1. The Sirpur Paper Mills Ltd. (hereinafter referred to as "the company") seek a writ of mandamus interdicting the Income-tax Officer, "A" Ward, Companies Circle, not to give effect to notice dated March 23, 1974, and reopen the assessment order of 1965-66.
2. The company, in their return for the assessment year 1965-66, disclosed the profit and loss account, the balance-sheet and other necessary particulars. The Income-tax Officer, thereupon, determined the total income as Rs. 7,95,575. This income was assessed. The total income was ascertained by the Income-tax Officer having allowed Rs. 20,000 under the head ""Workmen and staff welfare expenses"". The deduction of Rs. 20,000, it is alleged in the impugned notice, resulted "in the escape of" tax which is sought to be remedied by the revenue through the impugned notice. The assessment order in regard to some minor particulars was rectified on October 25, 1967, and on December 7, 1967, by separate orders of the Income-tax Officer. On appeal, by the petitioner-assessee, the Income-tax Appellate Tribunal allowed the appeal on October 3, 1969, in some aspects (the particulars are not necessary to be specified in these proceedings). On January 17, 1973, this court in R.C. No. 33/71 [Commissioner of Income-tax v. Sirpur Paper Mitts Ltd. [1978] 112 ITR 778 (AP) [since affirmed by the Supreme Court, page 776 ibid--Ed.] answered the reference in favour of the assessee.
3. In the impugned notice, it is averred, the Income-tax Officer "had reasons to believe that income chargeable to tax for the assessment year 1965-66 has escaped assessment". Therefore, under Section 147 of the Income-tax Act, 1961, the assessee was directed to submit the "return". The Commissioner of Income-tax endorsed "yes" indicating his satisfaction of the reasons recorded by the Income-tax Officer.
4. In the writ petition, the assessee alleged, the Commissioner of Income-tax indicated his satisfaction "mechanically" and such a satisfaction was, it is alleged, a "mere pretence". The notice of the Income-tax-Officer, it is asserted, is the result of "change of opinion" of the succeeding Income-tax Officer, with a view to revise the assessment, In these circumstances, the petitioner alleges, such a "device" should not be permitted. Therefore, they seek to quash the notice in these proceedings.
5. The Commissioner of Income-tax in his counter avers that his satisfaction was not mechanical, while the Income-tax Officer, in a separate counter stated, the then Income-tax Officer "appears to have accepted that a sum of Rs. 20,000 was paid to Sri I. M. Bhandari, now the vice-president, for pacifying the troublesome elements in the mills as is evident from the endorsement made by the Income-tax Officer in the records. The assessee did not bring to the notice of the Income-tax Officer at the time of assessment that staff welfare expenses include lump sum amount spent by its vice-president as per his discretion. Had the assessee brought this fact to the notice of the Income-tax Officer, the Income-tax Officer would have disallowed the same". The expenditure, according to the department, was not incidental to business. This fact, they assert, the department found when they scrutinised the assessee's accounts for purposes of 1968-69 assessment. The claim for similar expenditure by the assessee was disallowed and the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In the orders of assessment in 1972-73 and 1973-74, such an expenditure was disallowed. Based on this record, the Income-tax Officer, it is urged, "had reason to believe that 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 assessment year 1965-66 income chargeable to tax has escaped assessment". The petitioner-company, the respondents allege, have effective and alternative remedy by way of appeal under the Act. Therefore, this court should not interfere with the orders of the respondents at this stage of the proceedings.
6. The assessee filed a rejoinder in which the company reiterated "no vouchers could be obtained" by the vice-president (I. M. Bhandari) and no vouchers were filed to prove the expenditure. For the assessment year 1971-72, the Income-tax Officer, they admit, disallowed the expenditure, though the amount was spent for the business of the company. The Income-tax Officer did not choose to allow for subsequent years, but that circumstance does not, in law, the company alleged, enable the Income-tax Officer, respondent No. 1, to reopen the assessment.
7. The Income-tax Officer while passing the assessment order for 1965-66, from the above statement of facts is clear, was satisfied without the vouchers, about the genuineness of the expenditure and allowed such an expenditure under the head
"Workmen and staff welfare expenses"
.
8. In Chhugamal Rajpal v. S.P. Chaliha , the Supreme Court, referring to Section 148 of the Act, observed, that the provision is a safeguard, which "cannot be lightly treated' and therein a duty cast on the Commissioner to be satisfied before the notice under Section 147 is issued, and to note "yes" was, in the words of Hegde J., to discharge that duty only in form.
9. The dicta in Calcutta Discount Co. Ltd. v. Income-tax Officer was relied on in S. Narayanappa v. Commissioner o/ Income-tax . Ramaswami J. observed in that case that the "existence (of reasons) is different from sufficiency of the reason". In Gemini Leather Stores v. Income-tax Officer , the Supreme Court stressed that once the authorities are shown the primary facts, it is for them to be circumspect and make enquiries and draw "proper inferences". Oversight of the Income-tax Officer, it is held in Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur , at the time of the original assessment, cannot, therefore, be regarded as non-disclosure of any material fact necessary for the assessment and the notice to reopen the assessment in such circumstances was quashed.
10. The admission of a fundamental fact or primary fact cannot be withdrawn and a fresh litigation cannot be started with a view to obtain another assessment upon different assumption of facts. The income-tax department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, "except when legal ingenuity is exhausted". To do so, is "...to divide one argument into two and to multiply the litigation". Because vouchers were not filed at the time of 1965-66 assessment or similar expenditure was disallowed in succeeding assessment years, the revenue cannot remedy the error by notice under Sections 147 and 148 of the Income-tax Act. Therefore, the notice dated March 23, 1974, of the Income-tax Officer is hereby quashed. The writ petition is allowed with costs. Advocate's fee Rs. 100.
11. A word about the procedure and practice. The company challenged the impugned notice in these proceedings even before the return is filed by them, for, they say, in R.C. No. 22/70 on November 22, 1970, this court held that assessment when made "in pursuance of the notice after full enquiry" cannot be questioned as such a notice "merged in the order of assessment and ceased to be open to challenge". Further, the Bench posed and answered the question: "...the issue of notice without reasonable belief would be illegal or irregular exercise of jurisdiction. But, would the issue of such an illegal notice render the subsequent proceedings so totally lacking in jurisdiction so as to make them void ? We think- not." With great respect, if I may say so, to state so is to state rather widely. These observations, in fact, impelled me to go into the merits of the matter;
otherwise, I thought, the petitioner-company should have been directed to seek their remedy before the authorities under the Income-tax Act.