Central
Provinces Manganese Ore. Co. Ltd. Vs. I.T.O Nagpur [1991] INSC 200 (20 August 1991)
Kuldip
Singh (J) Kuldip Singh (J) Ramaswamy, K.
CITATION:
1992 AIR 567 1991 SCR (3) 627 1991 SCC (4) 166 JT 1991 (3) 452 1991 SCALE
(2)362
ACT:
Income
Tax Act, 1961: Sections 147(a) and 148- Reassess- ment-Assessee exporting
manganese ore--Customs authorities detecting under-invoicing--Whether a valid
reason for in- come-tax authorities to believe that income escaped assess- ment--Proven
charge of under-invoicing-Whether amounts to failure on assessee's part to
disclose truly all material facts--Notice for reassessment--Validity of.
HEAD NOTE:
The
appellant, a non-resident company, was carrying on the business of exporting
manganese ore, and was assessed to income-tax for the assessment year 1953-54.
Subsequently, on coming to know that proceedings for under-invoicing were
pending against the appellant before the Customs Authori- ties, the respondent,
the Income-Tax Officer issued a notice under Section 148 of the Income-Tax Act,
1961 to the appel- lant stating that he 'had reasons to believe that the income
of the appellant chargeable to, tax for the assessment year 1953-54 had escaped
assessment within the meaning of Section 147 of the Act and called upon the appellant
to show cause as to why it should not be re-assesseed to income. The
appellant's writ petition challenging the notice was dis- missed by the High
Court.
In the
appeal before this Court on behalf of the appel- lantcompany, it was contended
that the only material before the Income-Tax Officer was the original order of
the Collec- tor of Customs wherein it was held that the appellant had indulged
in under-invoicing, resulting in declaring lesser price than the prevailing
market price, which could at the most he an information within the ambit of
Section 147 of the Act, but could not be the basis or the reason to enter- tain
the belief, as required under Section 147(a) of the Act and that the notice had
been issued under Section 147(b) and not under Section 147(a).
Dismissing
the appeal, this Court,
HELD:
1.1
Two conditions are required to confer juris- diction on the Income Tax Officer
under Section 147(a) of the Income-Tax Act, 1961. The first is that the
Income-Tax Officer must have reason to.. 628 believe that the income chargeable
to income-tax had been underassesseed and the second that such under-assessment
has occurred by reason of omission or failure on the part of the assessee to
disclose fully and truly all material facts necessary for its assessment for
the year 1953-54. [631F]
1.2 In
the instant case, the Income-Tax Officer in his recorded reasons, has relied
upon the facts as found by the Customs Authorities that the appellant
under-invoiced the goods he exported. Though the said finding may not be bind- ing
upon the Income-Tax Authorities, it can be a valid reason to believe that the
chargeable income has been under- assesseed. The final outcome of the
proceedings is not relevant. There should be existence of reasons to make the
Income-Tax Officer believe that there has been under-assess- ment of the assessee's
income for a particular year. Thus, the first condition was satisfied.
Secondly, the appellant- company did not produce the books of accounts kept by
it at its head office located outside the country, nor the origi- nal contracts
of sale which were entered into with the buyers at that place, or .any of the
accounts which related to the foreign banks. No reasons were given for the
supply of manganese ore at lower than the market rate. It is for the assessee
to disclose all the primary facts before the Income-Tax Officer to enable him
to account the true income of the asessee. Thus, the proven charge of
under-invoicing per se satisfies the second condition. [631G-H, 632A-C]
1.3
The appellant's assessable income has to be deter- mined on the basis of the
price received by it for the goods exported. If the true price had not been
disclosed and there was under invoicing, the logical conclusion prima-facie is
that there has been failure on the part of the appellant-to disclose fully and
truly all material facts before the Income-Tax Officer. In the circumstances,
both the condi- tions required to attract the provisions of Section 147(a) have
been complied with. [632D]
2.
