- (1.) THIS is a writ petition under article 226 of the constitution. The prayer is for the issue of a writ of certiorari quashing the order of the Income-tax officer dated 24th of May, 1963, under section 35 of the Income-tax Act (hereinafter referred to as the Act) and for the quashing of the notice of demand dated the 24th may, 1963, passed in pursuance of the order under section 35 of the Act.
(2.) THE facts leading up to this petition are these : THE petitioner is a private limited company which was incorporated on the 18th of September, 1942, with its registered office at Kanpur. For the relevant assessment year 1955-56, the petitioner company filed its return of the total income in the sum of Rs. 2,99,039. THE Income-tax Officer, Mr. Misra, who had then the jurisdiction over the case passed an assessment order dated 19th of March, 1956, under section 23(3) of the Act on a total income of Rs. 3,29,774 (annexure A). Certain specific disallowances not under the proviso to section 13 of the Act were made, the main item being excessive depreciation which had been claimed. THE ultimate paragraph of the said assessment order significantly notes : THE assessee declared Rs. 1,20,000 as dividends. No action under section 23A was taken by Mr. Misra, the said Income-tax Officer. More than three years thereafter, another Income-tax Officer appears to have woken up to the fact that the order required ought to have been passed under section 23A of the Act. THE Inspecting Assistant Commissioner by a notice under section 23A(8) of the Act dated the 16th of July, 1959 (annexure B), called upon the petitioner to attend on the 23rd of July, 1959, and show cause why approval of the proposed order under section 23A should not be given. In the said notice, the total income given was Rs. 3,29,774, as per the assessment order, annexure A and it was stated that no dividends had been declared within 12 months of the end of the previous year and the balance, after deducting the taxes of Rs. 1,41,390, was worked out at Rs. 1,88,390. THE secretary of the company having alone attended had agreed that section 23A was applicable to the case for the relevant assessment year 1955-56. THE order under section 23A(1) of the Act was thereupon passed on the 27th of July, 1959. After deducting the taxes and donations on which rebate had been allowed under section 15B of the Act in the assessment order for 1955-56, the total reduced income was worked out at Rs. 1,81,315. 60% of this reduced income was worked out to Rs. 1,08,789. THE additional super-tax under section 23A(1) at the rate of 4 annas was thus determined at Rs. 27,197 and the company was required to pay this tax within 14 days. A mistake in calculation of additional super-tax in the order under section 23A(1) was discovered, which was rectified under Section 35 of the Act by an order dated the 31st of August, 1959 (annexure D), and the correct amount of additional super-tax was worked out at Rs. 45,328. 75 nP. in place of Rs. 28,258 hitherto calculated. Subsequently, in the course of the assessment proceedings for 1959-60, it was noticed that a trading liability in the sum of Rs. 2.79 lakhs which had been shown and allowed as a disputed amount payable to the Iron and Steel controller was not paid and was still being carried forward. A notice was thereupon issued under section 34(1)(a) for bringing that sum to tax in the assessment year 1955-56. The said Income-tax Officer issued a notice on the 28th August, 1961, under section 34 of the Act for the relevant year of assessment 1955-56. This notice presumably was under section 34(1)(a) as the penultimate paragraph thereof states that the notice was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax. This notice did not mention any reason for re-opening the assessment. A subsequent notice, however, was issued on the 22nd September, 1961 (annexure G), paragraphs 2 and 3 whereof read as follows : A perusal of the account of Iron and Steel controller as appearing in your books shows that you have created a liability of Rs. 2,78,953 in this year. This liability is not supported by any bills. Since this liability on reference to the deputy price and Accounts officer, Calcutta, is found as not payable you are requested to let me know whether you have any objection if this sum is treated as your income of this year. Your case is fixed for hearing on September 29, 1961, at 10.00 a.m. On the 28th September, 1961, the petitioner wrote to the Income-tax officer (annexure I), which reads : With reference to your above letter we beg to say that as already agreed by us vide our letter dated March 22, 1961, for the assessment year 1959-60 we have got no objection to the addition stated in your letter under reply provided that whenever payment is made the amount so paid shall be allowed as deduction in the year during which such payment has been made. We may further add that this amount is still due to the Iron and Steel controller and is under dispute. The letter dated the 22nd March, 1961, however has not been produced by the petitioner nor by the opposite party. There was some kind of agreement arrived at between the parties during the assessment proceedings 1959-60 that the sum of Rs. 2,78,953 will be brought to assessment in the year 1955-56 but whenever the petitioner makes payment to the Iron and Steel Controller the sum so paid will be allowed in that year. It may also be noticed that the petitioner did not at any time accept that the sum of Rs. 2,78,953 was not due. In fact it was reiterated that the amount was still outstanding and had to be paid. Notwithstanding this insistence and the receipt of this letter, on the very next day, i.e., the 29th September 1961, an order under section 34(I) read with section 23(3) was passed. Paragraph 3 of this order reads :
(3.) THE company filed a written reply dated September 28, 1961, agreeing to the addition of Rs. 2,78,953 as stated above. This sum would, therefore, be added to the total income already computed under section 23(3). It is further agreed that it the assessee is required to pay any sums in respect of this liability, the same would be allowed in the relevant year in which the payments are made. The total income is computed as under : JUDGEMENT_494_ITR53_1964Html1.htm It may be noticed that there is pointed reference to some agreement in this assessment order. The petitioner had insisted that the amount is still due to the Iron and Steel Controller and it would appear that this assertion was accepted as a provision was made that if and when the amount is paid it will be allowed against the income of that year. There was, therefore no finding given that there was any failure on the part of the petitioner to fully and truly disclose all material facts in the return filed by him under section 22 of the Act. Manifestly the assessment was based on an agreement which was just and reasonable. According to the petitioner it was further agreed that no penal action would be taken and in pursuance of that agreement no penal action under section 28(1)(c) was initiated by the Income-tax Officer. Section 23A action also was not taken immediately upon the passing of the said assessment order under section 34 of the Act. Again, according to the petitioner, it was never in the contemplation of either party, and the petitioner had definitely understood that no penal action by way of a section 23A order would be taken. After the lapse of over 7 months the Income-tax Officer, however, issued a notice dated the 8th of May, 1962 (annexure K) under section 35 of the Act. Paragraph 2 reads : ;