Dev Son (P.) Ltd. vs Union of India

The petitioner herein as alleged is a company registered under the Companies Act, 1956, dealing in the wholesale business of Indian made

Foreign Liquor (IMFL) and Beer having its registered office at Jammu. The company holds a valid licence for the business as stated - an assessee

under the income tax Act, 1961 ('the Act') with its registered office at Jammu.

As projected in writ petition the petitioner is aggrieved against the issuance of notice purporting to be u/s 148 of the Act issued by respondent

No. 3, ITO on 8-1-1985, and replied to by the petitioner on 5-2-1986, which pertained to the assessment year 1973-74. The petitioner also

submitted returns under protest. The respondent No. 3 thereupon issued a letter dated 10-3-1986, to the petitioner indicating the approval of the

Board showing recording of reasons for the reopening of the assessment and asking the petitioner to attend his office on 21-3-1986, the date on

which the assessment proceedings may be taken. The said communication is marked as Annexure P-7 attached with the petition. Annexure P-7(1)

is the form and Annexure P-7(2) is another order of the ITO indicating recording of reasons for issuance of notice u/s 149 of the Act accompanied

by a notice issued on 10-3-1986 for appearance and attending of the case on 21-3-1986. The petitioner, therefore, challenges the

constitutionality, legality and correctness of the notice issued on 10-3-1986 (Annexure P-8), letter of respondent No. 3 (Annexure P-7) and the

reasons recorded therein and the so-called satisfaction allegedly communicated on behalf of respondent No. 2 in this writ petition under the

Constitution.

The dispute is mainly concerned with the amount of sales tax including Rs. 96,448 reflected in the balance-sheets when the petitioner filed the

returns of the assessment year 1973-74. It was alleged that this amount was received by the petitioner from his manufacturer and supplier Dewan

Modern Breweries Ltd., on account of the sales tax charged from the petitioner. The then ITO on the said return and accounts assessed the

petitioner's income at Rs. 10,090; petitioner was then called upon for rectification of the mistake by notice issued by ITO on 1-3-1976, u/s

154/155 of the Act pertaining to the said amount and, on submission of explanation by the petitioner, the ITO, on satisfaction dropped the item of

sales tax in respect of which the impugned notice has now been issued.

On notice the respondents have filed their objections and contended that the writ petition is misconceived both on facts as well as in law. The

notice allegedly impugned does not determine the rights and obligations of the parties. It is further argued and submitted by Mr. T.S. Thakur, the

learned counsel for the petitioner has not availed of the equally efficacious and appropriate remedies open to him under the Act. The petitioner is a

sister concern of its supplier Dewan Modern Breweries Ltd. The repayment of the amount of Rs. 96,448 shown in the balance-sheet filed

alongwith the return, does not amount to disclosure of the income particularly when the tax liability reflected in the balance-sheet was not of Rs.

96,448 but was of Rs. 1,08,246.95. No detail or break-up of the said amount was given. About proceedings initiated in 1976 u/s 154/155 it is

pointed out that the scope was quite different limited only to rectify the errors apparent on the face of the record and, the order was, therefore,

confined to rectification of errors which were admitted and not disputed. The ITO and the Board of Direct Taxes after recording their reasonings

initiated proceedings by issuance of notice u/s 147/148 of the Act against the petitioner which is based on facts not open to challenge in writ

petition.

After hearing the learned counsels for the respective parties and considering the law on the subject as applicable in the facts and circumstances

of the case and the ratio of authority of their Lordships of the Supreme Court in Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and

Others, , the petitioner's case loses its force when we find that on facts the ratio of the authority goes in favour of the revenue rather than to help

the petitioner. Their Lordships laid down the following principles:

It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the income tax Officer can

assume jurisdiction to issue notice u/s 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and

secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully

and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the income tax Officer

would be without jurisdiction. The important words u/s 147(a) are 'has reason to believe' and these words are stronger than the words 'is satisfied'.

The belief entertained by the income tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on

reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have

weighed with the income tax Officer in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a

bearing on the matters in regard to which he is required to entertain the belief before he can issue notice u/s 147(a)...."" (p. 1366)

In the instant case, as projected in the petition and the counter as well as in the notice issued to the petitioner u/s 147/148 there was enough

material on record to hold the reasons to believe that the income of the assessee had escaped assessment which was by reason of the omission and

failure on the part of the assessee to disclose fully and truly about the income of Rs. 96,448. On the face of the reasoning given in the notice

impugned, we can safely hold that there is no scope left for us to examine on facts the rationale or the basis on which the Board and the ITO

formed their belief for initiating the proceedings u/s 148. Even otherwise this is not the scope of the writ jurisdiction to enter into the controversial

facts which can otherwise be settled by the authorities empowered under the Act and the forum provided therein. The argument of the learned

counsel for the petitioner, therefore, falls short of the reasonings advanced in the authority of the apex court.

Equally so the proceedings which were initiated u/s 154/155 had their separate basis and cannot be made a ground of defence for invalidating

the notice issued u/s 147/148, as both the proceedings are independent of each other and cannot successfully be argued to point out that they

overlap. There is no substance either in the contention put forward by the learned counsel for the petitioner that the Board mechanically approved

the reasonings given by the ITO as it is simply an argument in futility to say that since the communication is issued through the media of the

secretary it cannot be said that the Board has not applied its mind while holding the belief for the approval granted. On totality of the

circumstances, we do not find that the notice issued, impugned in the writ petition, calls for any interference at this stage or that the same is either

illegal or unconstitutional so as to entertain the writ petition. The writ petition is, therefore, dismissed summarily. The interim order passed in

CMP/439/86 on 19-3-1986, stands vacated. However, the dismissal of the writ petition will not be as bar to the petitioner to pursue the remedies

open to him under law.