# PARASHURAM POTTERY WORKS CO. LTD v. INCOME TAX OFFICER, CIRCLE-1, WARD 'A', RAJKOT, GUJARAT

- **Citation:** [1977] 2 S.C.R. 92
- **Court:** Supreme Court of India
- **Decided:** 1976-11-16
- **Bench:** H. R. Khanna, V. R. Krishna Iyer
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/parashuram-pottery-works-co-ltd-v-income-tax-officer-circle-1-ward-a-rajkot-7125
- **Pages:** 10

## Headnote

Income Tax Act, 1961-Secs. 147, 148, 149, lllcome Tax Act 1922-Sec. 10
(2) vi-Reopening of assessment-Omission 011 the part of assessee to disclose
fully and truly all material facts-Duty to disclose primary facts-Duty to draw
references of l.T.0.-Whether l.T.O. can correct his error or give effect to change
in his opinion in reopening proceedings.
The appellant a Public Limited Company filed its Income Tax Return relating to the assessment years 1957-58 and 1959-60 tinder the Income Tax Act,
1922. The Income Tax Offieer passed assessment orders on 16-4-1959 and on
30-3-1961 respectively in respect of the two years.
Certain depreciation was
allowed by the Income Tax Officer for both the years.
On 5-10-1965,
the
Income Tax Officer addressed a letter to the appellant stating that there had
been a mistake in the calculation of the depreciation allowance. The appellant
was asked by that letter if it had any objection to the rectification of the mistake
in the calculation of the depreciation amounts for the above-mentioned two years.
On 2nd February, 1966, the Income Tax Officer addressed a letter under section
147(a) of the Income Tax Act, 1961 alleging that the income of the appellant
had escaped assessment for failure of the appellant to disclose all materials facts.
The appellant in his reply stated that the depreciation was calculated by the
Income· Tax authorities and there was no failure on the part of the appellant in
disclosing all the facts.
Thereafter, the Income Tax Officer issued the notices
on 4-3-1966 stating that he had reasons to believe that the income of the appellant chargeable to tax for the assessment years in question had escaped assessment within the meaning of section 147 of the 1961 Act.
The appellant was
called upon to furnish fresh return.
The appellant challenged the said notices by filing a Writ Petition in the
High Court. According to the appellant there was no omission or failure on
its part to disclose fully and truly all material facts necessary for the assessment;
that all material facts were placed before the assessing authority; and that the
fact that initial depreciation on the new assets had been allowed was also on
the record of the department. It was further contended that if there was any
pversight on the part of the Income Tax Officer the appellant could not be
held responsible. The respondent filed an affidavit in the High Court contending
that the· appellant did not disclose in the return that initially depreciation in
respect of certain items of capital assets had been allowed in the past and that
the same should be taken into account while calculating the depreciation allowable for the assessment years in question.
The High Court dismissed the Writ
Petition on the ground that there was an omission or failure on the part of the
appellant to disclose truly and fully the fact that the initial depreciaion had
been allowed in respect of ite.ms of capital assets in question during the previous
years.
Under section 10 of the 1922 Act an assessec is liable to pay tax under the
head "Profits and Gains of Business, Profession or Vocation, carried on by him".
Such profits or gains shall be computed after '}laking a n~mber of all?wanc:es.
Those allowances included the allowances provided by section 10(2)(v1) which
deals with deprecia.tion under section 147(a) of the Income Tax Act,
~9~1.
if the Income Tax Officer has reason to beli~ve that the reason of the om1ss1<;>n
or failure on the part of the assessee to disclose fully and truly all material
facts necessaiy for his assessment, income chargeable to tax has escaped assessment for that year he may subject to the provisions of sections .118 to 151
assess or reassess such income or recompute the loss or the deprecia!lon allow-
"·
J
r
PARASHURAM POTTERY v. I. T. OFFICER (Khanna, J.)
93
ance as the case may be. According to section 148 of 1961 Act pefore making
the assessment, reassessment, or recomputation under section 147, the Income
A
Tax . Off

## Text

A
B
c
D
E
F
G
H
92
PARASHURAM POTTERY WORKS CO. LTD.
v.
