(Appeal by Special leave from the judgment and order dated August 5, 1975, of the Bombay High Court in Special Civil Application No.429 of 1970).

Income-tax---

----Reassessment---Notice issued after four years---Belief of escape of income from assessment---Failure to disclose fully and truly material facts---Assessee a non-resident company---Head office in London and office in India---Export of manganese ore---Customs authorities initiating proceedings against assessee on basis that assessee was indulging in under-invoicing of goods exported and later finding that there was under-invoicing---Income-tax Officer has sufficient reason to believe that income had escaped assessment ---Assessee producing Indian account books and London balance-sheet and trading and profit and loss accounts---Accounts kept in head office in London and original contracts with buyers not produced---Proper basis for conclusion that there was failure to disclose fully and truly material facts---Indian Income-tax Act, 1961, S.147(a).

The appellant, a non-resident company, having its head office in London, U.K, and an office in Nagpur in India, carried on the business of exporting manganese ore to the U.K and the U.S.A. For purposes of Indian income-tax, it was the practice of the appellant to produce the relevant books kept at Nagpur and the balance-sheet, trading account and profit and loss account from its head office in London. In 1958, the customs authorities came to know that the appellant had declared very low prices in respect of all the consignments of manganese ore exported by it and found that most of the export was only to three buyers who in turn purchased ore only from the appellant. After due investigation, the customs authorities found that the appellant was systematically under-invoicing; and, by an order dated March 2, 1959, the Collector of Customs held that there was under-invoicing to the extent of Rs.78 lakhs. After remand by the appellate authority, the Collector passed a final order holding that the under-invoicing was to the tune of Rs. 44/45 lakhs. Pending the proceedings before the Collector, the Income-tax Officer issued a notice dated March 20,1970, under section 148 of the Income- tax Act, 1961, for reopening the assessment for the assessment year 1953--54. The appellant filed a writ petition challenging the validity of the notice. The reasons for issuing the notice, which had been recorded, were disclosed in the Department's counter-affidavit. The High Court dismissed the writ petition. On appeal to the Supreme Court:

Held, dismissing the appeal, (i) that the facts as found by the Customs Authorities that the appellant had under-invoiced the goods it had exported satisfied the first condition in section 147(a) of existence of reason to believe that there was under-assessment of the appellant's income. It was no doubt true that the finding of the customs authorities might not be binding upon the income-tax authorities, but it could be a valid reason to believe that the chargeable income had been under-assessed. The final outcome of the reassessment proceedings was not relevant.

(ii) That, since the appellant had not produced either the books of account kept at the head office in London or the original contracts of sale which were entered into with the buyers and no reasons were given for the supply of Manganese Ore at a rate lower than the market rate, the proven charge of under-invoicing per se satisfied the 6econd condition under section 147(a) that there was failure on the part of the appellant to disclose all material facts at the time of the original assessment. If the true price of the goods exported had not been disclosed and there was under-invoicing, prima facie, there was failure on the part of the appellant to disclose fully and truly all material facts before the Income-tax Officer.

(iii) That, on the facts, the notice had been issued under section 147(a), the reasons recorded specifically stated that the proposed action was under section 147(a) and the material on record and the reasons recorded justified the issue of the notice under section 147(a).

K. Rajgopal, Senior Advocate with Pradeep Rajgopal, Ms. Rekha Rajgopal, M.S. Ganesh and S. Sukumaran, Advocates for Appellant.-

Dr. V. Gauri Shankar, Senior Advocate with M. Arora and Ms. A. Subhashini Advocates for Respondent.

JUDGMENT

KULDIP SINGH, J. --The appellant-company carries on the business of exporting manganese ore to England and the United States of 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 be reassessed to income-tax 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.

The relevant fads are stated hereinafter. The appellant is a non?-resident 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 office at Nagpur, the balance?-sheets, the trading 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 consignments 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 not purchase manganese ore from any other company except the appellant. After due enquiries/investigation, the customs 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 of manganese ore.

The Collector, Customs, Visakhapatnam, by an order dated March 2, 1959, held that there was under-invoicing by the appellant to the tune of Rs.78 lakhs. The said order of the Collector was, however, set aside in appeal and the matter was remanded to the Collector for rehearing. In the final order passed by the Collector of Customs dated November 16, 1972, under-invoicing was shown to the tune of about Rs.44/45 lakhs. It is thus obvious that the customs 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 customs authorities, thus, found as a fact that the appellant-company was indulging in under-invoicing.

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 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 reassessment 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 has "escaped assessment" by reason of omission or failure on the part of the assessee--

(i) to make a return of his income under the relevant provisions of the Act; or

(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 possession, reason to believe that income has "escaped assessment".

It is not disputed that, in the year 1970 the income-tax Officer had no 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, no bar at that point of time to issue the said notice on the grounds under section 147(a) of the Act.

Mr. K. Rajgopal, Senior Advocate, learned counsel for the appellant, has contended that the Income-tax Officer could not have reason to believe that there was omission or failure on the part of the appellant to disclose fully and truly all material facts necessary for the assessment and that income chargeable to tax had cod assessment. According to him k was not the Practice with the appellant to produce the account books from their head office is London before the Income-tax Officer. The appellant company Produced before the Income tax Officer the balance-sheets, profit and loss accounts and all other necessary records required for the purpose of assessment. According to learned counsel, the only material before the Income-tax Officer was, the original order of the Collector of Customs wherein it was held that the appellant had indulged in under-invoicing, resulting in declaring lesser price than the prevailing market price. Learned counsel contended that the order of the Collector could, at the most, be information within the ambit of section 147(b) of the Act but it could not be the basis or the reason to entertain the belief as required under section 147(a) of the Act.

The only question which arises for our consideration is as to 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 the second that such under?assessment has occurred by reason of omission or failure on the part of 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 recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under-invoiced the goods it exported. It is no doubt correct that the said finding may not be binding 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 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 the books of account 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 rate lower than the market rate. It is for the assessee to disclose all the primary facts before the Income-tax Officer to enable him to account for the true income of the assessee. The proven charge of under?-invoicing per se satisfies the second condition. 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 has 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. We are, therefore, satisfied that both the conditions required to attract the provisions of section 147(x) have been complied with in this case.

Mr. K. Rajgopal further argued that, in fact, the notice was issued under section 147(b) of the Act and not under section 147(x) of the Act. We are unable to accept this contention. Although the notice only mentioned section 147 of the Act without indicating whether it was under section 147(a) or section 147(b), 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 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 at Rs.15,000.

M.BA./1222/T ??????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.