# SALES TAX OFFICER, GANJAM & ANR v. M/S. UTTARESWARI RICE MILLS

- **Citation:** [1973] 2 S.C.R. 310
- **Court:** Supreme Court of India
- **Decided:** 1972-09-18
- **Bench:** Jaganmohan Reddy, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sales-tax-officer-ganjam-anr-v-m-s-uttareswari-rice-mills-5851
- **Pages:** 13

## Headnote

Orissa Sales Tax Act, 1947, s. 12(8)-Notice for assessment of
escaped 111rnover-lf should indicate reasons for reopening
c.sselismtnl,
A
B
On receipt of certain information, and, as a result of information
disclosed in documents seized from the respondePt, the appellant issued
a notice under s. 12 (8) of the Ot'issa Sales Tax Act, 1947, ~ the Form
C
prescribed under r. 23 made under the Act, for re-assessing the turnover
of the respondent. The High Court, quashed the notice on the ground
that the appellant had not indic~ted any rea·son for issu'1>g the notice.
Allowing the appeal to this Court,
HELD: (I) Although the opening words used in the section are
"if for any reason" and :not "if the sales tax authority has reason to
believe" the difference
~1> phraseology does not make any
difference.
A reason cannot exist in vacuum, and in the context, it should be the
sales-tax authority issuing the notice who should have reason to believe
that the turnover of a dealer has escaped assessment or has been under
assessed. The words used in the prescribed Form also are "whereas I have
reason to believe' that your turnover has escaped assessment .... ,"'
Any
view which would make the opening words of the section
unworkable
should be avoided. [317 C·E)
(2)
The ingredients of s. 12 (8) of the Orissa Sales·tax Act. 1947,
are: (i). there must exist reason for the belief that, (a) the turnover of
a dealer for any period to which the Act applies has escaped assessment or
has been under-assessed; or, (b) the tax has been
compounded when
composition is not permissible under the Act and the rules made there·
under; (ii) in cases mentioned in cl. (i) the sales-tax authority may at
any time within 36 months from the expiry of the year to which the above
mentioned period relates call for a return under s. 11 ( 1) of the Act;
(iii) after taking the steps mentioned in els. (i) and (ii) 1>bove. the sales
tax authority may proceed to ass~ss the amou:rtt of the tax due from the
dealer in the manner laid down in s. 12 (5) of the Act; (iv) the sales tax
authority may also direct in cases where escapement or under-assessment
or composition is due to the dealer having concealed particulars of his turnD
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over or having without sufficient cause
furnished
incorrect particulars
thereof that the dealer shall pay penalty in addition to the ta'x assessed:
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and ( v) such penalty shall not exceed one and a half times the amount .
of the tax so assessed. [316 F-H; 317 A-Cl
The proceedings for assessment or re-assessment under the sl!ction start
with the issue of a notice and it is only after the service of the notice that
the assessee whose turnover is sought to be assessed or re-assessed hecomes
a party to the proceedings.
Therefore, it is not ncccssarv to intimal~ to
the assessee the nature of the alleged escapement in the notice issued to him
H
under the section. To held that the reasons which led to the issue of the
said notice should be incorporated in the notice and that the failure to <.!<>
so invalidated the notice would be tantamount to reading something into the
statute which. in fact. is not there. However, if the sales-tax officer is in
..
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S.T.0. V. UTTARESWARI RICE MILLS (Khanna, J.)·
311
possessio.• of material which he proposes to me against the dealer in proceedings for re-assessment the said officer must, before using that material,
bring it to the notice of the dealer and give him an adequate opportunity to
explain and answer the case on the basis of that material. [319 B; 320 C;
321 F-HJ
B. Patnaik Mines (P) Ltd. v. N. K. Molwnty Sales Tax Officer, 1.L.R.
B
[1967] Cuttack 446, overruled.
c
D
Conunissioner of lnconie Tax, Bengal v. Messrs Malialiram Ramjidas
[1940] 8,1.T.R. 442, (P.C.) applied.
K. S. Rashid and Son v. Income Tax Officer, [1964] 52 l.T.R. 355
(S.C.) an<l S. Na110.ivc.nappa and Ors. v. Conunissioner of Inco1ne
Tax.