INCOME TAX OFFICER, CIRCLE-1, WARD 'A', RAJKOT,
GUJARAT
November 16, 1976
(H. R. KHANNA AND V. R. KRISHNA IYER, JJ.]
Income Tax Act, 1961-Secs. 147, 148, 149, lllcome Tax Act 1922-Sec. 10
(2) vi-Reopening of assessment-Omission 011 the part of assessee to disclose
fully and truly all material facts-Duty to disclose primary facts-Duty to draw
references of l.T.0.-Whether l.T.O. can correct his error or give effect to change
in his opinion in reopening proceedings.
The appellant a Public Limited Company filed its Income Tax Return relating to the assessment years 1957-58 and 1959-60 tinder the Income Tax Act,
1922. The Income Tax Offieer passed assessment orders on 16-4-1959 and on
30-3-1961 respectively in respect of the two years.
Certain depreciation was
allowed by the Income Tax Officer for both the years.
On 5-10-1965,
the
Income Tax Officer addressed a letter to the appellant stating that there had
been a mistake in the calculation of the depreciation allowance. The appellant
was asked by that letter if it had any objection to the rectification of the mistake
in the calculation of the depreciation amounts for the above-mentioned two years.
On 2nd February, 1966, the Income Tax Officer addressed a letter under section
147(a) of the Income Tax Act, 1961 alleging that the income of the appellant
had escaped assessment for failure of the appellant to disclose all materials facts.
The appellant in his reply stated that the depreciation was calculated by the
Income· Tax authorities and there was no failure on the part of the appellant in
disclosing all the facts.
Thereafter, the Income Tax Officer issued the notices
on 4-3-1966 stating that he had reasons to believe that the income of the appellant chargeable to tax for the assessment years in question had escaped assessment within the meaning of section 147 of the 1961 Act.
The appellant was
called upon to furnish fresh return.
The appellant challenged the said notices by filing a Writ Petition in the
High Court. According to the appellant there was no omission or failure on
its part to disclose fully and truly all material facts necessary for the assessment;
that all material facts were placed before the assessing authority; and that the
fact that initial depreciation on the new assets had been allowed was also on
the record of the department. It was further contended that if there was any
pversight on the part of the Income Tax Officer the appellant could not be
held responsible. The respondent filed an affidavit in the High Court contending
that the· appellant did not disclose in the return that initially depreciation in
respect of certain items of capital assets had been allowed in the past and that
the same should be taken into account while calculating the depreciation allowable for the assessment years in question.
The High Court dismissed the Writ
Petition on the ground that there was an omission or failure on the part of the
appellant to disclose truly and fully the fact that the initial depreciaion had
been allowed in respect of ite.ms of capital assets in question during the previous
years.
Under section 10 of the 1922 Act an assessec is liable to pay tax under the
head "Profits and Gains of Business, Profession or Vocation, carried on by him".
Such profits or gains shall be computed after '}laking a n~mber of all?wanc:es.
Those allowances included the allowances provided by section 10(2)(v1) which
deals with deprecia.tion under section 147(a) of the Income Tax Act,
~9~1.
if the Income Tax Officer has reason to beli~ve that the reason of the om1ss1<;>n
or failure on the part of the assessee to disclose fully and truly all material
facts necessaiy for his assessment, income chargeable to tax has escaped assessment for that year he may subject to the provisions of sections .118 to 151
assess or reassess such income or recompute the loss or the deprecia!lon allow-
"·
J
r
PARASHURAM POTTERY v. I. T. OFFICER (Khanna, J.)
93
ance as the case may be. According to section 148 of 1961 Act pefore making
the assessment, reassessment, or recomputation under section 147, the Income
A
Tax . Officer shal! serve on t~e assesse7 a notice contaii:iing all or any of the
reqmrements which may be mcluded m a notice under section 149(1). The
In~ome Tax Officer has also before issuing such notice to record his reasons for
domg so. Section 149 prescribes a time limit for the notice. The time limit in
respect of section 147(a) is 8 years.
