DEPUTY COMMISSIONER OF INCOME TAX Vs. NAGINJMARA VENEER AND SAWMILLS PRIVATE LIMITED
SUPREME COURT OF INDIA
DEPUTY COMMISSIONER OF INCOME TAX
Naginjmara Veneer And Sawmills Private Limited
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(1.)The assessment in respect of Assessment Year 1985-1986 of the respondent assessee had been completed by the appellants on 27-1-1988. Subsequently, a letter was issued to the assessee in which it was said that on the basis of a statement made by the Chief Executive of the respondent Company in the course of the hearing of the assessee's case for Assessment Year 1986-1987, the assessing officer has reasons to believe that the assessee had "suppressed stock" in respect of the accounting year ending on 30-6-1984. The assessee was thereupon requested to show cause why proceedings under Section 148 of the Income Tax Act, 1961 (for short "the Act") should not be initiated against the assessee for Assessment Year 1985-1986 and the profit from the sale of the "suppressed stock" should not be added to the assessee's return income for Assessment Year 1985-1986. The assessee replied to the letter. The Department issued another notice under Section 148 on the basis of the aforesaid letter dated 8-2-1989. The assessee impugned the letter dated 8-2-1989 as well as the notice under Section 148 of the Act issued in respect of Assessment Year 1985-1986 before the High Court under Article 226. The learned Single Judge allowed the writ petition and quashed the show-cause notices on the ground that the assessee had disclosed all material particulars before the authorities concerned and that, therefore, there was no basis for the assessing authority to initiate proceedings under Section 148 of the Act. The view of the learned Single Judge was upheld in appeal by the Division Bench of the High Court.
(2.)In our view, the High Court has proceeded on erroneous basis not only on the facts but also on the law. The assessee was carrying on the business of production and supply of broad gauge and metre gauge railway sleepers. For the assessment year in question the assessee had received a sum of Rs. 44,16,000 from the Forest Utilisation Officer towards the supply of such sleepers which was valued at Rs. 88,28,000. During the assessment proceedings in the subsequent assessment year, the Chief Executive of the assessee had said that the advance was made on the basis of actual stock verification by the Forest Utilisation Officer. It was not in dispute that the supply had been effected pursuant to the agreement of the assessee with the Railway Authorities. For Assessment Year 1985-1986 the assessee had disclosed an outstanding liability of Rs. 31,58,700 on account of the advance in respect of which no supply had been made. The outstanding advance should have represented the amount of stock remaining with the assessee out of the actual stock verified at the time of making of the advance. At least this appears to be the basis upon which the assessing authority noted that instead of the aforesaid, in the return of the assessee, the assessee had shown a closing stock of only 2429 sleepers of the total value of Rs. 2,41,317.83. The assessing officer therefore stated that he has reasons to believe that the assessee had suppressed stock of BG sleepers, 49,590 pieces at Rs. 135 per piece and 5981 pieces of MG sleepers at Rs. 59 per piece for the previous year ending 30-6-1984 and sale of 50,000 BG sleepers and 8000 MG sleepers for the previous year ending 30-6-1985.
(3.)If what is stated by the Chief Executive Officer is taken to be correct, then there appears to be an unexplained discrepancy between the closing d stock as recorded and the stock which should have been there on actual verification of which an advance was made and for which the liability was shown. This statement of the Chief Executive of the assessee had not at all been adverted to by the learned Single Judge or by the Division Bench of the High Court. It is well settled that at the time of considering whether the show-cause notice should be quashed or not, if it is not a question of e jurisdiction, the facts as stated in the show-cause notice, must be taken as correct.
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