Bangalore. [1967] 63 J.T.R. 219, (S.C.) followed.
( 3) The fac,t that it is mentioned in the notice that penalty may

## Text

310
SALES TAX OFFICER, GANJAM & ANR.
v.
M/S. UTTARESWARI RICE MILLS
September 18, 1972
(With Connected Appeal)
[P, JAGANMOHAN REDDY AND H. R. KHANNA, JJ.]
Orissa Sales Tax Act, 1947, s. 12(8)-Notice for assessment of
escaped 111rnover-lf should indicate reasons for reopening
c.sselismtnl,
A
B
On receipt of certain information, and, as a result of information
disclosed in documents seized from the respondePt, the appellant issued
a notice under s. 12 (8) of the Ot'issa Sales Tax Act, 1947, ~ the Form
C
prescribed under r. 23 made under the Act, for re-assessing the turnover
of the respondent. The High Court, quashed the notice on the ground
that the appellant had not indic~ted any rea·son for issu'1>g the notice.
Allowing the appeal to this Court,
HELD: (I) Although the opening words used in the section are
"if for any reason" and :not "if the sales tax authority has reason to
believe" the difference
~1> phraseology does not make any
difference.
A reason cannot exist in vacuum, and in the context, it should be the
sales-tax authority issuing the notice who should have reason to believe
that the turnover of a dealer has escaped assessment or has been under
assessed. The words used in the prescribed Form also are "whereas I have
reason to believe' that your turnover has escaped assessment .... ,"'
Any
view which would make the opening words of the section
unworkable
should be avoided. [317 C·E)
(2)
The ingredients of s. 12 (8) of the Orissa Sales·tax Act. 1947,
are: (i). there must exist reason for the belief that, (a) the turnover of
a dealer for any period to which the Act applies has escaped assessment or
has been under-assessed; or, (b) the tax has been
compounded when
composition is not permissible under the Act and the rules made there·
under; (ii) in cases mentioned in cl. (i) the sales-tax authority may at
any time within 36 months from the expiry of the year to which the above
mentioned period relates call for a return under s. 11 ( 1) of the Act;
(iii) after taking the steps mentioned in els. (i) and (ii) 1>bove. the sales
tax authority may proceed to ass~ss the amou:rtt of the tax due from the
dealer in the manner laid down in s. 12 (5) of the Act; (iv) the sales tax
authority may also direct in cases where escapement or under-assessment
or composition is due to the dealer having concealed particulars of his turnD
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over or having without sufficient cause
furnished
incorrect particulars
thereof that the dealer shall pay penalty in addition to the ta'x assessed:
G
and ( v) such penalty shall not exceed one and a half times the amount .
of the tax so assessed. [316 F-H; 317 A-Cl
The proceedings for assessment or re-assessment under the sl!ction start
with the issue of a notice and it is only after the service of the notice that
the assessee whose turnover is sought to be assessed or re-assessed hecomes
a party to the proceedings.
Therefore, it is not ncccssarv to intimal~ to
the assessee the nature of the alleged escapement in the notice issued to him
H
under the section. To held that the reasons which led to the issue of the
said notice should be incorporated in the notice and that the failure to <.!<>
so invalidated the notice would be tantamount to reading something into the
statute which. in fact. is not there. However, if the sales-tax officer is in
..
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S.T.0. V. UTTARESWARI RICE MILLS (Khanna, J.)·
311
possessio.• of material which he proposes to me against the dealer in proceedings for re-assessment the said officer must, before using that material,
bring it to the notice of the dealer and give him an adequate opportunity to
explain and answer the case on the basis of that material. [319 B; 320 C;
321 F-HJ
B. Patnaik Mines (P) Ltd. v. N. K. Molwnty Sales Tax Officer, 1.L.R.
B
[1967] Cuttack 446, overruled.
c
D
Conunissioner of lnconie Tax, Bengal v. Messrs Malialiram Ramjidas
[1940] 8,1.T.R. 442, (P.C.) applied.
K. S. Rashid and Son v. Income Tax Officer, [1964] 52 l.T.R. 355
(S.C.) an<l S. Na110.ivc.nappa and Ors. v. Conunissioner of Inco1ne
Tax.