Allowing the appeal,
HELD : I. Two conditions have to be satisfied before an Income Tax Officer
acquires jurisdiction to issue notice under section 148 beyond the period of 4
B
years but within the period of 8 years :
(i) The Income Tax Officer must have reason to believe that income
chargeable to tax_ has escaped assessment;
(ii) He must have reason to believe that such income
has escaped
a~sessment by reason of the omission or failure on the part of the
assessee to disclose fully and truly material facts necessary for his
assessment for that year.
C
The duty which is cast upon the assessee is to make a true and full disclosure
of the primary facts at the time of the original assessment.
The duty of the
assessee in any case does not extend beyond making a true and full c1isclosufe of
primary facts. Once he has done that his duty ends. It is for the Income Tax
Officer to draw the correct inference from the primary facts. It is no resp0nsibility of the assessee to advise the Income Tax Officer with regard to the
inference which he should draw from the primary facts. If an Income Tax
Officer draws an inference which appears subsequently to be erroneous mere
D
change of opinion with regard to that inference would not justify initiation of
action for reopening assessment. [98 E-G, H. 99 A-BJ
Income Tax Officer v. Lakhmani Mewal Dass, 103 ITR 437 followed.
2. What facts are material and necessary for assessment will differ from
case to case.
Calcutta Discount Co. v. Income Tax Officer, 4D ITR 191, followed.
The Income Tax return has to be filled in form No. C under rule 19 of the
Inaome Tax Rules, 1922.
Part V of that form deals with depreciation. The
said part requires a number of columns to be filled in by the assessee. It has
not been suggested that any of the information furnished or any of t.he partiE
culars given in those columns by the appellant Company were factually incorF•
rect.
When Income Tax Officer relies upon his own records for determining
the amount of depreciation and makes a mistake in doing Bo, the responsibility
for the mistake cannot be ascribed ro an omission or failure on the part of the
assessee.
[99 D-100 B-D, E-FJ
Commission of Income Tax v. Bhanji Lavli, 79 ITR 582 followed.
(Taxes are the price that is paid for civilisation. It is e"8ential that those
who are entrusted with the task of calculating and· realising that price should
familiarise themselves with the relevant provisions and become well-versed with
the law on the subject. Any remissness on their part can only be at the cost
of the national exchequer and must necessarily result in loss of revenue. At the
same time, it has to be borne in mind that the policy of law is that there must
be a point of finality. in all legal proceedings).
CiviL APPELLATE JURISDICTION : Civil Appeal No, 1792 of 1971.
Appeal from the Judgm~nt and .Ord~r .dated ~he :31st March, 1970
of the Gujarat High Court m Special C1v1! Apphcation No. 545/66.
R. H. Dhebar, S. K. Dholakia and A. C. Bhatia for the appellant.
R. M. Mehta and Girish Chandra, for Respondent.
G
H
A
B
c
D
E
F
G
H
94
SUPREME COURT REPORTS
[1977] 2 S.C.R.
The Ju:dgment of the Court was delivered by
KHANNA, J. This appeal on certificate is against the judgment of
Guja~at High. Court dismissing petition under ai;ticle 226. of ~e Coiistitutlon of lndia filed by the appellant for a wnt of cert1oran or other
appropriate writ to quash two notices issued by the respondent to
the appellant under section 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act of 1961).
Tlie matter relates to the assessment years 1957-58 and 1959-60.
The appellant is a public limited company which carries on the buStness
?f manufacture of ~ottery and sa~tary wares at Morvi. and other places
m the State of Guiarat. In respect of the assessm'ettt year 1957-58,
the corresponding accounting year £or which ended on July 31, 1966,
the appellant filed its return under the Indian In:co111e-tax: Act, 1922
(herefnafter referred to as the Act of 1922).
The ptedecessor-inirtterest of the respond'ellt by assessment order. dated Aprp. 16, 1959
assessed the total income of the appellant at Rs. 4,60,372.
In computing the said income the Income-tax: Offi'cer allowed depreciafrons
amounting to Rs. 5,05,487.
For the assessment year 1959-W the
appellant like wise filed return.
