Law:

Section:

Section 147, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment - Position prior to 1-4-1989 - Assessing Officer accepted accounts not suspecting that sale price shown was far below market price - Subsequently Assessing Officer of another area reported that goods sold by assessee were resold at much higher rate within 15 days of sale by introducing some bogus intermediaries - Whether when assessee while filing return, did not disclose that market rate of goods was much higher but for certain reasons sale had been made at lower rate, it could not be said that assessee had fully and truly disclosed all material facts necessary for assessment - Held, yes - Whether, therefore, notice issued by ITO under section 148 was valid - Held, yes FACTS The assessee-firm sold 11 bales of wool-tops to 'R' at the rate of Rs. 9.50 per pound. While making assessment, the ITO accepted the trading accounts of the assessee -firm after examining its books and did not doubt that the profits from the sale of wool-tops had been understated. Subsequently, the ITO was reported that sale of those very same 11 bales of wool-tops, alleged to have been purchased by 'R' from the assessee-firm, had been ultimately made to 'D' at Rs. 18.37 per pound. On further inquiries the ITO found that the sale was actually effected at considerable high rate of profit but it was manipulated and shown to have been made at nominal profit through the agency of one and/or two intermediaries. These intermediaries were created with a view to reduce the incidence of taxation. The ITO, thus issued notice under section 148 taking view that by adopting this device the assessee had failed to disclose fully and truly all material facts necessary for his assessment and, consequently, correct income chargeable to tax had escaped assessment. On writ : HELD The ITO looked through the accounts and accepted the same on the sole ground that profit shown on sale was fairly high. There was nothing in the accounts to make him suspect that the sale price shown was far below the market price. That fact came to his notice when the ITO of another area made a report that the sale of those very 11 bales of…

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