Although the notice only mentioned Section 146 of the Act without indicating
whether it was under SUb- Section(a) or Sub. Section (b) the reasons recorded
by the Income-Tax Officer specifically state that the proposed action was under
Section 147(a)i of the Act. Even otherwise, the material on record and the
reasons recorded by IncomeTax Officer justify the issue of the notice under
Section 147(a) of the Act. [632F]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 565 of 1976.
629
From the Judgment and Order dated 5.8.1975 of the Bombay High Court in Special
Civil Application No, 429 of 1970.
K. Rajgopal,
pardeep Rajgopal, Ms. Rekha Rajgopal M.S. Ganesh and S. Sukumaran for the
Appellant.
Dr. V.
Gauri Shankar, M. Arora and Ms. A. Subhashini for the Respondent, The Judgment
of the Court was delivered by KULDIP SINGH, J. The appellant company carries on
the business of exporting manganese ore to England and United
States of America.
The Income Tax Officer, Nagpur issued a notice dated March 20, 1970 under
Section 148 of the Income Tax Act, 1961 (hereinafter called the 'Act') stating
that he had reasons to believe that the income of the appellant chargeable to
tax for the assessment year 1953-54 had es- caped assessment within the meaning
of Section 147 of the Act. The company was called upon to show cause why it
should not be re-assessed to. income for the said year. The appel- lant company
challenged the notice by way of writ petition under Article 226/227 of the
Constitution of India before the Nagpur bench of the Bombay High Court. The High Court by its judgment dated August 5, 1975 dismissed the writ peti- tion with
costs. This appeal via special leave petition is against the said judgment of
the High Court.
The
relevant facts are hereinafter. The appellant: is a non resident company having
its office in London. It has its office in India at Nagpur. The appellant is assessed to income tax at Nagpur and it
has been the practice of the ,appellant company to produce before the Income
Tax Officer the relevant books which are kept by the local office at Nagpur,
the balance sheets, the trade account and the prof- it/ loss account from their
head office in London. It ap- pears that sometime in 1958 the customs
authorities came to know that the appellant company had declared very low prices
in respect of all the consignments of manganese ore exported by them out of
India. It was also found that most of the export was only to three buyers who
in turn did not purchase manganese ore from any other company except the appellant..After
due enquiries investigation the custom authorities found that the-appellant was
systematically showing lesser value for the manganese ore exported as com-
pared with the prevailing market price for the same grade of manganese ore.
630
The Collector, Customs, Visakhapatnam, by an order dated March 2, 1959 held that there was under-invoicing
by the appellant to. the tune of Rs.78 lacs. The said order of the collector
was, however, set aside in appeal and the matter was remanded to the Collector
for re-hearing. In the final order passed by the Collector of Customs dated November 16, 1972, under-invoicing was shown to the
tune of about Rs.44/45 lacs. It is thus obvious that the custom authori- ties
came to the conclusion that the prices mentioned in the relevant contracts
between the appellant and the buyers were lesser than the contemporaneous
market prices. The custom authorities thus found as a fact that the appellant
company was indulging in under-invoicing.
The
Income Tax Officer, on coming to know about the pendency of proceedings before
the Collector of Customs, issued a notice dated March 20, 1970 under Section 148 of the Act. In the notice the reasons on
the basis of which he entertained the necessary belief as required under
Section 147 of the Act, were not given, however, alongwith the return filed on
behalf of the revenue before the High Court, the reasons which led to the issue
of notice under Section 148 on the grounds mentioned under Section 147(a) of
the Act were disclosed. It is not disputed that the reasons need not be set out
in the notice and the same can be produced before the court.
Section
147 of the Act provides for assessment or re- assessment in cases where income
has escaped assessment. The Revenue's right to take action under the section is
subject to the conditions laid down therein. The requisite condi- tions
provided under Section 147(a) at the relevant time were as under:
The
income tax officer should have reason to believe that income has "escaped
assess- ment" by reason of omission or failure on the part of the assessee:
(i) to
make return of his income under the relevant provisions of the Act; or (ii) to
disclose fully and truly all material facts necessary for his assessment for
the year.