Assessn1ent order in respect of trrat
year was made on March 30, 1961 and the income of the appellant
was assessed
at Rs. 11,04,650
after
allowing
depreciation
of
Rs. 3,57,926.
On October 5, 1965 a letter was addressed on behalf of the respondent to the appellant stating that there lh\d been a mistake in tlie
calculation of the depreciation allowance in respect of certain items
of the capital assets of the appellant for the: period covered by the
assessment years 1955-56 to 1962-63. As a result of the mistake, it was
stated, a sum of Rs. 2,39,723 had been allowed as depreciation allowance in excess of the pennissiD!e limit.
Enclosed with the ieher
was a chart showing excess depreciation allegedly allowed during the
above mentioned period.
The excess amounts of depreciation (or
the years 1957-58 and 1959-60 were IhentiOned in the chart to Be
Rs. 37,869 and Rs. 26,945 respectively.
The appellant company
was asked if it had any objection to the rectification
of
the
mistake,
the above letter was followed by another letter wherein
the respondent
wrote
to
the appellant
that "the
mistake
in depriciation arose because the initial depriciatioh was ncit
taken into account in fill'dll:ig out whether the total depreciation
allowed exce_eded the original cost".
On February 2, 1966 the Income-tax Officer ad'dress·ed another letter to the appellant stating
that fdr the assessment years 1957-58 and 1959-60 the incoine of the
appellatit had escaped assessment for failure of the appellant tO 'disclos<? all ri1~ti;:rial facts Within th('( rrieaing of section 14 7 (a) of tll:e Act
of 1961. The appellant in reply stated that depreciation calculaticin
sheets had been worked by the income-tax authoiities and tlhere was
no failure on the part of the appellant to disclose alt facts.
Tll.e impugned notices were thereafter issued on March 4, 1966 by the Incometax Offie·er to the appellant stating that he had reason to believe that
income of the appell;mt chargeable to tax for the assessment years in
question liad escaped assessment witfilrt tfte meaning of section 147
of the Act of 1961.
The Income-tax Officer accordingly stated that
he proposed to recompute and reassess the income/loss/depreciation
\
•
I
'
(
f
•
11
PARASHURAM POTTERY v. 1. T. OFFICER (Khanna, J.)
9 s
allowance for the aforesaid years.
The appellant was called upoh
A:
to furnish returns in the prescribed form within 30 days from the
date of the service o.f the notices. It was aliSo mentioned that the
notices were being issued after obtaining the necessary satisfaction
of the Commissioner of Income-tax.
The appellant thereafter filed writ petition in t_he High Court on
-n
April 29, 1966.
According to the case of the appellant, there was
u.
no omission or failure on its part to disclme ful1y and truly all
material facts necessary for the assesment.
All material facts, it was
stated, regarding the acquisition of variol!S capital, assets rrom time to
time were on the record of the department... The fact tliat initial
depreciation on tlJ.e new ruisets had been allowed was also on the
record of the department. If there was any oversight on the part of
the Income-tax Officer, the appellant, it was claimed, could not be
C
held responsible for that.
The petition was resisted by the respondent anti the affidavit of
Shri N. M. Baxi, Iticome-tax Officet was filed hi opposition to the
petition.
Accordilig to th.at affidavit, the appellant did not disclose
in the return that initial depreciation in respect of certain items of capital assets had been allowed in the past and fhat the Sfime should be
taken into account while calculating the depriciation allowable for the
assessment years in question.
The High Court found that the first requirement of section i47 (a)
of the Act of 1961 was satisfied inasmuch as the Income-tax Officer
had reason to believe that the income of the appellant for the two
assessment years in question had escaped assessment.
The mistake
arose because of the fact that the initial depreciation allowance which
liad been allowed to the appellant in respect of some of the items of
the capital assets was not taken into account while computing the depreciation allowance during the relevant years.
As a result of that,
it was found that the depreci.ation allowance during the various. years,
inculding the initial deprteciation, exceeded the original cost of those
items of the capital assets to the appellant.
