Case: The Commissioner Of Sales Tax, U.P Vs. M/S. Bhagwan Industries (P) Ltd. Lucknow

fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the Court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression "reason to believe" in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. To put it differently, it is open to the Court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a Court of law."Reliance was placed in the above context upon an earlier decision of this Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, (1961) 41 ITR 191 = (AIR 1961 SC 372 ). The above observations regarding the import of the words "reason to believe" though made in the context of Section 34 of the Indian Income Tax Act, 1922 have, in our opinion, equal bearing on the construction of those words in Section 21 of the U. P. Sales Tax Act.12. In the light of the view we have taken of the import of the words "reason to believe", we have no doubt that the assessing authority in the present case had valid grounds for initiating proceedings under Section 21 of the Act against the respondent. It would appear from the memorandum dated March 13, 1962 sent by the assessing authority that for the assessment year 1955-56 the sales of atta, maida and sooji of the respondent amounted to over rupees fiftyeight lakhs. Account books of the respondent also showed that during the year 1958-59 the turnover of the respondent for sale of atta, maida and sooji amounted to over rupees seventyfive lakhs. The assessing authority had also material with it to show that the quota of wheat for the respondent had been fixed in August 1958 on the basis of the average of grinding done in the past three years. There was also the additional fact that the respondent had in spite of repeated notices not produced its account books for the assessment year 1957-58. These facts, in our opinion, were germane to the formation of the belief of the assessing authority that part of the turnover of the respondent had escaped assessment to tax. It cannot be said that the above belief was not formed in good faith or was mere pretence for initiating action under Section 21 of the Act. The assessing authority in the circumstances, in our opinion, acted within the ambit of its powers in initiating proceedings under Section 21 of the Act.13. We are unable to accede to the contention of Mr. Karkhanis that as the assessment sought to be reopened was ex parte assessment under Rule 41 (5) of the Uttar Pradesh Sales Tax Rules, no proceedings in respect of that assessment can be initiated under Section 21 of the Act. There is nothing in that section to restrict its operation to assessments other than those which have been made ex parte under Rule 41 (5). The language of the section makes it plain that the assessing authority can take action if such authority has reason to believe that the whole or part of the turnover of a dealer has, for any reason, escaped assessment to tax for any year. To accede to the contention of Mr. Karkhanis would be tantamount to affording protection, so far as the operation of Section 21 is concerned, to dealers who avoid to put in appearance and produce their account books before the assessing authority. Such a construction is not only not warranted by the language of the section, it is manifestly unreasonable inasmuch as it puts a premium on contumacy.14. Mr. Karkhanis has also assailed the answer of the High Court to question No. (II) and has contended that the notice dated September 13, 1961 and the memorandum dated March 13, 1962 should be construed as notices under Section 21 of the Act. As the re-assessment was not completed within one year of the service of those notices, the re-assessment, according to the learned counsel, should be held to be barred by limitation. There is, in our opinion, no force in this contention. We agree with the High Court that the above notice and the memorandum were of a preliminary nature and did not constitute notices under Section 21 of the Act. All that was stated in the said notice and the memorandum was to call upon the respondent to produce account books. Threat was also held out that in case of non-compliance by the respondent proceedings would be taken under Section 21 of the Act. The above notice and the memorandum could not consequently be construed as notices under Section 21 of the Act.It was only on March 24, 1962 that notice under Section 21 of the Act was given to the respondent and the same was served on March 26, 1962. The assessment under Section 21 was made on March 19, 1963 which was admittedly within one year of the date of the service of the notice under Section 21 of the Act.15

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]12. In the light of the view we have taken of the import of the words "reason to believe", we have no doubt that the assessing authority in the present case had valid grounds for initiating proceedings under Section 21 of the Act against the respondent. It would appear from the memorandum dated March 13, 1962 sent by the assessing authority that for the assessment year 1955-56 the sales of atta, maida and sooji of the respondent amounted to over rupees fiftyeight lakhs. Account books of the respondent also showed that during the year 1958-59 the turnover of the respondent for sale of atta, maida and sooji amounted to over rupees seventyfive lakhs. The assessing authority had also material with it to show that the quota of wheat for the respondent had been fixed in August 1958 on the basis of the average of grinding done in the past three years. There was also the additional fact that the respondent had in spite of repeated notices not produced its account books for the assessment year 1957-58. These facts, in our opinion, were germane to the formation of the belief of the assessing authority that part of the turnover of the respondent had escaped assessment to tax. It cannot be said that the above belief was not formed in good faith or was mere pretence for initiating action under Section 21 of the Act. The assessing authority in the circumstances, in our opinion, acted within the ambit of its powers in initiating proceedings under Section 21 of the Act.13. We are unable to accede to the contention of Mr. Karkhanis that as the assessment sought to be reopened was ex parte assessment under Rule 41 (5) of the Uttar Pradesh Sales Tax Rules, no proceedings in respect of that assessment can be initiated under Section 21 of the Act. There is nothing in that section to restrict its operation to assessments other than those which have been made ex parte under Rule 41 (5). The language of the section makes it plain that the assessing authority can take action if such authority has reason to believe that the whole or part of the turnover of a dealer has, for any reason, escaped assessment to tax for any year. To accede to the contention of Mr. Karkhanis would be tantamount to affording protection, so far as the operation of Section 21 is concerned, to dealers who avoid to put in appearance and produce their account books before the assessing authority. Such a construction is not only not warranted by the language of the section, it is manifestly unreasonable inasmuch as it puts a premium on contumacy.14.Mr. Karkhanis has also assailed the answer of the High Court to question No. (II) and has contended that the notice dated September 13, 1961 and the memorandum dated March 13, 1962 should be construed as notices under Section 21 of the Act.As the re-assessment was not completed within one year of the service of those notices, the re-assessment, according to the learned counsel, should be held to be barred by limitation. There is, in our opinion, no force in this contention. We agree with the High Court that the above notice and the memorandum were of a preliminary nature and did not constitute notices under Section 21 of the Act. All that was stated in the said notice and the memorandum was to call upon the respondent to produce account books. Threat was also held out that in case of non-compliance by the respondent proceedings would be taken under Section 21 of the Act. The above notice and the memorandum could not consequently be construed as notices under Section 21 of the Act.It was only on March 24, 1962 that notice under Section 21 of the Act was given to the respondent and the same was served on March 26, 1962. The assessment under Section 21 was made on March 19, 1963 which was admittedly within one year of the date of the service of the notice under Section 21 of the Act.