SeCtion
147(b) of the Act on the other hand required that 'the Income Tax Officer
should have, in consequence of information in .his possession reason to believe
that income has "escaped assessment".
631 It
is not disputed in the year 1970 the Income Tax Officer had no jurisdiction to
issue notice under Section 148 on the grounds contained under Section 147(b) of
the Act as the period of limitation for the issue of such notice provided under
the Act had expired. There was however no bar at that point of time to issue
the said notice on the grounds under Section 147(a) of the Act.
Mr. V.
Rajagopal, Senior Advocate, learned counsel for the appellant has contended
that the Income Tax Officer could not have reason to believe that there was
omission or failure on the part of the appellant to disclose fully and truly
all material facts necessary for the assessment and that'the income chargeable
to tax had escaped assessment.
According
to him, it was not the practice with the appellant to produce the account books
from their head office in London before
the Income Tax Officer. The appellant company produced before the Income Tax
Officer the balance sheets, profit and loss account and all other necessary
records required for the purpose of assessment. According to the learned
counsel the only material before the Income Tax Officer was the original order
of the Collector of Customs wherein it was held that the appellant had indulged
in under-invoicing, resulting in declaring lesser price than the prevailing
market price. The learned counsel contended that the order of the Collector
could at the most be an information within the ambit of Section 147(b) of the
Act but it could not be the basis or the reason to entertain the belief as
requires under Section 147(a) of the Act..
The
only question which arises for our consideration is whether the two conditions
required to confer jurisdiction on the Income Tax Officer under Section 147(a)
of the Act have been satisfied in this case. The first is that the Income Tax
Officer must have reason to believe that the income chargeable to income tax
had been under assessed and the second that Such under assessment has occurred
by reason of omission or failure on the part of the assessee to dis- close
fully and truly all material facts necessary for its assessment for the year 1953-54.
So far
as the first condition is concerned, the Income Tax Officer, in his recorded
reasons, has relied upon the fact as found by the Custom Authorities that the
appellant under-invoiced the goods he exported. It is no doubt correct that the
said finding may not be binding upon the Income Tax Authorities but it can be a
valid reason to believe that the chargeable income has been under-assessed. The
final outcome of the proceedings is not relevant. What is relevant is the
existence of reasons to make the Income Tax Officer believe that there 632 has
been under-assessment of the assessee's income for a particular year. We are
satisfied that the first condition to invoke the jurisdiction of the Income Tax
Officer under Section 147(a) of the Act was satisfied.
As
regards the second condition the appellant did not produce the books of
accounts kept by them at their head office in London nor the original contracts
of sale which were entered into at London with the buyers. The appellant did
not produce before the income Tax OffiCer any of the accounts which related to
the foreign buyers. No reasons Were given for the supply of manganese ore at a
lower than the market rate. It is for the assessee to disclose all the primary
facts before the Income Tax Officer to enable him to account the true income of
the assessee. The proven charge of under-invoicing per se satisfy the second
condition. The appellant's assessable income has to be determined On the basis
of the price received by it for the goods exported. If the true price has not
been disclosed and there was underin- voicing the logical conclusion prima
facie is that there has been failure on 'the part of the appellant to disclose fully.and
truly all material facts before the Income Tax Officer. We are therefore,
satisfied that both the condi- tions required to attract the provisions of
Section 147(a)have been complied with in this case.
Mr. V.
Rajagopal further argued that in fact the notice was issued under Section 147(b)of
the ACt and not under Section 147(a) of the Act. We are unable to accept this
contention. Although the notice only mentioned Section 147 of the Act without
indicating whether it was under Section 147(a) or 147(b), but the reasons
recorded by the Income Tax Officer on February 26, 1970 which run into more
than 20 pages specifically state that the proposed action was under Section
147(a) of the Act. Even otherwise we are satisfied that the material on the
record and the reasons recorded by the Income Tax Officer justify the issue of
the notice under Section 147(a) of the Act.
We
therefore, dismiss the appeal with costs which we quantify as Rs. 15,000.
N.P.V.
Appeal dis- missed.
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