Full Judgment Text
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PETITIONER:
INDO-ADEN SALT MFG. & TRADING CO. PVT. LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, BOMBAY
DATE OF JUDGMENT12/03/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
SINGH, K.N. (J)
CITATION:
1986 AIR 1857 1986 SCR (1) 627
1986 SCC Supl. 279 JT 1986 642
1986 SCALE (1)555
ACT:
Jurisdiction to reopen assessment by the Income Tax
Officer, when arises - Reopening assessment on the ground
that the assessee had obtained depreciation at 6 per cent on
the assets as masonry works, but the assets consisted of
earth work wholly or substantially - Whether escaped
assessment Duty of the assessee to disclose primary facts
and truly Income Tax Act, 1961, section 147 (a).
HEADNOTE:
A partnership firm business carried on by M/s. Indo
Aden Salt Works Co. was taken over by the appellant-assessee
by an agreement dated 24.8.1949. During the assessment year
1950-51, the said Agreement as well as the Valuation Report
of the assets had been filed before the assessing authority.
The Income Tax Officer did not discuss the point whether the
assets were constructed of masonry or made of earth but on
the assessee’s letter conveying its agreement that for the
purpose of depreciation the value should be taken as
Rs.20,31,000 in the aggregate, in the assessment order
allowed 6 per cent depreciation. Later it was found that 93%
of the construction works were made of earth and only 7% of
masonry and that 59% of piers were made of masonry and 41%
of them were made of earth were allowed 12% depreciation
which rate is available only if constructed entirely or
mainly of wood. The Income Tax Officer, on these facts
proposed to reopen the assessment on escaped income for the
years 1955-56 to 1962-63. The jurisdiction of the Income Tax
Officer to reopen the assessment under section 147(a) of the
Income Tax Act, 1961 and the High Courts’ declining to call
for a statement of case on a question of law by rejecting
the application under section 256(2) of the Act are under
challenge in the appeals on certificate granted by the
Bombay High Court.
Dismissing the appeals, the Court,
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^
HELD: 1.1 If there are some primary facts from which
reasonable belief could be formed that there was some non-
disclosure or failure to disclose fully and truly all
material facts, the Income Tax Officer has jurisdiction to
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reopen the assessment. Assessee knows all the material and
relevant facts - the assessing authority might not. In
respect of the failure to disclose, the omission to disclose
may be deliberate or inadvertent. That was immaterial. But
if there is omission to disclose material facts, then,
subject to the other conditions, jurisdiction to reopen is
attracted. [632 D-F]
1.2 The obligation of the assessee is to disclose only
primary facts and not inferential facts. What facts are
material facts would depend upon the facts and circumstances
of each case. Further, whether there has been such non-
disclosure of primary facts which has caused escapement of
income in the assessment was basically a question of fact.
In this case, what portion of the asset consisted of
earth and what portion or proportion consisted of masonry
work was indubitably a material fact for the purpose of
calculating the depreciation. If over depreciation has been
allowed on the basis that the entire work consisted of
masonry work, income might have been under-assessed. The
Income Tax Officer can reasonably be said to have material
to form that belief. [631 E-F]
1.3 Mere production of evidence before the Income Tax
Officer and leaving him to find out the position by further
probing is not enough. The assessee must make full
disclosure truly. There may be omission or failure to make a
true and full disclosure, but if some material for the
assessment lay embedded in the evidence which the revenue
could have uncovered but did not, then, it is the duty of
the assessee to bring it to the notice of the assessing
authority. [632 D]
Calcutta Discount Co. Ltd. v. Income Tax Officer
Companies District I, Calcutta & Another, 41 I.T.R. 191;
Hazi Amir Mohd. Mir Ahmed v. Commissioner of Income-Tax,
Amritsar, 110 I.T.R. 630; Income Tax Officer I Ward, Distt
VI Calcutta & Ors. v. Lakhmani Mewal Das, 103 I.T.R. 437;
and Malegaon Electricity Co. P. Ltd. v. Commissioner of
Income Tax, Bombay, 78 I.T.R. 466 applied.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 800-
807 (NT) of 1974.
From the Judgment and Order dated 21st June, 1973 of
the Bombay High Court in Income Tax Application No.6 of
1972.
P.G. Gokhale, B.R. Agarwal and V. Menon for the
Appellant.
S.C. Manchanda, K.C. Dua and Ms. A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These appeals are by
certificate from the decision of the High Court of Bombay
dated 21st June, 1973 whereby the High Court had declined
the application made under section 256 (2) of the Income Tax
Act, 1961 (hereinafter called ’the Act’) wherein the
assessee sought two questions to be referred to the High
Court. The questions were:
(1) Whether, on the facts and in the circumstances
of the case, the re-assessment proceedings under
section 147 (a) of the Income-tax Act, 1961,
initiated by the Income-tax Officer for the
assessment years 1955-56 to 1962-63 against the
assessee were valid in law ?
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(2) Whether, on the facts and in the circumstances
of the case, the Tribunal was justified in up-
holding the action under section 147(a) of the
Income Tax Act, 1961 for the assessment years
1955-56 to 1962-63 ?
The real question, therefore, is whether there
were facts from which it could be believed that there was
failure or omission to disclose fully and truly all material
facts necessary for the assessment as a result of which
income has escaped assessment. The assessment was sought to
be re-opened for the years 1955-56 to 1962-63 (for failure
to disclose fully and truly all material facts). It is well-
settled that the obligation of the assessee is to disclose
only primary
630
facts and not inferential facts - See Calcutta Discount Co.