Bangalore. [1967] 63 J.T.R. 219, (S.C.) followed.
( 3) The fac,t that it is mentioned in the notice that penalty may also
be imposed would \not make any difference to the validity of the notice.
The question of imp-0sition of penalty will only arise at the time of making
an order for re-assessment. At that stage, the sales-tax officer would go
into the question \vhethcr the escapement or under-assessment has been
due to the fact that the dealer concealed particulars o( his turnover or without s·ufficient cause furnished incorrect particulars. In such an event he
would. have to give an opportunity to the dealer to show cause why penalty,
in a<ldition to the tax should not he imposed. [320 A: 321 A-C]
( 4) The existence of the reason that the turnover of the dealer had
escaped asscs~mcnt or has been under-assessed is ·a sine qua non for the
issue o[ the notice.
In the present case, the appellant had brought n1atcrial on record to i-(1dicati: that there did exist such reasons. [322 Bl
E
CIVIL APPELLATE JuR1so1cnoN : Civil Appeals Nos. 1190
and 1191 of 1969.
Appeal by special leave from the judgment and order dated
June 24, 1968 of the Orissa High Court at Cuttack in 0.J.C. Nos .
. 464 and 463 of 1967.
F
T. A. Ramchandra11, S. P. Nayar, B. D. Sharma and R. N.
G
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Sachthey, for the appellants (in both the appeals).
c
Gobi11d Das and B. Partlwmrathi, for the respondents (in both
the appeals).
The Judgment of the Court was delivered by
. KHANNA; J. Whether notice issued under section 12(8) of the
01:1ssa Sales Tax Act, 1947
(Act 14 of 1947)
(hereinafter
re1erred to as the Act) should be quashed on the ground that
it does not mention 11he reasons for the issue of the notice is
the main question which arises for determination in these two
aprcals: Nos. 1190 and 119 l of 1969, which have been filed
by special leave against the common judgment of the Orissa Hicrh
Court allowing writ petitions filed ·by - the respondents agai~st
the appellants.
312
SUPREME COURT REPORTS
[1973] 2 S.C.R.
F.or sake of convenience we may give the facts giving rise
to appeal No. 1190 of 1969 as it is the common case of the
parties that the decision in that appeal would govern the other
appeal also.
The respondent in appeal No. 1190 is a dealer
registered under the Act.
The matter relates to the assessment
for 1963-64. The date of the order of assessment is not on
file but it is stated that. it was made somteime in the later part
of 1964.
On March 30, 1967 the Sales Tax Officer, Intelligence Wing, Vigilance, Berhampur made a search of the business premises of the respondent and seized several account books.
On the following day further search was made and some additional account books were taken into possession. Later on that
day, viz, March 3L 1967 the Sales Tax Officer issued the following notice under section 12 ( 8) of the Act tc, the respondent
To
"Notice to a dealer under section 12(8) of the
Orissa Sales Tax Act
[See rules 22, 23 and 28 ( 2)]
M/s Utteswar Rice Mills (Dealer)
At/P.O. Berhampur, GAI 2127-A (Address)
"Whereas I have reason to believe that your turnover for the quarter ending 1963-64· on which Sales
Tax was payable under the Orissa Sales Tax Act, 194 7
has escaped assessment/has been under assessed.
You are hereby required to submit within one
calendar month from the date of receipt of this notice
a return in Form IV (enclosed) showing the particulars of your turnover for the year ending 1963-64.
"You are also hereby required to attend in person
or by agent at my office at Berhampur on 11-5-67 at
11 A.M. and thereto produce or cause to
be
produced the accounts and documents specified on the reverse and also to show cause why in addition to the
amount of tax that may be assessed on you a penalty
not exceeding one and a half time that amount should
not be imposed on you under sub-section ( 5) of section
12 of the Act.
In the event of your failure to comply with all the
terms of this notice I shall Proceed to assess you under
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S.T.O, v. UTTARESWARI RICE MILLS (Khanna, J.)
313
\
section 12 of the Act to 'the best of my judgment without further reference to you.
