CENTRAL INDIA INDUSTRIES LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The present rule was issued on June 4, 1979, at the instance of the writ petitioner challenging the notice dated March 29, 1979, under Section 148 of the Income-tax Act for the assessment year 1962-63 and the proceedings relating thereto on the ground that respondent No. 2, the Income-tax Officer, Central Circle XVII, Calcutta, has no reason whatsoever to believe that any income of the said firm chargeable to tax for the assessment year in question had escaped assessment within the meaning of Section 147 of the Income-tax Act. There is no material or information whatsoever on the basis whereof, respondent No. 2 could entertain any belief as alleged in the said notice. The alleged belief is mere pretence and does not exist and was not held in good faith. It is asserted that the petitioner-firm had fully and truly disclosed all the material and relevant facts necessary for the assessment of its income at the time of the original assessment and that there was no omission or failure on the part of the petitioner to disclose fully and truly all the material and relevant facts and there is no cause of action for the issuance of the impugned notice.

(2.) The writ petition is contested by the respondents by production of all records and the attention of the court has been drawn to the recorded reasons for the issuance of the impugned notice.

(3.) It is argued on behalf of the writ petitioner that the recorded reasons indicate that the proceedings have been initiated for the purpose of taxing alleged capital gains by invoking the provisions of Section 52 of the Act. 49,077 partly paid-up shares of Orient Paper Mills. Limited were sold by the assessee to Smt. Nirmala Debi Birla (29,077) and Sri Chandrakant Birla (20,000). The recorded reasons further indicate that the said 2 (two) buyers of the shares, namely, Nirmala Devi Birla and Chandrakant Birla, were members of the family of Sri B. M. Birla who was controlling the affairs of the assessee-company. The recorded reasons disclosed that the partly paid-up shares ranked pari passu with the fully paid-up ordinary shares of the company. Thus the fair market value of the partly paid-up shares was Rs. 21.40 per share but the same were sold at Rs. 9.50 per share to the said persons. The relationship of the said two buyers with the persons controlling the affairs of the petitioner-company and the fact that the said partly paid-up shares of Orient Paper ranked pari passu with fully paid-up shares was not disclosed at the time of the original assessment and this was the omission on the part of the petitioner. Learned counsel appearing for the petitioner has submitted that the petitioner in fact has filed a supplementary affidavit and the allegations made in the recorded reasons have been controverted. It has been disclosed that the letter of right shares issued by the Orient Paper Mills Limited was produced before the Income-tax Officer at the time of the original assessment which will show that the partly paid-up shares were ranked pari passu with the fully paid-up shares. The relationship of the parties was also within the knowledge of the Income-tax Officer as would appear from the copy of the assessment order in the case of the assessee-company for the assessment year 1981-62.