Law:

Section:

Section 147 of Income-tax Act, 1961 [Corresponding to section 34 of Indian Income-tax Act, 1922] - Income escaping assessment information - Position prior to 1-4-1989 - Assessment year 1945-46 - Assessee was sugar manufacturers and owned sugarcane farm - During relevant assessment year it supplied sugarcane from its farm to its factory at rate on which it had purchased sugarcane from outsiders - Assessing Officer completed assessment but thereafter noticed that sugar cane was being sold in market a much lower price than shown by assessee-ITO issued notice under section 34 of 1922 Act, to which assessee replied that it did not purchase any sugar-cane from outsiders - ITO made reassessment on basis of average market price to sugarcane - No contention was raised before Tribunal that ITO had no reason to believe before issuing notice - Whether assessee could raise that point in reference - Held, no - Whether apart from that on facts it could not be said that ITO had no reason to believe when he issued notice under section 34 of 1922 Act that by reason of omission or failure on part of assessee to disclose fully and truly all material facts income chargeable to income-tax had escaped assessment or was under assessee - Held, yes - Whether therefore, reassessment proceedings were validly initiated - Held, yes FACTS The assessee, which carried on business in the manufacture and sale of sugar, owned sugarcane farm, the produce of which was utilised for the production of sugar. The assessee had supplied sugar cane from its own farm to its factory at the rate of Rs. 29.80 per ton on the basis of purchase of small quantity of sugarcane from other growers at that rate. The ITO accepted the assessee's books. Thereafter the ITO issued notice under section 34 of the 1922 Act on the ground that he had noticed that in the market, the sugar cane was being sold at Rs. 19.40 per ton only and thus company had reduced correct assessable income. The assessee explained that the company did not purchase any sugar-cane from outsiders. The ITO calculated the average market price of the sugar-cane at Rs. 20-8-0 on the basis of comparable instances. The AAC fixed the average market price of…

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