Place-Berhampur
Date-31-3-67.
Sd/- Illegible
Signature
Sales Tax Officer
Intelligence Win.~. Vigilance
Berhampur"
The notice was received by an employee of the
respondelrt.
Appearance was thereafter put in on behalf of the respondent
befort: the Sales Tax Officer and a copy of the old return which
had been earlier filed in accordance with section 11 of the Act
was again filed before the Sales Tax
Officer.
According
to
the respondent, appearance was put in on its behalf on several
occasions with a view to know the reason for the issue of the
above notice, but the respondent was not informed of that reason.
It is further stated that the Sales Tax Officer recorded
the
statements of a number of witnesses behind the back of
the
respondent with the intention of making
reassessment under
section 12 of the Act.
Request was made on behalf of
the
respondent to •the Sales Tax Officer for being
furnished
with
copies of those statements so that the respondent might be in
a position lo know the reason for the issue of the notice. Copies
of those statements were, however, not supplied and the application filed by the respondent for
obtaining copies
of
the
statements was rejected by the Sales Tax Officer.
It was mentioned by the Sales Tax Officer that the question of grant of
copies of the statements would be considered if the statements ·
were used against the respondent.
The respondent filed
a
revision petition against •the order rejecting
that
application,
but the revision petition too was
dismissed.
The respondent
thereatter filed petition under articles 226 and 227 of the Constitution in the High Court on December 26, 1967.
The High Court accepted the writ petition on the
ground
that the Sales Tax Officer had not indicated any reason
for
issuing notice under section I 2 ( 8) of the Act.
This fact, in
the opinion of the High Court, was sufficient to warrant quashing
of the notice.
The High Court in •this context relied upon its
earlier decision in the case of B. Patnaik Mines (P) Ltd. v.
N. K. Mohanty Sales Tax Officer(!). It was held in the earlier
case that the Sales Tax Officer had no jurisdiction under section
12(8) of the Act to issue notice for making a fishing equiry
(I) I.L.R. [1967] Cuttack 446.
314
SUPREME COURT REPORTS
[1913] 2 S,C.R.
without indicating therein . the reason for 1the
alleged
underA
assessment.
In appeal before us Mr. Ramachandran on ·behalf of the
appellants has referred to the provisions of section l 2 ( 8) of the
Act and has argued that it is not essential to give the reasons in
the ·notice issued under the above provision of Jaw. The impugned n(1ticc. m;cording to the learned counsel,' cannot be quashed
B
for non-mention of the reasons.
The above stand has been controverted by Mr. Gobind Das on behalf of the respondent and,
according to him, the failure of the Sales Tax Officer to mention
the reasons which led to the issue of the impugned notice would
vitiate lhc: notice.
There is, in our opinion, considerable force in the stand ta.ken
C
in thi.; respect by the learned counsel for the appellants.
Section
12 of the Act deals with assessment of tax.
Sub-sections
(5)
and ( 8) of the above section read as under :
·
.. ( 5) If upon information which has come into his
p<issession, the Commissioner is satisfied that any dealer
has been 'iable to pay tax under this Act ·in respect of
any period and has nevertheless without sufficient causes
failed to apply for registration, the Commissioner shall,
after giving the dealer a reasonable opportunity of being
heard. assess, to the best of his judgment, the amount
of tax. if any. due from th~ dealer in respect of such
period and all subsequent periods and the Commissioner
may direct that the dealer shall pay, by way of penalty,
in addition to the amount so assessed, a sum not exceeding one and a half times that amount :
Provided that no penalty shall be levied
for
the
quarter during which the dealer first or again becomes
liable to pay tax under this Act.
( 8) If for any reason the turnover of a dealer for any
period to which this Act applies has escaped assessment
or has been under-assessed or where the tax has been
compounded when composition is not pern1issible under
this Act and the rules made thereunder, the Commissioner
may at any time within thirtysix months from the expiry
of the year to which that period relates call for a return
under sub-section (I) ot section 11 and may proceed
to assess the amount of tax due from the dealer in the
manner laid down in sub-section (5) of this section and
n\ay also direct, in cases where escapement or underassessment or composition is due to the dealer having
concealed particulars of his turnover or having without
sufficient cause furnished incorrect particulars thereof,
that the dealer shall pay, by way of penalty, in addition
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S.T.O. v. UTTARESWARI RICE MILLS (Khanna, J.)
