A.N.Sen, J. - (1.) This is a reference under Section 66(2) of the Indian Income-tax Act, 1922. The question referred under the direction of this court on the application of the assessee is: "Whether, on the facts and in the circumstances of the case, the proceedings initiated under Section 34(1)(b) of the Indian Income-tax Act, 1922, for the relevant assessment year have been legally and validly done ?"
(2.) The facts relevant for the purpose of the application have been set out in the " statement of the case " and may be briefly noted. Reform Flour Mills (Pvt.) Ltd., the assessee herein, is a company carrying on business, among others, in conversion and sale of wheat flour. The assessments for 1945-46 and 1946-47 were completed on June 4, 1946, and December 2, 1946, on incomes of Rs. 96,202 and Rs. 43,973 respectively. In the assessment for the year 1945-46 a sun: of Rs. 49,199 paid to Bimal Kumar Nirmal Kumar on account of banian's commission for sale of flour and a sum of Rs. 34,767 paid to Omkarmal Kanailal and Co. for brokerage for purchase of wheat were allowed as deduction. Similarly, in the assessment for the year 1946-47 a sum of Rs. 1,48,663 paid to Bimal Kumar Nirmal Kumar as banian's commission for sale of flour and a sum of Rs. 41,227 paid to Onkarmal Kanailal on account of brokerage for purchase of wheat were allowed as deduction. The assessee was previously managed by Messrs. Andrew Yule and Co. Ltd. On September 9, 1944, Messrs J. K. Eastern Industries Ltd. took over as managing agents. Messrs. Bimal Kumar Nirmal Kumar were appointed as banian under an agreement dated December 28 1944. with effect from September 8, 1944, and Messrs. Omkarmal Kanailal as brokers by Messrs. J. K. Eastern Industries Ltd. after they took over as managing agents. At the time of the original assessment the assessee had filed the balance-sheet which contained the directors' report and in the directors' report the existence of control over the distribution of wheat and wheat flour is referred to. In the course of the original assessment for 1945-46 the Income-tax Officer wrote a letter dated April 25, 1946, to the assessee asking for information about the amount payable to the Government of Bengal. The assessee sent a reply on April 29, 1946, stating that the production and supply of wheat were controlled by the Government and that the mills were allowed guaranteed profits at 10% of the capital employed. It was also stated that as the amount was not assessed in time the profit payable to the Government was not assessed. The assessment for 1945-46 was completed on June 4, 1946, after this correspondence. Similar assessment for 1946-47 followed on December 2, 1946. At the time of the assessment for 1947-48 which was completed on December 7, 1948, the Income-tax Officer found that the assessee regularly charged in its accounts commission and brokerage and that there was no necessity for incurring these expenses. In his order the Income-tax Officer observed: "While the expenditure of the kind mentioned might have been necessary when the mills were buying and selling their products in open market there was absolutely no necessity of incurring these expenses in the accounting year when the wheat had been supplied to the mills exclusively by the Government and wheat products had been purchased back from the mills either by the Government or by bulk allottees in accordance with the directions issued by the Government."
(3.) The amounts claimed in that year in respect of such payments made for banian's commission for sale of flour and for brokerage for purchase of wheat were disallowed. The Income-tax Officer thereafter took proceedings under Section 34 of the Indian Income-tax Act, 1922, which was in force at the relevant time for reopening the assessment for 1945-46 and 1946-47. The notices are dated March 30, 1950, for each of these years. The reassessments were made on September 6, 1950, and in the reassessment orders the Income-tax Officer disallowed the banian's commission and brokerage which were allowed in the original assessments. The assessee filed appeals to the Appellate Assistant Commissioner contesting these reassessments. The Appellate Assistant Commissioner rejected the appeals. The assessee had appealed to the Tribunal and before the Tribunal two contentions had been raised--(1) on the applicability of Section 34, and (2) on the merits of the claim. Regarding the applicability of Section 34, the point urged on behalf of the assessee was that the entire information was available to the Income-tax Officer even at the time of the original assessment and that there was no further information on the basis of which Section 34(1)(b) could have been applied. The assessee relied on the correspondence preceding the original assessment for 1945-46, the Bengal Gazette Notifications, dated November 27, 1942, and June 14, 1945, referring to the control over distribution of flour and flour mills and the directors' report appended to the balance-sheet mentioning the existence of controls. The assessee relied also on the detailed statements of payment furnished to the Income-tax Officer at the stage of original assessment. The contention for the revenue was that the Income-tax Officer came by the information regarding the existence of controls and the absence of service by the banian and the brokers only in the course of assessment for the year 1947-48 completed after the original assessment of these years and that the Income-tax Officer was not aware of them earlier; and it was submitted that the facts covered in the assessment for 1947-48 constituted information so as to justify reopening of the assessment. The Tribunal held that the reopening of the assessments under Section 34(1)(b) was valid and proper and dismissed the appeal of the assessee for reasons stated in the order of the Tribunal.;