Chokhani Brother vs Joint Commissioner of Income Tax

Dr. Satish Chandra, J.—By this writ petition (amended) the assessee has made the following prayers:

"(I) issue a writ, order or direction in the nature of certiorari and to quash the order dated March 23, 2000, passed by the learned Joint Commissioner of income tax, Range-I, Kanpur (annexure-1 to the writ petition). Further, to quash the reassessment proceeding initiated against the petitioner, vide notice dated March 21, 1997, for the assessment year 1988-89 (annexure-2 to the writ petition) and the approval granted by the Commissioner of income tax dated March 21, 1997.

(II) award cost of this petition to the petitioner."

Sri S.D. Singh, learned senior counsel assisted by Sri Krishna Dev Vyas, learned counsel for the assessee, submits that the assessee is engaged in the manufacturing and sale of the yarn. He purchased the raw materials from various sources including the Government undertakings. For the assessment year under consideration, the notices were issued u/s 148 but the same were dropped on January 8, 1997, and March 3, 1997, respectively. However, a second notice u/s 148 was issued on March 4,1997, where various discrepancies in the accounts were mentioned. He submits that earlier and subsequent notices were having the same nature/reason. When the first notice was dropped then there was no occasion to issue fresh notice on second time. The notice is ab initio null and void and the same will have to be cancelled. He admits that the raw materials was purchased from U.P. State Spinning Mill Ltd. and U.P. State Trading Ltd. through their branches. If there is some discrepancy in the books of account then the sellers of the raw materials will have to be held responsible and certainly, not the assessee. No prima facie material was found for the discrepancy. The creditors are liable and not the debtors. For the purpose he relied the ratio laid down in the following cases:

(1) Satyamangalam Agricultural Producer''s Co-Operative Marketing Society Ltd. Vs. Income Tax Officer,

(2) Sahara India (Firm), Lucknow Vs. Commissioner of Income Tax, Central-I and Another,

(3) Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das,

(4) Indra Prastha Chemicals (P) Ltd. and Others Vs. Commissioner of Income Tax and Another,

(5) M.L. Shukla and Co. v. STO [1981] UPTC 396;

(6) General Electric Co. of India Ltd. v. STO [1973] UPTC 386 : [1978] 33 STC 108 (All); and

(7) Chhugamal Rajpal Vs. S.P. Chaliha and Others,

The learned counsel further submits that there is only right to suspect for which no notice can be issued u/s 148. There is no reason to believe in the instant case. Lastly, he made a request to allow the relief as prayed.

On the other hand, Sri Sambhoo Chopra, learned counsel for the department, justified the impugned order and submits that the assessee is a firm. For the assessment year under consideration, original assessment order was passed u/s 143(1)(a) of the Act. However, the Department had received the information that the assessee has escalated its liability to reduce the tax burden. So, the notices were issued u/s 133(6) of the Act to U.P. State Spinning Mill Ltd. and U.P. State Trading Ltd. to verify the liability shown by the assessee in its book of account. After receiving information, the Department found that there were discrepancies in the book of account, the same were reflected in the notices dated March 4, 1997. No reply has been received from the assessee, till date.

Regarding the last notice, he submits that the first notice was withdrawn on technical reasons, as reasons to believe were not mentioned. There is no bar for issuing the second notice. So, after completing the formalities and recording the reasons to believe, notices were issued second time on March 4, 1997, where the details of the discrepancies were communicated to the petitioner but no reply is received. To support his arguments, he relied on the ratio laid down in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others,

Lastly, he justified the impugned notices.

We heard both the parties at length and gone through the materials available on record. From the record, it appears that the assessee prima facie has reduced its tax liability by escalating the debit and other expenses in the book of account. For the purpose, the Department has verified the information u/s 133(6) of the Act. After receiving the information, the discrepancies were recorded in detail and mentioned in the impugned notice which comes to the tune of Rs. 24,65,238. The amount of liability does not tally with the accounts of the creditors and debtors for the assessments year under consideration, no scrutiny was made ever. The discrepancies will have to be explained by the assessee. Till date, no explanation is being filed. So we uphold the validity of the notices.

When the discrepancies are there, the same will have to be clarified by the assessee. So the notices were rightly issued u/s 148 of the Act. The assessee has an opportunity to explain the same by filing the reply to the notices or during the proceedings u/s 147 of the Act. Hence, we decline to interfere with the orders passed by the authorities. In view of the above, the petitions filed by the assessee is devoid on merit and the same is hereby dismissed. Interim order granted earlier is hereby vacated. The Assessing Officer is directed to complete the proceedings expeditiously as the matter is too old, say within a period of three months from the date of receipt of the certified copy of this order. No costs.