Ltd. v. Income Tax Officer Companies District I, Calcutta
and Another, 41 I.T.R. 191. There must be, therefore, (a)
full disclosure, and (b) true disclosure of all material
facts. What facts are material for a particular case would
depend upon the facts and circumstances of each case, (c)
there must be escapement of tax or under assessment due to
such failure or omission.
In this case the reason for the belief of the Income
Tax Officer was that the assessee had obtained depreciation
at 6 per cent on the assets which were masonry works but the
assets really consisted of earth work wholly or
substantially. If that was the position then the assessee
was not entitled to depreciation as was granted. The
question, is, whether the assessee had disclosed the nature
of the masonry work and whether the nature of the asset had
been fully and truly disclosed.
The assessee’s case was that a partnership business
carried on by M/s. Indo-Aden Salt Works Co. was taken over
by the assessee by an agreement dated 24th August, 1949 and
during the assessment year 1950-51 the said agreement dated
24th August, 1949 as well as the Valuation Report had been
filed before the assessing authority. It is, further, the
case of assessee that there was discussion on this Valuation
Report. It further appears from the assessment Order and the
affidavit that the Valuation Report was discussed and the
amount of depreciation was more or less agreed to between
the parties. The revenue’s case, on the other hand, is that
which portion of the assets consisting of masonry work and
which of earth work was not discussed or disclosed. The
assessee’s contention before the revenue authorities was
that the primary facts were discussed fully and it was open
to the revenue to examine into this aspect greater and it
was not possible after the lapse of such a long time to say
actually whether what portion of asset consisted of earth
work has been disclosed or not. It appears, however, from
the order of the Tribunal that by its last letter addressed
to the Income Tax Officer the assessee had conveyed its
agreement that for the purpose of depreciation the value
should be taken as Rs.20,31,000 in the aggregate, in the
assessment. The Tribunal has, further, found that in
granting the depreciation the I.T.O. did not discuss
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the point whether the assets were constructed of masonry or
made of earth and the I.T.O. did not exclude for
depreciation the value of reservoirs, salt pans and piers
and condensers and channels made of earth but allowed the
depreciation claim of the assessee on the entire value of
the reservoirs, salt pans and piers and condensers and
channels at 6% even though these were only partly
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constructed of masonry and partly made of earth. The
Tribunal has noticed that 93% of the construction works were
made of earth and only 7% of masonry, and the facts that 41%
of the piers were made of earth and only 59% of masonry was
not challenged before the A.A.C. and were not in dispute
before the Tribunal. There is also no dispute that
depreciation at 6% is available only in respect of such
assets constructed of masonry and not if made of earth. It
was also not in dispute that depreciation on piers is
available at 12% only if constructed entirely or mainly of
wood. The fact that for the assessment years 1955-56 to
1962-63 excessive depreciation allowance had been allowed in
the original assessments and income chargeable to tax had
escaped assessment and/or was under-assessed for these years
was also not in dispute.
The only question, therefore, is, whether there was
failure on the part of the assessee to disclose fully and
truly all material facts necessary for assessment and future
whether such income escaped assessment and whether such
escapement or under-assessment has been caused as a result
of the failure or omission on the part of the assessee to
disclose fully and truly all material facts. What facts are
material facts would depend upon the facts and circumstances
of a particulate case. This follows from the scheme of the
section and is well-settled by the authorities of this
Court.
It is the admitted position that the assessee had not
disclosed either by valuation report or by statement before
the I.T.O. as to what portion consisted of earth work and
what portion or proportion consisted of masonry work. For
the purpose of calculating depreciation that indubitably was
a material fact. If over depreciation has been allowed on
that basis i.e. that the entirety of the work consisted of
masonry work, income might have been under-assessed. The
Income tax Officer can reasonably be said to have material
to form that belief. That position is also well-settled by
the scheme of
632
the section, and concluded by the authorities of this Court.
The assessee’s contention is that the I.T.O. could have
found out the position by further probing. That, however,
does not exonerate the assessee to make full disclosure
truly. The explanation 2 to section 147 of the Act makes the
position abundantly clear. The principles have also been
well-settled and reiterated in numerous decisions of this
Court. See Hazi Amir Moh. Mir Ahmed v. Commissioner of
Income-tax, Amritsar, 110 I.T.R. 630 and Income-Tax Officer
I Ward, Distt. VI Calcutta & Others v. Lakhmani Mewal Das,
103 I.T.R. 437. Hidayatullah, J. as the learned Chief
Justice then was, observed in Calcutta Discount’s case
(supra) that mere production of evidence before the Income-
tax Officer was not enough, that there may be omission or
failure to make a true and full disclosure, if some material
for the assessment lay embedded in the evidence which the
revenue could have uncovered but did not, then, it is the
duty of the assessee to bring it to the notice of the
assessing authority. Assessee knows all the material and
relevant facts - the assessing authority might not. In
respect of the failure to disclose, the omission to disclose
may be deliberate or inadvertent. That was immaterial. But
if there is omission to disclose material facts, then,
subject to the other conditions, jurisdiction to re-open is
attracted. It is sufficient to refer to the decision of this
Court in Calcutta Discount’s case (supra) where it had been
held that if there are some primary facts from which
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reasonable belief could be formed that there was some non-
disclosure or failure to disclose fully and truly all
material facts, the I.T.O. has jurisdiction to reopen the
assessment. This position was again reiterated by this Court
in Malegaon Electricity Co. P. Ltd. v. Commissioner of
Income-Tax, Bombay, 78 I.T.R. 466.
Further more bearing these principles in mind in this
particular case whether there has been such non-disclosure
of primary facts which has caused escapement of income in
the assessment was basically a question of fact.
The High Court was right in declining to call for a
statement of case on a question of law. The appeals,
therefore, fail. However, there will be no order as to
costs.
S.R. Appeals dismissed.
633