Supreme Court of India
CENTRAL PROVINCES MANGANESE ORE. CO. LTD.versusI.T.O., NAGPUR
- Citation
- 1991 INSC 197
- Decided
- 20 August 1991
- Disposal
- Dismissed
- Bench
- KULDIP SINGH
Holding
Both conditions of Section 147(a) of the Income‑Tax Act were satisfied, making the notice under Section 148 valid and the appeal dismissed.
Summary
The appellant, a non‑resident company exporting manganese ore, was assessed for the assessment year 1953‑54. Customs authorities later found that the company had under‑invoiced its exports, resulting in a finding of under‑invoicing of about Rs 44‑45 lakh. On this basis, the Income‑Tax Officer issued a notice under Section 148, claiming a belief that income had escaped assessment under Section 147(a) and called for reassessment. The High Court dismissed the appellant’s writ challenging the notice. The Supreme Court examined whether the two conditions of Section 147(a) – a reason to believe income was under‑assessed and that such under‑assessment resulted from the assessee’s omission or failure to disclose material facts – were satisfied. The Court held that the customs finding, though not binding, provided a valid reason to believe under‑assessment, and the appellant’s failure to produce head‑office books and contracts demonstrated omission of material facts. Consequently, the notice was validly issued under Section 147(a) and the appeal was dismissed.
Issues considered
- Whether the Income‑Tax Officer had sufficient reason to believe that income for AY 1953‑54 had escaped assessment under Section 147(a).
- Whether the alleged under‑invoicing amounted to an omission or failure by the assessee to disclose all material facts necessary for assessment.
- Whether the notice issued under Section 148 could be validly made on the basis of the customs finding, i.e., whether it was issued under Section 147(a) or 147(b).
Legislation cited
- Income Tax Act, 1961s. 147(a), s. 147(b), s. 148
Subjects
Income tax reassessmentSection 147(a)under‑invoicingcustoms investigationnon‑resident exportermaterial facts disclosurenotice under Section 148
Judgment
CENTRAL PROVINCES MANGANESE ORE. CO. LTD.
A
v.
I.T.O., NAGPUR
AUGUST 20, 1991
[KULDIP SINGH AND K. RAMASWAMY. JJ.J B
Income Tax Act, 1961: Sections 147(a) and 148-Reassessment-
Assessee exporting manganese ore-Customs authorities detecting
under-invoicing-Whether a valid reason for income-tax authoraie;- to
believe that income escaped assessment-Proven charge of under-
., . invoicing-Whether amounts to failure on assessee's part to disclose C
truly all material facts-Notice for reassessment-Validity of.
The appellant, a non-resident company, was carrying on the busi-
ness of exporting manganese ore, and was assessed to income-tax for the
assessment year 1953-54. Subsequently, on coming to know that pro-
ceedings for under-invoicing were pending against the appellant before D
the Customs Authorities, the respondent, the Income-Tax Officer issued
a notice under Section 148 of the Income-Tax Act, 1961 to the appellant
~.
stating that he had reasons to believe that the income of the appellant
chargeable to tax for the assessment year 1953-54 had escaped assess-
ment within the meaning of Section 147 of the Act and called upon the
appellant to show cause as to why it should not be re-assesseed to E
income. The appellant's writ petition challenging the notice was dismis-
sed by the High Court.