Dealing with the question
as to whether there was omission or failure on the part of the appellant
to disclose tru1y arid fully all matefia' facts, it was observed that the
appellant was bound to disclose the fact that initial depreciation had
been allowed in respect of the items of capital assets in question during the previous years.
The . appellant a& such was held fo have
failed to disclose all material fads. the plea of the appel1ant that
all the material facts were already on the record of the department,
in the opinion of the High Court, did not make material difference.
In result, the p'etition was d'isffiissed.
Before dealing with the contentions advanced in appeal, it may
be apposite to refer to the relevant provision~. According to section
10 of the Act of 1922, the tax shall be payable by an assessee under
the head "Profits and gains of business' profession or vocation" in
respect of the profit or gains o:f any business, profession or vocation
carried on by him.
Such profits or gains shall be computed after
making a number of allowances.
Those allowances indude
those
E
F
G
H
96
SUPREME COURT REPORTS
[ 1977] 2 S.C.R.
A
allowed in respect of depreciation, as mentioned in clauses (vi) and
(vi-a) of sub-section (2), the material part of which at the reLvant
time read as under :
B
c
D
(vi) in respect of depreciation of such buildings, machinery plant or furniture being the property of the assessee, a
sum equivalent . . . . . . to such percentage on the written
down value thereof as may in any case or class of cases be
prescribed, and where the buildings have been newly erected
or the machinery or plant being new, not being machinery
or plant entitled to the development rebate under clause
(vi-b), has been installed, after the 31st day of March, 1945,
and before the 1st day of April, 1956, a further sum (which
shall however not be deductible in determining the writh:n
down value for the purposes of this clause) in respect of the
year of erection or installation equivalent,-
(a) in the case of buildings the erection of which is begun and completed between the 1st day of April
1946 and the 31st day of March 1956 (both dates
inclusive) , to fifteen per cent, of the cost thereof to
the assessee;
(b) in the case of other buildings, to ten per cent1 of the
cost thereof to the assessee;
( c) in the case of machinery or plant, to twenty per cent,
of the cost thereof to the assessee;
E
Provided thatF
G
H
( a)
(b)
( c) the aggregate of all allowances in respect of depreciation made under this clause and clause (vi-a) or under
any Act repealed hereby, or under the Indian Income-tax
Act, 1886 (II of 1886), shall, in no case, exceed the original
cost to the assessee of the buildings, machinery, plant or
furniture, as the case may be; (vi-a) in respect of depreciation of buildings newly erected, or of machinery or plant
being new which has been installed, after the 31st day of
March, 1948, a further sum (which shall be deductible in
determining the written down value) equal to the amount
admissible under clause (vi) (exclusive of the extra allowance for double or multiple shift working of the machinery
or plant and the initial depreciation allowance admissible
under that clause for the first year of erection of the building
or the installation of the machinery or plant) in not more
than five successive assessments for the financial years next
following the previous year in
which such
buildings are
erected and such machinery and plant installed and falling
within the period commencing on the 1st day of April, 1949,
and ending on the 31st day of March, 1959,"
•
'
I
(
.PARASHURAM POTTERY v. I. T. OFFICER (Khanna, J.)
97
It is apparent from the above provisions that. d~preciation. of three
distinct kinds could be allowed in respect of bmldings, machinery and
plant.
The first category was of ordinary depreciation equivalent. to
such percentage on the written down valu~ ~hereof as .may be prescribed. The second category was of depreciation of bmldmgs, newly
erected, or new machinery or plant [not being machin.ery or plant
entitled to development rebate under clause (vi-b)] which has been
installed after the 31st day of March 1945 and before tlhe 1st day <?f
April 1956 equivalent to such percentage if the cost
thereof as IS
prescribed.
Such initial depreciation was granted in the first , year
of the construction of the building or installation of the plant
or
machinery.
This category of depreciation was not deduction in determining the written down value for the purpose of clause (vi).
The
third category of depreciation was additional depreciation which was
claimable for a period of five years in respect of buildings,
newly
erected, or new machinery or plant installed after the 31st day
of
March 1948 in terms of clause (via).
The depreciation permissible
under this category was deduction in determining the written down
value.
