the facts inasmuch as this would not be a case where the assessee having made a full disclosure of true facts, the two ITOs are arriving at two different conclusions taking two different views of law or facts. In Gemini Leather Stores' case [1975] 100 ITR 1 (SC), relied on by the petitioner's counsel, the ITO had knowledge and information about the entire materials at the time of making the original assessment but still he wanted to reopen the assessment proceeding on the ground that the same had not been considered by him when he made the assessment order. In this case, the reassessment proceedings were not started on the basis that the materials had not been fully and truly disclosed initially. As a matter of fact, the ITO wanted to make a different assessment order by changin....
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....a) quashed. [See Ice and General Mills v. ITO [1972] 83 ITR 34 (All)]. After having discussed the legal position, we would now proceed to consider the grounds on which the notice under s. 148 of the Act was issued to the petitioner-company. As already observed, there were four items of escapement mentioned in the said notice. These were : Rs. (i) Transformer break-down expenses 27,480 (ii) Deferred guarantee commission 3,68,595 (iii) Start-up and commencing expenses 12,20,872 (iv) Excess development rebate allowed to the company. 1,94,14,168 Taking the various grounds in the order mentioned above, we find that the case of the revenue with respect to the transformer break-down expenses was that the same being in the nature of capital expenditure was wrongly claimed by the assessee as revenue expenses. A perusal of the original assessment order shows that the claim of the company as revenue expenditure had not been accepted. The ITO disallowed the claim of the petitioner-company and found that the expenditure was of capital nature. It is not alleged by the department that any material relevant to this item had been kept back by the assessee at that stage. Hence, ....
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....he petitioner-company was engaged was a priority industry. He also submitted that the petitioner-company knew that it was not manufacturing any of the articles of the list of the Fifth Schedule but still made a wrong representation and obtained the benefit of s. 33(1)(b)(B). According to him, but for the failure of the company to make a full and true disclosure, the rebate would not have been granted. The development rebate was claimed under s. 33(1)(b)(B). This permitted the rebate of 35 per cent. of the actual cost of the machinery or plant installed by an assessee for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. Admittedly, the petitioner-company was not engaged in the business of construction, manufacture or production of any one of the articles mentioned in the Schedule. Hence, the allowance of development rebate at 35 per cent. was prima facie not justified. The submission of Dr. Pal, learned counsel for the petitioner, however, was that the omission of the ITO in not applying the correct rate while allowing the development rebate, was due to wrong appreciati....
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....e aforesaid amount was debited to the profit and loss account of the company. The same is proved from the balance-sheet of the year 1968-69, ending on the 31st December, 1967. The case of the revenue, however, is that since the commercial production of electricity commenced on September 16, 1967, the claim made by the petitioner-company as revenue expenditure was not admissible. It was really capital expenditure. The revenue further pleaded that the date on which commercial production started was in the knowledge of the assessee but the assessee did not disclose the real date and got the advantage of the expenditure being revenue on the basis of misrepresentation or concealment of correct facts. If the basis that the material in respect of this item had been concealed by the petitioner-company at the stage of original assessment is established, there is no doubt that the escapement of income in respect of this item can be attributed to the non-disclosure by the assessee. The learned counsel for the assessee, however, contended that whether the petitioner-company was entitled to the expenses as revenue expenditure or capital was one of pure law and if the ITO took a wrong view of th....