INCOME TAX OFFICER VS SELECTED DALURBAND COAL CO. (PVT.) LTD.
1996 P T D 872
[217 I T R 597]
[Supreme Court of India]
Before B. P. Jeevan Reddy and G. T. Nanavati, JJ
INCOME TAX OFFICER
Versus
SELECTED DALURBAND COAL CO. (PVT.) LTD.
Civil Appeal No. 2394 of 1977, decided on 29/03/1995.
(Appeal from the judgment and order, dated December 24, 1976, of the Calcutta High Court in Appeal from Original Order No.55 of 1974).
Income tax--
---Reassessment---Notice---Failure to disclose material facts necessary for assessment---General principles--Mines and quarries---Letter from Chief Mining Officer that colliery had been inspected and there had been under-reporting of coal raised---Reassessment proceedings based on letter---Valid---Indian Income Tax Act, 1961, S.147(a)---Constitution of India, Art. 226.--[ITO v. Selected Dalurband Coal CO. (Pvt.) Ltd. (1978) 113 ITR 489 reversed].
The notice under section 148 read with section 147(a) of the Income Tax Act, 1961, can be issued only where the Income Tax Officer has reason to believe that the income, profits and gains chargeable to tax had been under assessed or escaped assessment and further that such escapement or under-assessment was occasioned by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of the year. In other words, there must be relevant material before the Assessing Officer upon which he must reasonably and rationally form the requisite belief. The formation of belief by the Income Tax Officer is essentially within his subjective satisfaction. At the stage of issue of notice the only question is, whether there was relevant material on which a reasonable person could have formed the requisite belief. Against notices under section 147(a) of the Income Tax Act, 1961, issued to the respondent on the basis of a letter from the Chief Mining Officer showing that a joint inspection was conducted in the colliery of the respondent assessee on January 9, 1967, by the officers of the Mining Department in the presence of the representatives of the respondent-assessee and that according to the opinion of the officers of the Mining Department there was under-reporting of the raising figure to the extent indicated in the said letter, the respondent filed a writ petition. The Calcutta High Court held the notices invalid. On appeal to the Supreme Court by the Department:
Held, allowing the appeal, that the report was made by a Government Department after conducting a joint inspection. It gave a reasonably specific estimate of the excessive coal mining said to have been done .by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter were true or not was not the concern at this stage. The letter could constitute the basis for the formation of the requisite belief under section 147(a). The reassessment notices were valid.
ITO v. Selected Dalurband Coal Co. (Pvt.) Ltd. (1978) 113 ITR 489 reversed.
J. Ramamurthy, Senior Advocate (R. Sathish and Miss A. Subhashini, Advocates with him) for Appellant.
M.S. Syali, R.N. Dutt and V.B. Saharya, Advocates for Respondent.
ORDER
This appeal is preferred against the judgment of the Division Bench of the Calcutta High Court (see (1978) 113 1TR 489) dismissing a letter patent appeal preferred by the Revenue against the judgment of a learned Single Judge. The learned Single Judge (see (1978) 113 ITR 510) had allowed the writ petition filed by the respondent-assessee challenging the validity of notices issued under section 148 read with section 14 7 (a) of the Income Tax Act, 1961. We are concerned herein with three Assessment years, viz., 1961-62, 1963-64 and 1965-66. For the year 1961-62, the notice under section 148 was issued on March 12, 1970, whereas in respect of the other two assessment years, they were issued on November 6, 1970. The said notices were issued by the Income Tax Officer on the basis of the letter, dated January 30, 1969, addressed by the Chief Mining Officer to him. The letter reads as follows (at page 498 of 113 ITR):
"Sub: Under reporting of coal raising and shortage of surface coal stock by Selected Samla Colliery. Owner, Messrs Selected Dalurband Coal Co. (Pvt.) Ltd., 137, Cotton Street, Calcutta.
A joint inspection was made in the colliery mentioned above on 9th January, 1967 and 10th January, 1967, by Sri K.S. Gupta, Assistant Coal Superintendent, Ranigunj Division and Sri Sumti Kumar Sarkar, Mining Officer of this Mining Estate Branch, Directorate of Mines and Minerals.
As a result of underground measurement it was revealed that the colliery company under-reported the raising figure to the following extent during the period from 1956 to 9th January, 1967.
Gr. I: 1,36,390 m.t.:
Shortage of surface coal stock was also detected to the extent of 387 m.t. of Gr. I coal on 9th January, 1967.
It has been decided to charge royalty on the aforesaid quantity of coal by the Government of West Bengal.
This is for your information and necessary action. "
After receiving the said letter, the Income Tax Officer recorded the reasons as required by subsection (2) of section 148 and thereafter, issued the aforesaid notices. Soon after receiving the notices, the assessee approached by High Court of Calcutta by way of writ petition, with the result mentioned above.
It is well-settled by various decisions of this Court that the notice under section 148 read with section 147 can be issued only where the Income Tax officer has reason to believe that the income, profits or gains chargeable to tax had been under-assessed or escaped assessment and further that such escapement or underassessment was occasioned by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. (We are not concerned with clause (b) of section 147 here but only with clause (a)). In other words, there must be relevant material before the Assessing officer upon which he must reasonably and rationally form the requisite opinion (belief). The. question, therefore; is whether the letter of the Chief Mining officer aforesaid does not constitute relevant material upon which the Income Tax officer could have formed the requisite belief. It must be remembered that the formation of belief by the Income Tax Officer is essentially within his subjective satisfaction.
After hearing learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on January 9, 1967, by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under-reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too after conducting a joint inspection. It gives a reasonably specific estimate of the excessive coal-mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have now to go on we do not and we ought not to express any opinion on the merits.
For the above reasons, the appeal is allowed. The orders of the High Court are set aside. The reassessment shall now go on according to law and as expeditiously as possible. No costs.
M.B.A./1101/FCAppeal allowed.