Clause (c) of the proviso to clause (vi) of sub-section (2)
of
section 10, however, makes it clear that the aggregate of all three categories of depreciation allowance was in no case to exceed the original
cost to the assessee of the building, machinery or plant, as the case
may be.
The case of the respondent is that the amount of depredation allowed to the appellant in respect of certain items of capital assets for the
two assessment years in question was so much that the aggregate of
all allowances in respect of depreciation made under clauses (vi) and
(vi-a) of sub-section (2) of section 10 of the Act of 1922 exceeded
the original cost to the appellant of those items of the capital assets.
~here was t~us a violatio~ of the provisions of clause ( c) of the proviso to sect10n 10 (2) (v1) of the Act.
The above mistake, it
is
stated,
occurre<;I
because
the
initial
depreciation
which
had
been
allowed
m
respe.ct
of those
items
of
the capital
ass~ts
was
not take!l mt? account in computing the depreciat~on regardm~ those items m the two assessment years in question.
! he present ~s, therefore, a case, according to the respondent,
of
mcc;me e~cap1~g as~Gss~1ent_ under section 147 of the Act of I 961.
Reliance m. this connectmn 1s placed upon clause ( d) of Explanatbn
(1) to sect101! 147 of the _Act of 1961, according to which it would
be a case of mcome escapmg assessment where excessive depreciation
allowance is computed.
The material part of section
I 4 7 of the Act of 1961 reads as
under:
147. Income escaping assessment.- If -
(a) the Income-tax Officer has reason to believe that, by
reason of the omission or failure on the part of an
assessee to make a return under section 139 for any
8-J458SCI/76
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
98 .
SUPREME COURT REPORTS
[1977] 2 S.C.R.
asseS1Sment year to the lncome-ta'i: Officer or to disclose fully and truly aH material facts necessary for
his assessment for that year, income chargeable to
tax has escaped assessment for that year, or
(b) Notwithstanding that there has been no omission or
failure as mentioned in clause (a) on the part of the
assessee, the Income-tax Officer has in consequ1;ncc
of information in his possession reason to believe
that income chargeable to tax has escaped assessment
for any assessment year,
he may, subject to the provisions of sections 148 to 153, assess or
reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in section 148 to 153 referred to as the relevant assessment
year)."
According to section 148 of the Act of 1961, before making the
assessment, reassessment or recomputation under section 147,
ths
lilcome-tax Officer shall serve on the assessee a notice containing all
or any of the requirements which may be included in a notice under
sub-section (2) of section 139; and the provisions of the Act shall,
so for as. may be, apply accordingly as if the notice were a notice
issued under that sub-section.
The Income-tax Officer has also, before issuing such notice, to record his reasons for doing so.
Section
149 prescribes the time limit for the notice.
Thei time limit in a case
not falling under clause (ii) of sub-section (1) of section 149, with
which we are not concerned, shall be eight years from the end of ~he
relevant assessment year.
In case falling under clause (b) of section
147, however, the time limit for the notice is four years from the end
of the relevant assessment year.
Clause (a) of section 147 of the
Act of 1961 corresponds to clause (a) of sub-section (1) of section
34 of the Act of 1922.
The language of clause (a) of section 147
read with sections 148 and 149 of the Act of 1961 as also the corresponding provisions of the Act of 1922 makes it plain that two conditions have to be satisfied before an Income-tax Officer acquires
jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight
years from the end of the relevant year, viz., (i)
the Income-tax
Officer must have reason to believe that income chargeable to tax has
escaped assessment, and (ii) he must have reason to believe that such
income has escaped assessment by reason of the omission or failure
on the part of the assessee (a) to make a return under section 139
for tlhe asseS1Sment year to the Income-tax Officer, or (b) to disclose
fully and truly material facts necessary for his assessment for that
year. Both these conditions must co exist to confer jurisdiction on the
Income-tax Officer. It is also imperative for the Income-tax Officer
to record his reasons before initiating proceedings as required by
section 148(2). Another requirement is that before notice is issued
after the expiry of four years from the end of the relevant assessment
years, the Commissioner should be satisfied on the .reasonJS recorded. by
the Income-tax Officer that it is a fit case for the issue of such notice.