315
to the tax assessed under this sub-section, a sum not exceeding one and a half times of the said tax so assessd."
The Orissa Sales Tax Rules, 1947 (hereinafter referred to as the rules) have been framed by the S1ate
Government in exercise of the powers conferred by section 29 of the Act. According to sub-section (I) of that
section, the State Government may subject to the condi--
tion of previous publication make rules for carrying out
the purposes of the Act. Sub-section ( 2) of that section
mentions the subjects, without prejudice to the generality
of power given by sub-section ( l ) , regarding which rules
may prescribe. Section 29-A requires that all rules made
under section 29, and notifications issued under section
3-B, sub-section ( 1) of section 5 and section 6 shall, as
soon as possible after they are made or published, as the
case may be, be laid before the Assembly for a total
period of fourteen days which may be comprised in one
or more sessions. Rule 23 may be reproduced below :
"23. Calling for return when turnover has escaped
assessments or has been under-assessed-( 1) If for
any reason the turnover of sales or the
turnover of
purchases of a dealer has escaped assessment or has
been under-assessed or has not been assessed due to the
tax having been compounded when composition is not
permissible under the Act and those rules and it is proposed to assess it the Commissioner shall sene on the
dealer a notice in Form VI within one calendar month
·from the date of receipt of such notice.
( 2) Such notice may also require the
dealer
to
attend in person or by his agent at the office
of
the
authority issuing the notice on the date specified therein
and to produce or cause to be produced the accounts
and documents specified in the_ notice."
The relevant part of Form VJ referred to in rule 23 is
in
the
following words :
FORM VI
To ....................
....................
(dealer)
(Address)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
3~1~9R Sup CI/73
316
SUP&EME q>U&T &EPORTS
[1973] 2 S.C.ll.
Whereas I have reason to believe that your turnover of sales and/or purchases for the quarter/year
ending ...... on which tax payable under the Orissa
Sales Tax Act has escaped assessment/has been underassessed/has not been assessed due to the tax having
been compounded when composition is not permissible.
You are hereby required to submit within one calendar month from the date of receipt of this notice a
return in Form IV (enclosed) showing the particula!'i
of your turnover for the quarter ending ..... .
You are also hereby required to attend in person or
by agent at my office at .... on .... at .... A.M./
P .M. and there to produce or cause to be produced the
accounts and documents specified on the reverse, ami
also show cause why in addition to the amount of tax
that may be assessed on you a penalty not exceeding
<ine and a half times that amount should not be imposed
on you under sub-section (5)/sub-section (8) of section 12 of the Act.
In the event of your failure to comply with all the
terms of this notice I shall proceed to assess you under
section 12 of the Act to the best of my judgment without further reference to you.
Place ....... .
Signature ........
Date ....... .
D .
.
"
es1gnation ....... .
Section 12 ( 8) of the Act reproduced above may be analysed as
under;
( i) There must exist reason for the belief that
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(a) the turnover of a dealer for any period to
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which the Act applies has escaped assessment or has been under-assessed; or
(b) the tax has been compounded when composition is not permissible under the Act and
the rules made thereunder.
(ii) In cases mentioned in clause (i) the sales
tal{
authority may at any time within
36 months
from the expiry of the year to which the above
mentioned period relates call for a return under
section 11 ( I ) of the Act.
(iii) After taking the steps mentioned in clauses (i)
and (ii) above, the sales tax authority may proceed to assess the amount of the tax due from
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·s.T.O. v. UTTARESWARI RICE MILI.S (Khanna, I.)
317
the <lealer in the manner laid down in section
12(5) of the Act.
(iv) The sales tax authority may also direct in cases
where escapement or under-assessment or composi!ion is due to the dealer having concealed
particulars of his turnover or having
without
sufficient cause furnished incorrect particulars
t~ereof that the dealer shall pay penalty in addition to the tax assessed.
( v) Such penalty shall not exceed one and a half
times the amount of the tax so assessed.
