Income Tax Appellate Tribunal - Mumbai
Associated Capsules (P.) Ltd. vs Income-Tax Officer on 18 July, 1988
Equivalent citations: [1990]32ITD120(MUM)
ORDER
S.K. Jain, Judicial Member
1. Aggrieved by the consolidated order dated 6-11-1984 of the Commissioner of Income-tax (Appeals) relating to assessment years 1972-73 and 1973-74, the assessee is in appeal.
2. The relevant facts are these. Original assessments for the assessment years 1972-73 and 1973-74 were completed by the Income-tax Officer on 18-3-1975 and 10-3-1976 respectively. During the course of assessment for 1972-73 (previous year ending 31-12-1971), assessee filed following material: -
(i) Statement of raw material consumption for the year ended 31-12-1971.
(ii) Statement of closing stock of raw material as on 31-12-1971.
(iii) Account of M/s. Bharat Pharma Distributors, Bombay, in the books of the assessee for year 1-1-71 to 31-12-71.
(iv) Cheque Nos., date and address of Bankers on which cheques were issued to M/s. Bharat Pharma Distributors, for payment of their bills,
(v) Confirmation of the account of M/s. Bharat Pharma Distributors, Bombay, in the books of the assessee for the year 1971 by Sri R.K. Thakkar, Prop. Of M/s. Bharat Pharma Distributors.
(vi) Details of quantity and description of material supplied by M/s. Bharat Pharma Distributors together with the details of payment made therefore.
(vii) Details of purchase in consumption of Gelatine for the year 1971 including that supplied by M/s. Bharat Pharma Distributors.
3. In respect of the assessment year 1973-74, the following documents were filed by the assessee during the course of assessment.
(i) Copy of A/c. of M/s. Bharat Pharma Distributors in the books of the assessee for the year ending 31-12-1972 duly confirmed by Sri R.K. Thakkar Prop. Of M/s. Bharat Pharma Distributors.
(ii) Raw material consumption statement for the year ending 31-12-1972.
(iii) Statement of closing stock of raw materials as on 31-12-1972.
(iv) Statement giving details of raw materials purchased during the year ending 31-12-1972 including that purchased from M/s. Bharat Pharma Distributors.
4. The Income-tax Officer verified the account of M/s. Bharat Pharma Distributors, Bombay, in the books of the assessee with original sale bills, delivery challans, payment vouchers, cheques, account statements furnished by the banks, purchase book, ledger and stock books. Further in order to ensure the truthfulness of all these statements and the documents, the ITO summoned Shri R.K. Thakkar, Proprietor of M/s. Bharat Pharma Distributors under Section 131 of the I.T. Act and recorded statement of Shri R. K. Thakkar on 4-12-1974. Thus after inquiry as to the purchases made from M/s. Bharat Pharma Distributors by the assessee, the assessments were completed. The I.T.O. thereafter re-opened the assessment for these two years Under Section 147(a) of the Income-tax Act, 1961. He recorded the following reasons for the re-opening for 1972-73 on 5-2-1977.
Received I.A.C.C.R. V's letter dt. 25-1-77, along with enclosures. From this, it is clear that the assessee has concealed profits by showing bogus purchases to the extent of Rs. 1,86,813. I, therefore, reopen assessment Under Section 147(a) of the Act. Issue notice Under Section 148 accordingly.
Exactly similar reasons were recorded on 5-2-1977 for the assessment year 1973-74 also, the only difference being that the figure of bogus purchases in this year was recorded as Rs. 10,39,604. The enclosures with that letter of the I.A.C. were probably the statement of Sri R.K. Thakkar recorded by the I.T.O. Section XXX (Central), Bombay, on 23-7-1976 and statements A and B furnished by Sri R. K. Thakkar. The said reopening of the assessments for these two years was unsuccessfully resisted by the assessee before the I.T.O. and so also before the CIT(A). The ITO completed the reassessments. The CIT(A), however, set aside those reassessments with a direction to redo the same since the assessee was not given an opportunity to cross-examine Shri R. K. Thakkar with reference to his deposition recorded on 23-7-1976 and to confront him with his earlier deposition dated 4-12-1974.
