1992-VIL-553-DEL-DT

Equivalent Citation: [1992] 198 ITR 264, 105 CTR 221, 66 TAXMANN 106

DELHI HIGH COURT

Date: 13.01.1992

DUNCAN SERVICES LIMITED

Vs

INCOME-TAX OFFICER AND OTHERS

BENCH

Judge(s)  : S. B. WAD., MOHD SHAMIM 

JUDGMENT

The judgment of the court was delivered by

S. B. WAD J. - This writ petition is directed against the notice dated March 23, 1978, issued by the Income-tax Officer, Company Circle, New Delhi, under section 148 of the Income-tax Act, 1961. The relevant assessment year is 1974-75. Through the said notice, the petitioner was informed that the Income-tax Officer has reasons to believe that some income has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. After receipt of the said notice, the petitioner informed the authorities that they had supplied all the necessary information and documents along with the original return and furnished the account books and other information as called for by the Income-tax Officer. The petitioner also requested the authorities to inform him of the reasons for the allegation of income escaping assessment. No reasons were furnished. The petitioner thereafter filed the present writ petition.

In the counter-affidavit, the reason furnished is as follows :

" That, after the assessment had been completed, my predecessor received information that the petitioner-company had not obtained any recognition of its provident fund and gratuity fund scheme and the petitioner had been approved only on September 1, 1976, with effect from December 23, 1975. In view of the provisions of section 36(1)(iv) and (1)(v), the assessee is entitled to deduction of the amounts only if they fall under the said two sub-clauses and if there is any contribution to non-recognised provident fund or a non-approved gratuity fund and if there is any provision with respect to the same, the deduction cannot be granted under section 37 of the Act. This information came to my predecessor after the passing of the original assessment order and the said information was also received from the special cell of the Revenue audit on January 27, 1978. "

The petitioner submitted that, in regard to deduction on account of the gratuity payment, an amendment was introduced by the Finance Act, 1975, by way of section 40A(7). The change was introduced with retrospective effect from April 1, 1973. According to the petitioner, the petitioner complied with the said provisions by making the requisite application along with the trust deed for the approval of the gratuity fund on December 23, 1975, clearly stating therein that the fund should be made applicable with effect from January 1, 1973, i.e., the date of commencement of business by the petitioner. The Income-tax Officer was satisfied with this information as regards the interpretation of the newly added section 40A(7) and, therefore, allowed the deduction. The submission of the petitioner is that information regarding the interpretation of a legal provision by the Revenue audit is not information within the meaning of section 147(b) of the Act. Even otherwise, the Revenue cannot take advantage of such information unless the officer issuing the notice under section 148 is himself satisfied about the correctness of the audit report.

The submissions of the petitioner have great deal of substance. It may be noted that section 40A(7) was newly introduced in 1975 and was given retrospective effect from 1973. There was a lot of confusion regarding the application of this section and a circular was issued by the Board on June 23, 1975 (See Iyengar's Law of Income-tax, Eighth Edition, at page 2359). In Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, the Supreme Court has held that the report of the internal audit party of the Income-tax Department is no information within the meaning of section 147(b) of the Income-tax Act, 1961. The Supreme Court has further held : "In every case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice, he can reasonably believe that income has escaped assessment". Thus, in the present case, there was no information as required by law before the authorities nor the condition precedent before issuing notices under section 148 has been satisfied as the officer did not apply his mind and come to his own conclusion before acting on the audit report. The impugned notice dated March 23, 1978, is thus contrary to law and is hereby quashed. The writ petition is allowed. Rule made absolute. Counsel's fee Rs. 1,000.

 

 

 

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