Gujarat High Court
Commissioner Of Income-Tax vs Gujarat Ginning And Manufacturing Co. ... on 22 March, 1993
Equivalent citations: [1994]205ITR40(GUJ)
JUDGMENT G.T. Nanavati, J.
1. In this reference, made under section 256(2) of the Income-tax Act, 1961, we are concerned with two assessment years 1966-67 and 1967-68. As there were two separate appeals before the Tribunal and two separate applications were made to it, the Tribunal ought to have made two separate references. Since it has failed to do so, we direct the office to register two separate reference treating as : (1) Income-tax 1966-67, and (2) Income-tax Reference No. 535A of 1980 as a reference in respect of the assessment year 1967-68.
2. As the questions which are referred are identical, both these references are heard together and disposed of by this common judgment.
3. The questions which have been referred to this court are as under :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that by reason of the omission or failure, if any, on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the income chargeable to tax did not escape assessment for the assessment year 1966-67 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that it cannot be said that the Income-tax Officer has reason to believe that the provisions of section 147(a) of the Act were attracted and that the Income-tax Officer had acted on account of change of opinion in view of the decision of the Calcutta High Court reported in 83 ITR 470 (Liquidator, Mahmudabad Properties Ltd. v. CIT) ?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in setting aside the reassessment made under section 147(a) of the Income-tax Act, 1961, disallowing the claim of the assessee for municipal taxes on godowns not let ?"
4. The question which really arises for our consideration is whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, whether, as a result thereof, it can be said that income chargeable to tax had escaped assessment. The answer to this question will answer the two other questions also. The assessee, though an engineering and manufacturing company, stopped its business of spinning long before the assessment years 1966-67 and 1967-68. The only activity which it was carrying on was to let out some parts of its property. But, in this case we are concerned with those godowns which were not let out and which were in the occupation of the assessee. These godowns were in the occupation of the assessee and, therefore, while submitting the returns of its income, the assessee did not compute the annual letting value so far as those godowns were concerned and also claimed deduction of municipal taxes in respect of them. The Income-tax Officer accepted the computation made by the assessee in this behalf and completed the assessment on that basis on February 25, 1970, and January 25, 1971, respectively. Subsequently, in view of the decision of the Calcutta High Court in Liquidator, Mahmudabad Properties Ltd. v. CIT [1972] 83 ITR 470, the Income-tax Officer issued a notice under section 148 read with section 147(a) of the Act and reopened the assessments for those years. He revised the income of the assess and included the annual value of the vacant property in the taxable income of the assessee and also withdrew the deduction which was granted in respect of the municipal taxes paid with respect to those properties. It may be stated that, pursuant to the notice issued by the Income-tax Office, the assessee had filed a revised return but it was on the same lines as was done earlier.
5. Against the order of the Income-tax Officer, the assessee preferred an appeal and before the Appellate Assistant Commissioner, the assessee also raised an additional ground that the proceedings were not validly initiated. The Appellate Assistant Commissioner permitted the assessee to raise the additional ground but dismissed the appeal.
6. The assessee thereupon approached the Tribunal by way of second appeal. The Tribunal held that there was no omission or failure on the part of the assessee to disclose truly and correctly all material facts necessary for the assessment and that this was really a case of change of opinion on the part of the Income-tax Officer. The assessee's appeal was, therefore, allowed. The Revenue felt aggrieved by that order and applied to the Tribunal to refer to this court the questions which we have set out above. The Tribunal declined to do so. Thereafter, the Revenue moved this court under section 256(2) for the Act and this court directed the Tribunal to state the case and refer the same to this court.
7. In view of the settled legal position, learned counsel for the Revenue could not forcefully contend before us that the view taken by the Tribunal is erroneous. He only made a feeble attempt to show that, as the assessee had not disclosed the correct facts, income had escaped assessment.
8. The law on the point is now very clear. As pointed out by the Full Bench of this court in Poonjabhai Vanmalidas and Sons (HUF) v. CIT [1974] 95 ITR 251 (at page 274) :
"Whenever action of the Income-tax Officer in issuing the notice under section 34(1)(a) is challenged before a court of law, the court has to ask itself the question whether in fact there are reasonable grounds for the Income-tax Office to believe that there had been non-disclosure as regards any fact which could have a material bearing on the question of assessment. If such reasonable grounds exist, that by itself is sufficient to give him jurisdiction to issue the notice. Of course, this action of issuing the notice under section 34(1)(a) can be challenged on either of two grounds and that challenge is only to a limited extent, viz., (1) that the Income-tax Officer did not in fact hold the belief that there had been such non-disclosure; (2) that the belief must be held in good faith; it could not be merely a pretence; and it is not open to the court to examine the question whether the reasons for the belief have a rational connection to the formation of such belief and are not extraneous or irrelevant to the purpose of the section. On the one hand, according to the Supreme Court, once the two conditions are satisfied, a notice can be issued under section 34(1)(a) and subject to the limited extent of the challenge to the action of the Income-tax Officer, if there are reasonable grounds for him to believe that there had been any non-disclosure as regards any fact which could have a material bearing on the question of underassessment, the issuance of the notice under section 34(1)(a) would be valid. It is not for the court to consider whether these grounds are adequate or not. The sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. Moreover, the assessee is not bound to put forward before the Income-tax Officer at the time of the original assessment a version contrary to what he contends for or contrary to what he has written in his books of account. In certain circumstances, the question whether a particular transaction is genuine or not is an inference to be drawn from primary facts. If the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts. Further, where, on the evidence and material produced at the time of the original assessment, the Income-tax Officer could have reached a conclusion other than the one which he has reached, the proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer had earlier raised an inference which he may later regard as erroneous."
9. This court has further held that so far as the provisions of section 34(1)(a) are concerned, it is the conduct of the assessee that has to be looked at and not whether the Income-tax Officer subsequently came to know some facts.
10. Considering the facts of this case in the light of the above well-settled position, it becomes apparent that so far as the assessee is concerned, the assessee had disclosed all the material facts. It had disclosed the fact that it was in possession of the godowns and, therefore, the annual letting value in respect of the same was not computed. It was for the Income-tax Officer to draw the necessary inference therefrom. The Income-tax Officer did draw an inference in favour of the assessee and it was only because of the subsequent decision of the Calcutta High Court in the case of Liquidator, Mahmudabad Properties' case [1972] 83 ITR 470, that the subsequent Income-tax Officer changed his opinion. Thus, this clearly appears to be a change of opinion and it cannot be said that the income in this case had escaped assessment as a result of any failure or omission on the part of the assessee to disclose truly and correctly all the facts pertaining to its income. The Tribunal was, therefore, right in holding that there was no failure on the part of the assessee to disclose truly and correctly all the material facts relating to its income. We, therefore, answer all the three questions in favour of the assessee and against the Revenue. No order as to costs.