5. Now contention of learned representative of the assessee is that there was complete and thorough inquiry by the ITO at the time of framing the original assessments as to the purchase of gelatine from Bharat Pharma Distributors inasmuch as that statement of Sri R. K. Thakkar was also recorded and he had supported those purchases made by the assessee from him. In that enquiry during the original assessment proceedings, the learned representative contended, all material facts supported by documentary evidence was produced and the ITO was satisfied therefrom. Thereafter statement of Sri R. K. Thakkar was recorded on 23-7-1976 behind the back of the assessee in some other proceedings to which the assessee was not a party. How and under circumstances subsequent statement of Shri R. K. Thakkar was recorded, the representative contended, is not known to the assessee. Apparently Shri R. K. Thakkar resiled from his earlier version. But therefrom it cannot be said, the learned representative argued that there was omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments. Thus, according to the learned representative, the I.T.O. had no jurisdiction to reopen the assessments Under Section 147(a) and the subsequent statement of Sri R. K. Thakkar can at the best be taken as information in possession of the I.T.O. to enable him to reopen the assessments Under Section 147(b).
6. Learned Departmental Representative, on the other hand, supported the order of the CIT(A). According to him, the subsequent statement of Sri. R. K. Thakkar had sufficient material to furnish reason to believe that the assessee omitted or failed to disclose fully and truly all material facts necessary for the assessment.
7. Both the sides made reference to several judicial pronouncements but it is not necessary to discuss all of them here. These observations of the Hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 completely deals with the subject for the purpose of the instant appeals.
... The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. If an 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 assessment.
... 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 his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO 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 ITO to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the ITO did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.
... As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from the assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
8. Now it is to be seen that the assessee furnished the entire material, what was in its possession and power before the ITO during the assessment proceedings. It is being condemned as having not disclosed fully and truly all material facts necessary for its assessment, only on the basis that Shri R. K. Thakkar resiled from his earlier statement made on oath in some other proceedings to which it was not a party. As observed by the Hon'ble Supreme Court (supra), the duty of the assessee in any case does not extend beyond a true and full disclosure of primary facts and once he has done that, his duty ends. In the instant case, all that was obviously done by the assessee and it was for the ITO to draw inference from the material produced by the assessee. The ITO did draw inference therefrom. From the retracted statement of Sri R. K. Thakkar it cannot be prima facie said that there was contrivance between the assessee and Sri R. K. Thakkar at the time of making statement on oath on 4-12-1974 during the course of assessment proceedings of the assessee. The pertinent question is as to whether any belief can be formed on the basis of retracted version of a third party that the assessee omitted or failed to disclose fully and truly all material facts. Normally a person making contradictory statements on oath is not worthy of credit and therefore the subsequent version cannot be founded upon to believe that there was omission or failure on the part of the assessee to disclose fully and truly all material facts. At the most, such subsequent statement gives rise to suspicion that the assessee might have suppressed material facts. But such suspicion cannot take place of reasonable belief. True it is, that at the stage of forming reasonable belief, it is not incumbent on the ITO to come to a conclusive finding that income has escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts and he may have a tentative belief on the material before him, but such material must be capable of forming a reasonable belief and not a mere suspicion. Any of the two statements given on oath by Sri R. K. Thakkar might be correct. Thus there is a state of suspicion which cannot be founded upon for forming a reasonable belief, though it may be a piece of information in possession of the ITO for proceeding Under Section 147(b). In the words of the Hon'ble Supreme Court (supra), we have to bear in mind that it is not any and every material howsoever vague and indefinite which would warrant the formation of the belief.
9. It is therefore held that reassessment cannot be made Under Section 147(a), but can be made Under Section 147(b). However, the reassessment Under Section l47(b) is admittedly barred by limitation. The reassessments for both the years are therefore cancelled.
10. In the result, both the appeals are allowed.