The duty which is .cast upon the assei:see is to ma~e. a tr~e and full
disclosure of the pnmary facts at the time of the ongmal assessment.
PARASHURAM POTTERY v. I. T. OFFICER (Khanna,!.)
99
Production be.fore the Income-tax Officer of the account books or
other evidence from which material evidence could with due diligence
have been discovered by the Income-tax Officer will not necessarily
amount to disclosure contemplated by law.
The duty of the assessee
in any case does not extend beyond making a true and full disclosure of
.primary facts.
Once he has done that his duty ends. It is for the
Income-tax Officer to draw the correct -inference from the primary
facts.
It is no responsibility of the assessee to advise the Income-tax
Officer with regard to the inference· which he should draw !from the
primary facts.
If an Income-tax Officer draws an inference which
appears subsequently to be erroneous, mere change of opion with
regard to that inference wmrld not justify initiation of action for reopening assessment [see Income-tax Officer v.
Lakhmani
Mewal
Das(1)].
The words "omission or failure to disclose fully and
truly all
material facts necessary for his assessment for that year" postulate a
duty on the assessee to disclose fully and truly all material facts necessary for his assessment.
What facts are material and necessary for
assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the
facts which help him coming to the correct conclusion.
From the
primary facts in 'his possession, whether en dhc'.'.::ure by the assessee,
or discovered by him on the ba~is of the facts disclosed, or otherwise,
the assessing authority has to draw inference as regards certain other
facts; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences,
and ascertain on a correct interpretation of the taxing enactment, the
proper
tax
leviable [see
Calcutta
Discount Co. v.
Income-tax
Officer(2)] as further observed in that case :
"Does the duty, however, extend beyond the full and
truthful disclosure of all primary facts'?
In our opinion,
the answer to this question must be in the negative.
Once
all the primary facts are before the assessing authority, he
requires no further assistance by way of disclosure. It is
for him to decide what inferences of facts can be reasonably
drawn and what legal inferences have
ultimately to
be
drawn. It is not for somebody else--far less the assessee
-to tell the assessing authority what inferences, whether of
facts or law, should be drawn.
Indeed, when it is remembered that people differ as regards what inferences should
be drawn from given facts, it will be meaningless to demand
that the assessee must disclose what inferences-whether of
facts or law-he would draw from the primary facts."
A
B
D
E
F
G
Keeping in "!-ew the principles enunciated above, we may deal
with the contention advanced on behalf of the appellant . that the
present is not a case in which action could be taken under section
147(a) of the Act of 1961. This contention has been controverted
H
(1) 103 I.T.R. 437.
(2) 41 T.T.R. 191.
100
SUPREME COURT REPORTS
[1977] 2 S.C.R.
A
by the learned counsel for 'the respondent, who has canvassed for the
correctness of the view taken by the High Court in
the judgment
under appeal.
B
It would appear from what has been discussed above that one of
the essential requisites for proceeding under clause (a) of sectiun 147
of the Act of 1%1 is that the income chargeable to tax should escape
assessment because of the omission or failure on the part of the
assessee to disclose fully and truly all material facts necessary for his
assessment. The present is not a case where the assessee hau omitted
or failed to file the return.
Question then arises as to what has been
omission or failure on the part of the assessee to rnake a full and true
disclosure. There is nothing before us to show that in the return filed
by the assessee·appellant, the particulars given
were
not correct.
c
Form C under rule 19 of the Indian Income-tax Rules, 1922 at the
relevant time gives the form of return which had to be filed by the
companies.
Part V of that form deals with depreciation.
The said
part requires a number of columns to be filled in by the assessee. It
has not been suggested that any of the information furnished or any
of the particulars given in those columns by the appellant company
were factually incorrect. Nor is it the case of the revenue that tl1e
D
E
F
G
H
appellant failed to furnish the particulars required to be inserted in
those columns. Indeed, the copy of the return has not been filed and
consequently no argument on that score could be or has been addressed before us.
