COMMISSIONER OF INCOME-TAX V. BURLOP DEALERS LTD. (1971) 79 ITR 609 (SC)
FACTS
Burlop Dealers Ltd. (the assessee) submitted a profit and loss account for the assessment year 1949-50, disclosing a profit from a joint venture with H. Manory Ltd.
The assessee claimed that half of the profit was paid to Ratiram Tansukhrai under a partnership agreement.
The Income-Tax Officer initially accepted this and included only half of the profit in the assessment.
In the assessment year 1950-51, the entire profit from the joint venture was brought to tax by the Income-Tax Officer, alleging that the agreement with Ratiram Tansukhrai was a device to reduce profits.
The Income-Tax Officer reassessed the income for 1949-50, adding the amount paid to Ratiram Tansukhrai, alleging that the agreement was a device.
The Appellate Assistant Commissioner(“AAC”) upheld the reassessment, stating that the assessee misled the Income-Tax Officer.
The Income-Tax Appellate Tribunal reversed this decision, noting that the assessee had produced all relevant accounts and documents.
The Tribunal held that the assessee was under no obligation to inform the Income-Tax Officer about the true nature of transactions. Reversed the order of AAC.
An application under section 66(1) of the Indian Income-tax Act for stating a case to the High Court was rejected by the Tribunal. A petition to the High Court of Calcutta under section 66(2) for directing the Tribunal to submit a statement of the case was also rejected.
Hence, present appeal.
ISSUE
Whether the Income-Tax Officer was justified in reassessing the income for the assessment year 1949-50 under section 34(1)(a) of the Indian Income-tax Act, 1922? (correspondence to sec 147 IT ACT,1961)
RULE
Under section 34(1)(a) of the Indian Income-tax Act, if the assessee fails to disclose fully and truly all material facts necessary for assessment, income chargeable to tax that has escaped assessment may be reassessed.
The Supreme Court ruled that if the assessee disclosed primary facts relevant to the assessment, they were not obligated to inform the Income-Tax Officer about possible inferences.
HELD
The Income-Tax Officer believed that the agreement with Tansukhrai was a share transaction, falling under section 34(1)(b), but the prescribed period for serving a notice under this section had elapsed.
Under section 34(1)(a), the Income-Tax Officer could serve a notice if there was an omission or failure by the assessee to disclose fully and truly all material facts necessary for assessment.
The Supreme Court ruled that if the assessee disclosed primary facts relevant to the assessment, they were not obligated to inform the Income-Tax Officer about possible inferences.
The Income-Tax Officer had the responsibility to raise inferences from the disclosed facts, and if he failed to do so, income that escaped assessment could not be taxed under section 34(1)(a).
The Supreme Court held that under section 34(1)(a), if the assessee has disclosed primary facts relevant to assessment, they are not obligated to inform the Income-Tax Officer about possible inferences. Therefore, the reassessment was not justified, and the appeal was dismissed.
COMMENTARIES RATIO/NOTE
The Assessing Officer cannot equate his inference or conclusion from subsequent facts and enquiries later conducted by him, to materials or primary facts referred to in section 147(a). A different conclusion or inference at a later time whether it is arrived at upon the facts disclosed or on fresh facts gathered as a result of further inquiry will not justify action under section 147(a) if the fresh facts are not primary facts which existed at the time of assessment and which the assessee was under duty to disclose. Where a contention raised by the assessee with regard to the nature of an incoming has been accepted in the original assessment, it is not open later on to invoke section 147(a) for reassessment if the Income-tax Officer comes to the conclusion that the assessee’s contention should not have been accepted [Rai Singh Deb Singh Bist v. Union of India, (1970) 77 ITR 802 (Del), affirmed on different grounds in (1973) 88 ITR 200 (SC)].
It is well-settled that the duty of disclosing of primary facts relevant to the decision of the question before the assessing authority lies on the assessee and it is not for the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn [Asst. CIT v. Sarvamangala Properties, (2002) 257 ITR 722 , 730 (Cal)].