1. In this Rule, the petitioner Ashoka Marketing Ltd. challenges eight notices issued under S. 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act). The notices for the assessment years 1953-1954, 1954-1955, 1955-1956 and 1956-1957 are all dated the 10th May, 1966. The notice for the assessment year 1957-1958 is dated the 18th February, 1966. The notices for the assessment years 1958-1959, 1959-1960 and 1960-1961 are all dated the 20th January, 1967.
2. Dr. Debi Pal, learned advocate appearing on behalf of the petitioner submits that although several grounds have been taken in the petition this matter can be disposed of on one short point. In order to appreciate the point it would be necessary to set out the reasons recorded by the Income Tax Officers before the issue of eight impugned notices. Before I set out the recorded reasons I may mention that although the reasons for these eight years have been recorded by two Income Tax Officers viz., Mr. D.L Brahamchari and Mr. K. Dasgupta and although there are eight different reasons recorded for the respective assessment years, curiously enough the recorded reasons are word for word the same. This could obviously be the basis of an argument of non-application of mind by the concerned officers. Dr. Pal however invited me to decide this application on a different ground.
3. One of the specimen reasons for the assessment year 1960-1961 and I have already said the recorded reasons ipsissima verba may be set out herein below:—
“The assessee collected sales tax on cement sale to customers on the gross price by the State Trading Corporation, which included notional freight and other incidentals. The customers take delivery of cement on payment of actual freight charges directly to the Railways and the assessee company, the selling agent of State Trading Corporation recovers from the customers only the balance, i.e the difference between the gross price and the actual freight paid by the customers. The assessee paid to the State Sales-tax Authorities only the tax on this net amount recovered and thus every year accumulated between sales-tax on gross price collected from customers and sales-tax on net price paid to sales tax authorities. The accumulation of such surplus i.e the sales tax on freight element, amounted to about Rs. 44 lacs as on 30.6.65
This practice was adopted by the assessee even prior to incorporation of State Trading Corporation and it has so far succeeded in its dispute with the State Sales-tax Authorities on this point that no sales tax is payable on this freight element. Nor has the assessee any intention to refund this amount to the customers. In view of the Supreme Court's decision in case of Punjab Distillieries Industries Ltd. v. C.I.R Simla (1959 I.T.R page 51) this surplus is assessable as a trading receipt because what the assessee was realising from the customers was the sale price sales-tax being a part of it and if a part of it was not paid to the sales tax authorities that amount must necessarily be regarded as trading receipt.
The exact amount accumulated each year is not known as to the books of accounts of the assessee have been seized by Company Law Board and are now the subject matter of an injunction from Calcutta High Court, but the surplus each year is not likely to be less Rs. 50,000/-”.
Dr. Pal relied on the well settled proposition that before an Income Tax Officer can issue a notice under S. 148 of the Act two essential pre-conditions must be satisfied. First, the Income Tax Officer must form the belief that income has escaped assessment or has been under assessed or has been assessed at too low a rate. Second, he must form the further belief that such under-assessment has been due to an omission or failure on the part of the assessee to disclose fully and truly all material facts with regard to his income in the relevant year.
4. Dr. Pal in this connection refers to an unreported decision of mine in the case of Ram Kumar Himatsingka v. Income-tax Officer (Matter No. 154 of 1967) which judgment was delivered by me on the 14th September, 1972. In that decision relying on the Supreme Court case of S. Narayanappa v. Commissioner of Income-tax Bangalore reported in 63 ITR 219 at 221, I upheld Dr. Pal's contention on a similar point. Reliance was also placed at an unreported judgment of P.K Banerjee, J. in the case of Jhinguriram Mahabiram v. I.T.O ‘D’ Ward, Dist. II(1) & Ors. (Matter No. 752 of 1967) in which the judgment was delivered on the 3rd October, 1972. Banarjee, J. on similar facts came to an identical conclusion.
5. It is not necessary to elaborate on this aspect of the matter because the legal position was not seriously disputed by Mr. Balai Lal Pal, learned advocate appearing on behalf of the Revenue. Mr. Pal however submitted that the recorded reasons should be read with entry No. 7 in the covering sheet which is as follows:—
“Brief reasons for starting proceedings under section 147 (indicate items which are believed to have escaped assessment): As per separate sheet”
According to Mr. Pal, this amounted to fulfilment of the condition precedent as required by law before the issue of a notice under S. 148 of the Act.
6. I am unable to accept the contentions of Mr. Balai Lal Pal on this point. Entry no. 7 in the covering sheet of the recorded reasons in my view does not amount to a formation of belief that any income has escaped assessment. Even assuming that by an overgenerous interpretation in favour of the Revenue, this entry may be construed to amount all the formation of a belief by the Income Tax Officer that income has escaped assessment, there is nothing in the recorded reasons to show that there was the formation of belief by the Income Tax Officer that such income escaped assessment by reason of any omission or failure on the part of assessee to disclose fully and truly all relevant facts with regard to the particular year. The absence of this belief with regard to the omission or failure on the part of the assessee, in my view, is a fatal infirmity of the impugned notices. Consequently it must be held that the impugned notices having been issued without the condition precedent having been complied with they are without jurisdiction and void. This point of Dr. Pal therefore succeeds.
7. As I am disposing of this Rule on this single point, I make it clear that I am not deciding any other question involved in this application.
8. In the result, this application succeeds and the Rule is made absolute. There will be a writ in the nature of Mandamus directing the respondent to forthwith, recall, cancel and withdraw the impugned notices for the assessment years 1953-1954, 1954-1955, 1955-1956, 1956-1957 all dated the 10th May, 1966, the notice for the assessment year 1957-1958 dated the 18th February, 1966 and for the assessment years 1958-1959, 1959-1960, and 1969-61 all dated the 20th January, 1967 and to forbear from giving effect thereto in any manner whatsoever.
There will be no order as to costs.
Rule made absolute.
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