ADITYA MILLS LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE petitioner, M/s Aditya Mills Ltd., is engaged in the business of manufacturing cotton and synthetic yarn. M/s. Traders and Miners Ltd. is said to have been working as sole selling agent of those products at the material time. In the return of income filed by the petitioner for the assessment year 1972-73, it claimed a deduction of Rs. 7,80,952 on account of expenses alleged to have been incurred by way of commission paid to the selling agent aforementioned. THE petitioner did not, however, disclose the name of M/s. Traders and Miners Ltd. as its selling agent in the return or the documents accompanying it. By his letter (annexure 2), dated April 1], 1974, the Income-tax Officer (ITO) required the petitioner to give particulars, inter alia, of the selling agents and the commission paid to them. THE petitioner sent a laconic reply (annexure 3) dated April 23, 1974, in which the required particulars were not furnished; THE ITO had, therefore, to summon and record the statement (annexure 6) of R. K. Parikh, the managing director of M/s. Traders and Miners Ltd., on February 26, 1975. It appeared from Parikh's statement that the petitioner and M/s. Traders and Miners Ltd. were carrying on their respective businesses from the same premises and that in fact the employees of the petitioner had been working for M/s. Traders and Miners Ltd. as well. THE ITO, thereafter, recorded the statement (annexure 5) of P.O. Poddar, the Executive President of the petitioner on March 15, 1975. Poddar's statement also did not help the ITO in ascertaining the particulars of sales alleged to have been effected through the agency of M/s. Traders and Miners Ltd. On March 19, 1975, the petitioner wrote a letter (annexure 7) giving some information regarding the services alleged to have been rendered by M/s. Traders and Miners Ltd. for the petitioner. THE ITO made the assessment order (annexure 8), dated Match 27, 1975, under Section 143, I.T. Act, 1961, (hereinafter called "the Act"). He did not discuss in that order the merits or otherwise of the petitioner's claim of deduction of Rs. 7,80,952 on account of expenses incurred by way of commission alleged to have been paid by the petitioner to M/s. Traders & Miners Ltd. In the assessment order made by the ITO, he allowed, by necessary implication, the petitioner's claim and assessed the petitioner's income for the previous year ending December 31, 1971, after making allowauce for the aforementioned amount by way of expenses on sales effected during that year. On April 22, 1978, the ITO reopened this assessment with a notice (annexure 9) served on the petitioner under Section 148 of the Act. THE notice reads as under :

(2.) THE petitioner's case is that though the ITO had no jurisdiction to reopen the assessment, yet the petitioner made a reply (annexure 10), dated May 10, 1978, to the aforementioned notice stating that the reply was being made without prejudice to the petitioner's right to raise the question of jurisdiction. THE petitioner raised the objection that the notice was bad in law and that, therefore, no return need be filed in response to it. THE petitioner, however, told the ITO that it had already filed its return under Section 139 of the Act and that the same may be treated as the return filed in response to the impugned notice. On September 1, 1982, the IAC of Income-tax sent a notice to the petitioner, purporting to do so under Section 142(1) of the Act, requiring the petitioner to produce documents relating to all the sales on which commission was alleged to have been paid to the sole selling agent during the previous year ending December 31, 1971. He also called upon the petitioner to produce evidence regarding the services rendered by M/s Traders & Miners Ltd. and particulars of the sales in which commission had been paid to them. THE petitioner was also apprised by that notice that the Department had since collected evidence showing that no commission, etc., had been paid to M/s. Traders & Miners Ltd. and that, therefore, the amount of Rs. 7,80,952 may not be allowed as deductible expense for the assessment year 1972-73.

(3.) THE respondents pleaded that it is not a case of the ITO changing his mind in respect of the same material, but it is a case of concealment of material facts by the petitioner and of the ITO discovering subsequently that M/s, Traders and Miners Ltd. was nothing but an alter ego of the petitioner and that it had not rendered any service to the petitioner in any of the four yeais mentioned above to entitle the petitioner to claim deductions on account of the so-called expenses incurred on the sales of its products. It was in this context that the respondent mentioned that it was in the course of the proceedings of assessment for the year 1976-77 that it came to light that M/s. Traders and Miners Ltd. was a dummy created by the petitioner to escape assessment on huge amounts of income in various years and, therefore, the ITO rejected the petitioner's claim for deduction of similar expenses for that year. THE respondents further pleaded that the assessment order for the year 1976-77 was affirmed in appeal by the Commissioner of Income-tax (Appeals), Rajasthan, on March 30, 1981. THE petitioner did not challenge the said order further with the result that it has become final. It was thus on the basis of the information collected in 1976-77 that the ITO served the impugned notice; and, therefore, it is not a case of change of mind on reconsideration of the old material available on the file of assessment for the year 1972-73. THE respondents pleaded that the ITO had recorded his reasons for issuing the impugned notice. A copy of the reasons so recorded has been placed on the record as annexure R-3. This document would show that the impugned notice was issued under Section 148 read with Section 147(a) of the Act. THE Commissioner had also perused the reasons recorded by the ITO and was satisfied that it is a fit case for issuing the impugned notice.