Part V of the form no doubt requires the assessee tQ
state tl1e written down value in column No. (2). Such written down
value had to be specified witl1out taking mto account the initial depreciation because such depreciation in terms of clause (vi) of section
10(2) of the Act of 1922 could not be deducted in determining the
written down value for the purpose of that clause. The case of the
appellant is that in determining tl1e amount of depreciation at the time
of the original assessment for the two assessment years in question,
the Income tax Officer rnlied upon the written down value of the
various capital assets as obtaining in the records of the department.
This stand has not been controverted.
When an income-tax officer
relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how
responsibility for that mistake can be ascribed to an
omission
or
failure on the part of the assessee. It also cannot be disputed that
initial depreciation in respect of items of capital assets in the shape of
new machinery, plant and building installed or erected after the 31st
day of March 1945 and before the 1st day of April 1956 is normally
claimed and allowed. It seems iliat tl1e Income-tax Officer in working
the figures of depreciation for certain items of capital assets lost sight
of the fact that the aggregate of the depreciation, including the initial
depreciation, allowed under different heads could
not exceed
tlle
original cost to the assessee of those items of capital
~sets. The
appellant cannot be held liable because of this remissness on the part
of the Income-tax officer in not applying tl1e law contained in clause
(c) of tl1e proviso to section 10(2) (vi) of tlle Act of 1922.
As
observed by Shah J. in Commissioner of Income-tax v. Bhanii Lavji,(1 )
section 34(1)(a) of tl1e Act of 1922 (corresponding to section 147(a)
(I) 79 LT.R. 582. S.C.
'Y
PARASHURAM POTTERY v. I. T. OFFICER (Khanna, J.)
101
of the Act of 1961) does not cast a duty upon the assessee to instruct
A
the Income-tax Officer on questions of law.
It may also be mentioned that so far as the assessment for
the
assessment year 1957-58 is concerned, the assessment order -was once
rectified and at another time revised.
Despite such rectification and
revision, the above mistake in the calculation of the depreciation remained undetected. It was only in October 1965 that the fncome-tax
Officer realised that higher amount of depreciation had been allowed
to the appellant than was actually due.
A letter to that effect . was
consequently sent to the assessee on October 5, 1965. It was, ho'."'-
ever, nowhere mentioned in that letter that the higher amount of depreciation had been allowed and the income as such had escaped
a~~essment because of the omission or failure on the part of the assessee to disclose trnly and fully all material facts.
Reference to such
omission or failure came only in a subsequent communication.
The
submission made on behalf of the appellant is not without force that
reference was made to assessee's omission or failure to disclose truly
and fully all material· facts because it was realised that after the expiry
of four years from the end of the relevant assessment year, no action
for reopening of assessment could be taken OP. the basis of detection
of mistake alone unless there was also an allegation that the income
had escaped assessment because of the omission or failure
of
the
appellant to disclose fully and truly material facts.
Looking to all
the facts, we are of the opinion that it cannot be said that the excess
depreciation was allowed to the appellant company and its income as
such escaped assessment because of its omission or failure to disclose
fully and truly all material facts.
It has been said that the taxes are the price that we pay for civilization.
If so, it is essential that those who are entrusted with the
task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the
law on the subject. Any remissness on their part can only be at the
cost of the national exchequer and must necessarily result in loss of
revenue.
At the same time, we have to bear in mind that the policy
of law is that there must be a point of finality in all legal proceedings,
that state issues should not be reactivated beyond a particular stage
and that fapse of time must induce repose in and set at rest judicial
and quasi-judicial controversies as it must in other spheres of ·human
activity.
So far as income-tax assessment orders are concerned, they
cannot be reopened on the scope of income escaping assessment under
section 147 of the Act of 1961 after the expiry of four years from
the end of the assessment year unless there be omission or failure on
the part of the assessee to disclose fully and truly all material facts
necessary for the assessment.
As already mentioned, this cannot be
_said in the presel"!t case.
The appeal is consequently allowed; the
iudgment of the High Court 1s set aside and the impugned notices are
Quashed. The parties in the circumstances shall bear their own costs
throughout.
P.H.P.
Appeal allowed.
B
c
D
E
])'
G
H