Although the opening words used in section 12(8) are "if for
any reason" and not "if the sales tax authority has reason to
believe'', the difference in phraseology, in our opinion, should not
make much material difference.
A reason
cannot exist in
vacuum.
Somebody must form the belief that reason exists and
looking to the context in which the words are used, we are of the
view that it should be the sales tax authority issuing the notice
who should have reason to believe tha~ the turnover of a dealer
has escaped assessment or has been under-assessed. The approach
in this matter has to be practical and not pedantic.
Any view
which would make the opening words of section 12(8) unworkable has to be avoided. It may be noted in this context that in
Form VI appended to the rules, which has been prepared in pursuance of rule 23, the words used are "whereas I have reason to
believe that your turnover ...... has escaped assessment .... ".
In the case of Commissioner of Income Tax, Bengal v. Messrs
Mahaliram Ramjidas(') the Judicial Committee dealt with the
provisions of section 34 of the Indian Income Tax Act, 1922 as
it then existed.
The section read as under :
"34. If for any reason income, profits or . gains
chargeable to income-tax has escaped assessment Ill any
year or has been assessed at too low a rate, the Incometax Officer may, at any time within one year of the end
of lbat ·year, serve on the person liable to pay tax on
such income, profits, or gains, or in the cas!l of a co~n
pany, on the principal of!icer thereof: a notict> r~mtam
ing all or any of the require:nents which ma~ be mcluded in a notice under sub-section (2) of section 22 and
may proceed to assess or re-assess such income, profits
or gains, and the provisions of this Act sh11l so far. as
may b~, apply accordingly as if the notice were a nottce
issued under that sub-section :
--II) (1940) 8 I.T.R. 442.
318
SUP!ll!ME COUil T REP QR TS
(1973) 2 S.C.R.
Provided that the tax shall be charged at the rate at
which it would have been charged had the income, pro•
tits or gains not escaped assessment or full assessment,.
as the case may be."
The opening words of section 34 of the Indian Income Tax Act,
as it then existed were similar to those of section 12(8.) of the
Act.
The Judicial Committee while dealing with .the language
of section 34 observed :
··section 34 is unhappily and even ungrammatically
phrased.
It is expressed impersonally, and it fails to·
state by whom and by what procedure it is to be established that income, profits or gains "have escaped assessment or have been assessed at too low a rate.
There
is fortunately no dispute that the person who must
make that decision is the Income-tax Officer, for, apart
from the assessee, no one else is in a position to say
whether income has been assessed or at what rate it has
been assessed. .The omission to
prescribe
expressly
what the nature of the decision should be and by what
procedure it must be reached is all the more wrp:rising
because in other sections of the Act the legislature has
been careful to define what is necessary in these respects.
This circumstance was founded
o_n
by
the
learned Counsel for the respondents. who pointed out
that where some fr.ct had to
be established merely
prima facie to the satisfaction of the Income-tax Officer
in the bona fide exercise of his discretion,
this was
expressed by such phraseology as "When it .appears to
be Income·tax Offictr."' or "if the Income-tax
Officer
has reason to believe".
On the other hand, wlren the
statute requires that the Income-tax Officer shall make a
decision, which is final so far as he is concerned, upon
a matter of fact. the usual expression is "if lre is satisfied"."
It was further observed :
"The section, although, it is part of a taxing A.ct,
imposes no charge on the subject, and deals merely
with the machinery of assessment.
In interpreting provisions of this kind the rule is that that construction
should be ;:ireferred which makes the machinery workable, ut res va/eat potius quam pereat."
In view of the criticism levelled against the wording of section
34 of the Indian Income Tax Act, the above section was amended
by Amendment Act of 1939. Despite the amendment made in
section 34 of the Indian Income Tax Act, the Orissa Legislature,
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:S.T.O. 11. UTTARESWAR! RICE MILLS (Khanna, J.)
319
it would apl\ear, has used phraseology in section 12(8) of the
Act similar to that of section 34 of the Indian Income Tax Act,
1922 as it existed before the said amendment.
The above decision of the Judicial Committee
is also
an
authority for the proposition that it is not necessary to intimate to
the assessee the nature of the alleged escapement in the
notice
which is issued to him under section 34 (as it then existed)
of
the Indian Income Tax Act, I 922.
