Ishwar Prasad Agarwalla and Others vs Income Tax Officer

This petition is by a dissolved firm, India Wire Products, and its four partners. The firm was dissolved on March 31, 1976. The firm as well the individual partners seek to quash the (impugned) notices issued by the Income Tax Officer, A-Ward, Tinsukia, to reopen the assessment order of the firm dated November 29, 1972. The facts in the case are as under.

The return of the firm for the assessment year 1972-73 was inquired and the income was determined at Rs. 1,19,980 on November 29, 1972. The Income Tax Officer, A-Ward, Tinsukia, exercising power u/s 247 of the Act informed the firm and its partners that "chargeable tax escaped assessment" for the year 1972-73, and, therefore, the impugned show-cause notice was served on them, to reopen the order. The assessee protested on September 25, 1976, and later, on October 13, 1976, reiterated the protest. When a suitable reply was not received, they approached this court to quash the notice.

The facts relevant to the notice fall in a very short compass. The closing stock as per the account books of the firm was shown at Rs. 7,08,081 whereas pledges account with the State Bank of India, Tinsukia, showed Rs. 15,26,810. The break up of pledges were lock and key account - Rs. 7,71,610 and factory account--Rs. 7,55,200. The disparity between the closing account being less than the pledges of Rs. 15,26,810, therefore, impelled by that circumstance, the Income Tax Officer sought to reopen the assessment order and, therefore, show-cause notices were served on the writ petitioners.

The case of the dissolved firm on the above facts is that the difference between the closing stock as well as figures shown in the lock and key type account and factory type account of Rs. 15,26,810 was the subject of investigation and inquiry before the assessment order was passed on November 29, 1972, and, therefore, the self-same inquiry cannot be reopened over again for the second time and, therefore, the impugned notices are illegal and have to be quashed.

The issue is whether the difference between the closing stock as well as the figures indicated in the two accounts was the subject-matter of investigation by the Income Tax Officer before the assessment order on November 29, 1972, was passed.

The above question at issue is, in more than one sense, a determination of fact. If the contention of the assessee-firm is correct, the notices have to be quashed. One of the partners who had sworn an affidavit in support of the petition as well as in reply affidavit averred that he was present along with his advocate before the Income Tax Officer and the subject-matter was inquired into. A copy of letter dated November 28, 1978, is offered to support their contention. The letter, it is stated, was filed on behalf of the assessee.

Whereas Santonu Kumar Ganguly, the Income Tax Officer at Tinsukia, in para 8 of his affidavit referred to letter dated November 28, 1978, as under :

"That the statements made in paragraph 10 of the petition are not correct and are denied. It is not correct that any such letter dated November 28, 1972, was filed as alleged."

N. G. Bhattacharjee, who is the A-Ward Income Tax Officer, Tinsukia, at the relevant time of the assessment order, in para 7 of his affidavit, asserted that no such letter was filed and that the subject-matter at issue in this case was not investigated. "That the statements made in paragraph 10 of the petition are not correct and are denied. Therefore, nothing is on record to show that any such letter dated November 28, 1972, was filed as alleged."

The last three hearing adjournments were granted to the Revenue to explain the position as to how the letter of November 28, 1972, is found in the record produced before the court by the Revenue.

We extract the letter in full :

"From

To

The Income Tax Officer,

A-Ward, Tinsukia.

Sir,

Sub : Assessment year 1972-73.

With reference to your honour''s query regarding discrepancy in the figure of stock pledged by us with the State Bank of India, Tinsukia, with the figure of closing stock as shown by us in our trading account and balance-sheet, which point was raised and thereafter gone into and examined by your honour in the course of the first phase of hearing of our case today morning, we beg to submit as below to bring on record the following facts :

The actual at cost valuation of our stock as at the close of the year on March 31, 1972, was the figure at which it is shown in the trading account and balance-sheet as filed by us along with our return, i.e., Rs. 7,08,081.10.

The fantastic overvaluation resorted to by us for purposes of valuation of stock to be given to the bank was intended for securing higher overdraft facilities from the bank.

The fact of widely fantastic overvaluation of stock for purposes of the bank has already been proved by us with adequate evidence to your honour''s entire satisfaction today morning when copies of the statements as filed by us with the bank were also produced before your honour. Thus, the position that the valuation of stock as shown by us in the bank statement is fantastically inflated and overstated stands fully substantiated.

Break-up figures of sales and purchases of S. S. Shafting and other goods have already been furnished by us. A list of our closing stock as on March 31, 1972, has also been furnished by us. Quantitative reconciliation in respect of S. S. Shafting has also been furnished by us. Consumption register duly verified by the State Industries Department as also copies of the returns filed by us to the Industries Department have also been produced before your honour.

From the above, your honour will please appreciate that in no way can it be said that there exists any discrepancy in the closing stock as shown by us in our balance-sheet. The bank statements reflected an unreal state of affairs and deserve to be given no credence at all. We hope that we can say that we have satisfied all your enquiries and questions to enable us to make the above statement.

May we, now, request your honour to very kindly complete our assessment and oblige.

Yours faithfully, For India Wire Products, (Sd.) I. P. Agarwala, Partner."

We have accorded ample opportunities to the Revenue to explain the existence of letter dated November 28, 1972, in their record. Learned counsel for the Revenue again today seeks four months to explain the existence of the letter in their record. It is needless to emphasise that this writ petition is of 1976. We are satisfied that more than necessary opportunities were afforded to the Revenue to explain the situation. Therefore, no adjournment is called for in this case. The request for adjournment is rejected.

Learned counsel for the assessee has brought to our notice another circumstance which corroborates the assertion made by the assessee. With reference to the file for the assessment year 1973-74 of the firm where a letter dated August 12, 1976, has been filed in which the following assertion is made :

"That a copy of the letter dated November 28, 1972, written by my said client to the learned Income Tax Officer, ''A''-Ward, Tinsukia, in the course of hearing of its case for the assessment year 1972-73 regarding discrepancy in the figure of stock as pledged by it with the State Bank of India, Tinsukia, with the figure of closing stock as shown by it in its balance-sheet has been filed with your honour at the time of my appearance before your honour on August 11, 1976. Your honour will please appreciate from the said letter that vis-a-vis of stock pledged with the bank in order to secure higher overdraft facilities is an accepted position."

This letter is not disputed. There is also internal evidence, no doubt of a feeble nature, in the assessment order itself which was passed on November 29, 1972, and in that the following passage is found :

"This year the percentage of gross profit shown is better, it being 10.59% as compared to last year''s 7.25%. Sales of S. S. Shafting has considerably decreased and that of other goods increased. Break-up-figures of sales and purchases in respect of S. S. Shafting and other goods have been furnished. Purchases and sales are vouched. Quantitative reconciliation account of S. S. Shafting furnished. Consumption register, duly verified by the State Industries Department is also produced. Considering all these facts and in view of the past record, I accept the trading result as shown."

We are more than satisfied from the above circumstance that the letter of November 28, 1972, was filed and investigation was made by the Income Tax Officer before the order, on November 29, 1972, of assessment for the year 1972-73 was passed. It is needless to mention that if it was enquired into on the earlier occasion, the Revenue cannot reopen the assessment. At this distance of time, no authority is required to be cited in support of such a contention.

For all the aforesaid reasons, the impugned notices are quashed. The writ petition is allowed with costs which we quantify at Rs. 250.