Law:

Section:

Section 147 of the Income-tax Act, 1961 - Income escaping assessment - Position prior to 1-4-1989 - Assessment years 1959-60 to 1961-62 - Assessees were dealers in mill stores - In course of their business, assessees used to sell mill stores to other dealers including two concerns which were owned by HUFs, managers of which were only partners of assessees - ITO sought to reopen assessments of assessee stating that he was convinced from perusal of assessments records of assessees, their partners and their individual HUFs that partners of assessees had contrived to divert profits of assessees to their respective HUFs and had tried to evade proper taxation - On writ, High Court did not agree with reasons assigned by ITO for reopening assessments and quashed said notices - Whether if goods were nominally transferred to HUFs latter acting merely as benamidars for assessees, and profits were earned in truth by assessees, income earned by sale of goods by HUFs might be held chargeable to tax as income which had escaped assessment to tax in hands of assessees - Held, yes - Whether since in instant case no such case was made out by ITO, it could be held that ITO had no reason to believe that income chargeable to tax had escaped assessment for years in question - Held, yes FACTS In the course of its business, the assessee sold goods to other dealers including two leading concerns which were owned by the HUFs, managers of which were the only partners of the assessees. For the assessment years 1959-60, 1960-61 and 1961-62, the ITO by letter dated 20-3-1964, informed the assessees that he was convinced from a perusal of the assessment records of the assessees, their partners and their individual HUFs that the partners of the assesses had contrived to divert profits of the assessees to their respective HUFs and had tried to "evade proper taxation" and on that ground he called upon the assessees to submit their objections, if any, to the reopening of the assessments for the years 1959-60, 1960-61 and 1961-62. The assessees in reply contended that the ITO had no jurisdiction to reopen the assessments since the HUFs of the two partners and the assessees had submitted "correct…

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