BANSIDHAR SPINNING AND WEAVING MILLS PRIVATE LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE petitioner herein challenges the notices issued under S. 148 of the IT Act, seeking to reopen the assessment for the asst. yrs. 1965 66 to 1970 71. The relevant previous years for these assessment years are the calendar years 1964 to 1969, calendar year being the accounting year of the petitioner company. The petitioner before us is a private limited company and carries on business of manufacturing textiles. The petitioner company was registered on October 1, 1963, and came into being on that day. On October 3, 1963, the petitioner company purchased textile mills located at Ahmedabad for the aggregate sum of Rs. 40,00,000 from Deepak Textile Industries Pvt. Ltd. of Rajkot. The sale deed was executed in respect of lands, plant and part of machinery which was to be treated as immovable property because of the nature of that machinery and these immovable properties were taken to have been sold at the aggregate sum of Rs. 4,00,000 by the vendor to the petitioner company and the balance amount of Rs. 36,00,000 was treated as towards the rest of the machinery, furniture, etc., which were all treated as movables in which property passed on mere delivery of possession. There was no itemisation of the machinery in the sale deed but at the time of sale, the vendor furnished a list of the different machineries in this textile mill and the value allocated to the different items was shown in the list. In this list, there was one item showing as follows:

(2.) AS per the Rules, extra shift allowance could not be allowed on the above electrical machinery except the electric motors which formed part of the textile machinery and, in the absence of any details regarding the cost of electric motors, the ITO proposed to estimate the same at Rs. 2,49,100 and also proposed to withdraw the extra shift allowance given to the petitioner company on the balance of cost of electrical machinery of Rs. 5,00,000. The second ground on which the reopening of the assessment was sought was that the petitioner company had deducted the sale price of machineries from the written down value of machineries in two assessment years. In the asst. year 1966 67, the sale price of Rs. 1,32,135 was sought to be deducted and for the asst. yr. 1967 68, the sale price of Rs. 1,30,644 was sought to be deducted. The sale prices had been deducted from the written down value on the ground that separate prices for the items sold were not available. However, scrutiny revealed that the petitioner had sold seven Bowl Calender Machines for Rs. 90,000. In the asst. year 1966 67, the cost of which was Rs. 70,000. In the same way, the petitioner company had sold in the asst. year 1967 68, Singeing Machine for Rs. 1,12,200, the cost of which was Rs. 84,000. Thus, there arose a capital gain as well as profit under S. 41(2) in the asst. yrs. 1966 67 and 1967 68. The petitioner was, therefore, called upon to show cause why profit under S. 41(2) and capital gain should not be taxed in the asst. yrs. 1966 67 and 1967 68 as mentioned in that letter. The ITO also stated that the written down value of the remaining machinery would increase for which the correct written down value would be taken while passing the assessment orders for the asst. yrs. 1968 69 and onwards. Thus, as shown by this letter of January 27, 1976, proceedings were sought to be reopened on two grounds, one on the ground that extra shift allowance had been claimed and allowed in respect of all electrical machinery of Rs. 7,00,000, though in accordance with the Rules in that behalf it was permissible only in respect of electric motors valued at Rs. 2,49,100. The second ground on which the assessments were sought to be reopened, at least from asst. year 1968 69 onwards, were on the ground of sale price of the machinery having been shown and yet income under S. 41(b), being balancing charge, being allowed and escaping assessment because cost price of this machinery was not disclosed in the relevant return. Consequently, not only deemed income by way of balancing charge under S. 41(2) had escaped assessment but also capital gains had escaped assessment and in the light of these factors the written down value for the asst. yrs. 1968 69 onwards was required to be increased in the light of what was ordered in respect of asst. yrs. 1966 67 and 1967 68.

(3.) UNDER S. 147(a), if the ITO has reason to believe that, by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for the assessment for that year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. All that we are required to find out as a condition precedent for the exercise of power under S. 147(a) in the instant case is whether there was any failure or omission on the part of the petitioner company to disclose fully and truly all material facts necessary for the assessment for the assessment years for which the assessment is sought to be reopened.