In the appeal before this Court on behalf of the appellant-
company, it was contended that the only material before the Income-Tax
Officer was the original order of the Collector of Customs wherein it F
was held that the appellant had indulged in under-invoicing, resulting
in declaring lesser price than the prevailing market price, which could
at the most be an information within the ambit of Section 147 of the Act,
but could not be the basis or the reason to entertain the belief, as
required under Section 147(a) of the Act and that the notice had been
issued under Section 147(b) and not under Section 147(a). G
Dismissing the appeal, this Court,
HELD: I. I Two conditions are required to confer jurisdiction on
the Income-Tax Officer under Section I47(a) of the Income-Tax Act,
1961. The first is that the Income-Tax Officer must have reason to H
627
628 SUPREME COURT REPORTS I 1991] 3 S.C.R.
believe that the income chargeable to income-tax had been under-
A
assesseed and the second that such under-assessment has occurred by
reason of omission or failure on the part of the assessee to disclose fully
and truly all material facts necessary for its assessment for the year
1953-54. [631F]
B 1.2 In the instant case, the Income-Tax Officer in his recorded
reasons, has relied upon the facts as found by the Customs Authorities
that the appellant under-invoiced the goods he exported. Thongh the
said finding may not be binding upon the Income-Tax Authorities, it can
be a valid reason to believe that the chargeable income has been under-
assesseed. The final outcome of the proceedings is not relevant. There
should be existence of reasons to make the Income-Tax Officer believe
c that there has been under-assessment of the assessee's income for a
particular year. Thus, the first condition was satisfied. Secondly, the
appellant-company did not produce the books of accounts kept by it at
its head office located outside the country, nor the original contracts of
sale which were entered into with the buyers at that place, or any of the
D accounts which related to the foreign banks. No reasons were given for
the supply of manganese ore at lower than the market rate. It is for the
assessee to disclose all the primary facts before the Income-Tax Officer to
enable hint to account the true income of the asses<;ee. Thus, the proven charge
of under-invoicing per se satisfies the second condition. [631G-H, 632A-C]
E l.3 The appellant's assessable income has to be determined on
the basis of the price received by it for the goods exported. If the true
price had not been disclosed and there was under-invoicing, the logical
conclusion prima-facie is that there has been failure on the part of the
appellant to disclose fully and truly all material facts before the
Income-Tax Officer. In the circumstances, both the conditions
F required to attract the provisions of Section 147(a) have been complied
with. [632DJ
2. Although the notice only mentioned Section 146 of the Act
without indicating whether it was under Sub-Section (a) or Sub-Section
r
(b), the reasons recorded by the Income-Tax Officer specifically state
G that the proposed action was under Section 147(a) of the Act. Even
otherwise, the material on record and the reasons recorded by Income-
Tax Officer justify the issue of the notice under Section 147(a) of the
Act. [632F]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 565
H of 1976.
MANGANESE ORE. v. l.T.0. [KULDIP SINGH, J.J 629
From the Judgment and Order dated 5.8.1975 of the Bombay A
High Court in Special Civil Application No. 429 of 1970.
K. Rajgopal,' Pardeep Rajgopal, Ms. Rekha Rajgopal, M.S.
Ganesh and S. Sukumaran for the Appellant.
B
Dr. V. Gauri Shankar, M. Arora and Ms. A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
·f'---
KULDIP SINGH, J. The appellant company carries on the busi-
ness of exporting manganese ore to England and United· States of c
America. The Income Tax Officer, Nagpur issued a notice dated
March 20, 1970 under Section 148 of the Income Tax Act, 1961
(hereinafter called the 'Act') stating that he had reasons to believe that
the income of the appellant chargeable to tax for the assessment year
1953-54 had escaped assessment within the meaning of Section 147 of
the Act. The company was called upon to show cause why it should not
D
be re-assessed to income for the said year. The appellant company
challenged the notice by way of writ petition under Article 226/227 of
the Constitution of India before the Nagpur bench of the Bombay
High Court. The High Court by its judgment dated August 5, 1975
dismissed the writ petition with costs. This appeal via special leave
petition is against the said judgment of the High Court. E
The relevant facts are hereinafter. The appellant is a non resi-
dent company having its office in London. It has its office in India at
Nagpur. The appellant is assessed to income tax at Nagpur and it has
been the practice of the appellant company to produce before the
Income Tax Officer the relevant books which are kept by the local F
office at Nagpur, the balance sheets, the trade account and the profit/
loss account from their head office in London. It appears that some-
time in 1958 the customs authorities came to know that the appellant
company had declared very low prices in respect of all the consign-
ments of manganese ore exported by them out of India. It was also
found that most of the export was only to three buyers who in turn did G
not purchase manganese ore from any other company except the
appellant. After due enquiries/investigation the custom authorities
found that the appellant was systematically showing lesser value for
the manganese ore exported as compared with the prevailing market
price for the same grade.ofmanganese ore. ·
H
630 SUPREME COURT REPORTS [1991] 3 S.C.R.
A The Collector, Customs, Visakhapatnam, by an order dated
March 2, 1959 held that there was under-invoicing by the appeilant to
the tune of Rs.7S lacs. The said order of the collector was, however,
set aside in appeal and the matter was remanded to the Collector for
re-hearing. In the final order passed by the Collector of Customs dated
November 16, 1972, under-invoicing was shown to the tune of about
B
Rs.44/45 lacs. It is thus obvious that the custom authorities came to the
conclusion that the prices mentioned in the relevant contracts between
the appellant and the buyers were lesser than the contemporaneous
market prices. The custom authorities, thus, found as a fact that the
appellant company was indulging in under-invoicing.
./I·
c The Income Tax Officer, on coming to know about the pendency
of proceedings before the Collector of Customs, issued a notice dated
March 20, 1970 under Section 148 of the Act. In the notice the reasons
on the basis of which he entertained the necessary belief as required
under Section 147 of the Act, were not given, however, alongwith the
return filed on behalf of the revenue before the High Court, the
D
reasons which led to the issue of notice under Section 148 on the
grounds mentioned under Section 147(a) of the Act were disclosed. It
is not disputed that the reasons need not be set out in the notice and
the same can be produced before the court.