The notice which was issued
in that case did not give any particulars and was in the following
words:
"Whereas I have reason to believe that your income
from business and other sources which should have
been assessed in the financial year ending the 31st
March, 1933, has wholly escaped assessmem
and I
therefore propose to assess the said income that has
escaped assessment.
I hereby require you to deliver to
me, not later than the 9th March, 1934, or within 30
days of the receipt of this notice, a return in the attached
form of your income from all sources which was assessable in the said year ending the 31st March, 1933."
It was observed while dealing with the validity of the above
notice:
"Accordingly their Lordships are of opinion
that
the Income-tax Officer is not required by the section to
convene the asscssee, or to intimate to him the nature
of the alleged escapement, or to give biol an opportunity of being heard, before he decides to operate the
powers conferred by the section. In the opinion
of
their Lordships the view which the learned Judges of
the High Court have taken of the section is too narrow.
and the notice sent to the respondents on 8th February,
1934, is in form a competent preliminary to a new
assessment."
In the case of K. S. Rashid and Son and Others v.
Income
Tax Officer~
1
) this Court expressed the view that the assessee
was .not entttled to a copy of the reasons which were recorded by
the mcome tax officer when he issued the notice under section 34
of the Indian Income Tax Ac~ 1922.
In the later case of
S. Narayan.~ppa and Others v. Commissioner of Income
Tax,
Bangalore(-) an argument was advanced that the income
ta.x
officer should have indicated to the assessee the reasons which
(I) [1964] 52 l.T.R . .155.
(2)
[1961] 63 I.T.R. 219
320
SUPREME COURT REPORTS
[1973} 2 S.C.It.
lcd. t'iim to i~itiate the vroceedings under section 34 of the Act.
This contention was repelled in the following words :
·'It was also contended for the appellant that the
Income-tax Officer should have communicated to him
the reasons which led him to initiate the proceedings
under section 34 of the Act.
It was stated that a request to this effect was made by the appellant to the
Income-tax Officer, but the Income-tax Officer declined
to disclose the reasons.
In our opinion, the argument
of the appellant on this point is misconceived. The pro-·
ceedings for assessment or reassessment under section
34 (1 ){a) of the Income-tax Act sl!lrt with the issue
of a notice and it is only after the service of the notice·
that the assessee, whose income is sought to be assessed
or reassessed, becomes a party to those
proceedings.
The earlier stage of the proceedings for recording the
re.asons of the Income-tax Officer and for obtaining the
sanction of the Commissioner are
administrative
in
character and are not quasi-judicial.· The scheme of
section 34 of the Act is that, if the conditions of the·
main section are satisfied, a notice has to be issued
to the assessee containing all or any of the requirements which may be included in a notice under subsection (2) of section 22.
But before issubg the
notice, -the proviso required that the officer should
record his reasons for initiating action under section 34
and obtain the sanction of the Commissioner who must
b~ satisfied that the action under section 34 was justified.
There is no requirement in any of the provisions
of the Act or any section laying down as a condition
for the initiation of the proceedings that the reasons
which induced the Commissioner to accord sanction to
proceed under section 34 must also be communicated'
to the assessee."
As the provisions of section 12(8) of the Act and section 34 of
the Jndian Income Tax Act, 1922 are substantially similar,
the
dicta laid down in cases under section 34 of the Indian lncomeTax Act has, in our opinion, a direct bearing.
Mr. Gov ind Das has tried to distinguish the cases under section 34 of the Indian Income Tax Act on the ground that, unlike
section 12 ( 8 ) of the Act which also provides for the imposition
of penalty, there was no ment!on _of penalty in. section 34 ?f. the
Indian Income Tax Act.
This circumstance. m our o!Jmion,
makes no substantial difference and cannot prevent the applicability of the dicta laid down in cases under section 34 of the Indian
8
c
D
E
p
G
H
A
8
c
D
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F
G
ff
S.T.O. v. UTTARESWARI RICE MILLS (Khanna, I.)
321
Income Tax Act, 1922 to cases under section 12 ( 8) of the Act
The question of imposition of penalty can only arise at the time
of making an order for reassessment.
Mr. Ramachandran on
behalf of the appellants has frankly stated that it would be only
at that stage that the sales tax officer would go into the question
as to whether the escapement or under-assessment or composition
has been due to the fact that the dealer concealed particulars of
his turnover or without sufficient cause furnished incorrect particulars thereof.
The sales tax officer in such an event, it is not
disputed, would have to give opportunity to the dealer to show
cause why penalty in addition to the tax should not be imposed
upon him.
Reference has also been made by Mr. Gobind Das to the fact
that notice issued to the respondent on March 31, 1967 related
not merely to the escaped assessment or under-assessment, it also
called upon the respondent to show cause why penalty should
not be imposed upon him.
It is urged that such a combined
notice is invalid even though it may be in accordance with Form
VI prescribed by the rules.
Calling upon the respondent to show
cause why penalty should not be imposed upon him,
according
to the l~arned counsel, is premature at this stage.
In this respect
we find that no such ground was taken by the respondent in the
wri, petition before the High Court.
As such, it is not necessary for the purpose of this case to express an opinion on the ppint
as to whether a notice under section 12 ( 8) should be struck down
on the aforesaid ground.
There is nothing in the language of section 12 ( 8) of the Act
which either expressly or by necessary implication postulates the
recording of reasons in the notice which is issued to the dealer
under the above provision of law.
To hold that reasons which
led to the issue of the said notice should be incorporated in the
notice and that failure to do so would invalidate the notice, would
· be tantamount to reading something in the statute which, in fact,
is not there.
We are consequently unable to accede to the contention that the notice under the above provision of law should
be quashed if the reasons which led to the issue of the notice are
not mentioned in the notice.
At the same time, we would like
to make it clear that if the sales tax officer is in possession of
material which he proposes to use against the dealer in proceedings for reassessment, the said officer must before using that material bring it to the notice of the dealer and give him adequate
opportunity to explain and answer the case on the basis of that
material.
Mr. Gobind Das has also argued that the existence of a reason
that the turnover of a dealer has escaped assessment or has been
322
SUPREME COURT REPORTS
(1973] 2 S.C.R.
under-assessed in cases not dealing with composition is a condition precedent to the issue o~ a notice under section 12(8 J of
the Act.
It is urged that such reason is not shown to have existed
in the present case.
Although we agree with the learned counsel that the existence of the reason that the turnover 0f a dealer
has escaped assessment or has been under-assessed is a sine qua
non, for the issue of the notice, we are unable to accept the contention that the said reason has been shown to be non-existent in the
pre>ent case.
Although the High Court did not go into this aspect of the matter, we find that the appellant has brought mater.al on the record to indicate that there did exist such reasons.
Affidavit of Shri Prakash Chandra Mohanty, Sales Tax Officer,
Intelligence Circle was filed in opposition to the petition. Shri
Mohanty is the successor of Shri Patnaik who had issued the
notice under section 12 ( 8) of the Act to the respondent. According to the atl1davit of Shri Mohanty, the material on record indicates that Shri Patnaik issued the impugned notice after he had
obtained information about certain clandestine dealings of the
respondent.
It was further stated that the seized documents disclosed prima facie !llaterial to -!Jold that the respondent had failed
to disclose his entire turnover.
It was also mentioned that the
details of the material which led to the initiation of proceedings
under section 12 ( 8) of the Act had been recorded in the rel~vant
case file.
The said file, it would appear from the
affidavit of
Shri Mohanty, was kept available for reference by the
High .
Court at the time of hearing.
No reference, it would seem. was
however made to that file because the High Court did not feel the
nececsity of doing so.
In our opinion the view taken by the High Court in the
judgment under appeal as well as in the earlier case of B. Patnaik
Mines (P) Ltd. v. N. K. Mohanty Sales Tax Officer
(supra)
was not correct.
We accordingly accept the two
appeals. set
aside the judgment of the High Court and dismiss the writ petitions.
Looking to all the circumstances, we leave the parties to
bear their own costs of this Court as well as in the High Court.
.
V.P.S.
Appeals allowed.
A
B
c
D
.F