Section 147 of the Act provides for assessment or re-assessment
E in cases where income has escaped assessment. The Revenue's right to
take action under the section is subject to the conditions laid down
therein. The requisite conditions provided under Section 147(a) at the
relevant time were as under:
The income tax officer should have reason to believe that income
F has '"escaped assessment" by reason of omission or failure on the part
of the assessee:
(i) to make return of his income under the relevant provisions of
the Act; or
G (ii) to disclose fully and truly all material facts necessary for his
assessment for the year.
Section 147(b) of the Act on the other hand required that the
Income Tax Officer should have, in consequence of information in his
pc,ssession reason to believe that income has "escaped assessment".
H
MANGANESE ORE. v. l.T.0. {KULDIP SINGH, J.] 631
It is not disputed in the year 1970 the Income Tax Officer had no A
jurisdiction to issue notice under Section 148 on the grounds contained
under Section 147(b) of the Act as the period of limitation for the issue
of such notice provided under the Act had expired. There was however
,1
no bar at that point of time to issue the said notice on the grounds
under Section 147(a) of the Act.
B
Mr. V. Rajagopal, Senior Advocate, learned counsel for the
appellant has contended that the Income Tax Officer could not have
reason to pelieve that there was omission or failure on the part of the
appellant to dlselose fully and truly all material facts necessary for the
assessment and that the income chargeable to tax had escaped assess-
ment. According to him, it was not the practice with the appellant to C
produce the account books from their head office in London before
the Income Tax Officer. The appellant company produced before the
Income Tax Officer the balance sheets, profit and loss account and all
other necessary records required for the purpose of asses~ment.
According to the learned counsel the only material before the Income
Tax Officer was the original order of the Collector of Customs wherein D
it was held that the appellant had indulged in under-invoicing, result-
ing in declaring lesser price than the prevailing market price. The
learned counsel contended that the order of the Collector could at the
most be an information within the ambit of Section 147(b) of the Act
but it could not b~he basis or the reason to entertain the belief as
requires under Section 147(a) of the Act. E:
The only question which arises for our consideration is whether
the two conditions required to confer jurisdiction on the Income Tax
Officer under Section 147(a) of the Act have been satisfied in this case.
The first is that the Income Tax Officer must have reason to believe
that the income chargeable to income tax had been under assessed and F
the second that such under assessment has occurred by reason of omis-
sion or failure on the part of the assessee to disclose fully and truly all
material facts necessary for its assessment for the year 1953-54.
So far as the first condition is concerned, the Income Tax
Officer, in his reCOfded reasons, has relied upon the fact as found by G
the Custom Authorities that the appellant under-invoiced the goods he
·~
exported. lt is no doubt correct that the said finding may not be bind-
ing upon the Income Tax Authorities but it can be a valid reason to
believe that the chargeable income has been under-assessed. The final
outcome of the proceedings is not relevant. What is relevant is the
existence of reasons to make the Income Tax Officer believe that there H
632 SUPREME COUKT REPORTS [ 1991] 3 S.C.R.
A has been under-assessment of the assessee's income for a particular
year. We are satisfied that the first condition to invoke the jurisdiction
of the Income Tax Officer under Section 147(a) of the Act was
satisfied.
As regards the second condition the appellant did not produce
B
the books of accounts kept by them at their head office in London nor
the original contracts of sale which were entered into at London with
the buyers. The appellant did not produce before the Income Tax
Officer any of the accounts which related to the foreign buyers. No
reasons were given for the supply of manganese ore at a lower than the
market rate. It is for the assessee to disclose all the primary facts
,,...
C before the Income Tax Officer to enable him to account the true
income of the assessee. The proven charge of under-invoicing per se
satisfy the second condition. The appellant's assessable income has to
be determined on the basis of the price receive~ by it for the goods
exported. If the true price has not been disclosed and there was under-
invoi.cing the logical conclusion prima jacie is that there has been
D faHure on the part of the appellant to disclose fully and truly all mate-
rial f<1cts before the Income Tax Officer. We are, therefore. satisfied
that both the conditions required to attract the provisions of Section
147(a) have been complied with in this case.
Mr. V. Rajagopal further argued that in. fact the notice was
E issued under Section 147(b)of the Act and not under Section 147(a) of
the Act. We <1re unable to accept this contention . Although the notice
only m.entioned Section 147 of the Act without indicating whether it
was under Section 147(a) or 147(b), but the reasons recorded by the
Income Tax Officer on February 26, 1970 which run into more than 20 ,;.
pages specifically state that the proposed action was under Section
F 147(a) of the Act. Even otherwise we are satisfied that the material on
the record and the reasons recorded by the Income Tax Officer justify
the issue of the notice under Section 147(a) of the Act.
We, therefore, dismiss the appeal with costs which we quantify
G as Rs. 15,000.
N.P.V. Appeal dismissed.
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