CENTRAL PROVINCES MANGANESE ORE. CO. LTD. versus I.T.O., NAGPUR

Citation: [1991] 3 S.C.R. 627 · Decided: 20-08-1991 · Supreme Court of India · Bench: KULDIP SINGH · Disposal: Dismissed

Judgment (excerpt)

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CENTRAL PROVINCES MANGANESE ORE. CO. LTD. 
A 
v. 
I.T.O., NAGPUR 
AUGUST 20, 1991 
[KULDIP SINGH AND K. RAMASWAMY. JJ.J 
B 
Income Tax Act, 1961: Sections 147(a) and 148-Reassessment-
Assessee exporting manganese ore-Customs authorities detecting 
under-invoicing-Whether a valid reason for income-tax authoraie;- to 
believe that income escaped assessment-Proven charge of under-
invoicing-Whether amounts to failure on assessee's part to disclose C 
truly all material facts-Notice for reassessment-Validity of. 
The appellant, a non-resident company, was carrying on the busi-
ness of exporting manganese ore, and was assessed to income-tax for the 
assessment year 1953-54. Subsequently, on coming to know that pro-
ceedings for under-invoicing were pending against the appellant before 
D 
the Customs Authorities, the respondent, the Income-Tax Officer issued 
a notice under Section 148 of the Income-Tax Act, 1961 to the appellant 
stating that he had reasons to believe that the income of the appellant 
chargeable to tax for the assessment year 1953-54 had escaped assess-
ment within the meaning of Section 147 of the Act and called upon the 
appellant to show cause as to why it should not be re-assesseed to 
E 
income. The appellant's writ petition challenging the notice was dismis-
sed by the High Court. 
In the appeal before this Court on behalf of the appellant-
company, it was contended that the only material before the Income-Tax 
Officer was the original order of the Collector of Customs wherein it F 
was held that the appellant had indulged in under-invoicing, resulting 
in declaring lesser price than the prevailing market price, which could 
at the most be an information within the ambit of Section 147 of the Act, 
but could not be the basis or the reason to entertain the belief, as 
required under Section 147(a) of the Act and that the notice had been 
issued under Section 147(b) and not under Section 147(a). 
G 
Dismissing the appeal, this Court, 
HELD: I. I Two conditions are required to confer jurisdiction on 
the Income-Tax Officer under Section I47(a) of the Income-Tax Act, 
1961. The first is that the Income-Tax Officer must have reason to 
H 
627 
A 
B 
c 
628 
SUPREME COURT REPORTS 
I 1991] 3 S.C.R. 
believe that the income chargeable to income-tax had been under-
assesseed and the second that such under-assessment has occurred by 
reason of omission or failure on the part of the assessee to disclose fully 
and truly all material facts necessary for its assessment for the year 
1953-54. [631F] 
1.2 In the instant case, the Income-Tax Officer in his recorded 
reasons, has relied upon the facts as found by the Customs Authorities 
that the appellant under-invoiced the goods he exported. Thongh the 
said finding may not be binding upon the Income-Tax Authorities, it can 
be a valid reason to believe that the chargeable income has been under-
assesseed. The final outcome of the proceedings is not relevant. There 
should be existence of reasons to make the Income-Tax Officer believe 
that there has been under-assessment of the assessee's income for a 
particular year. Thus, the first condition was satisfied. Secondly, the 
appellant-company did not produce the books of accounts kept by it at 
its head office located outside the country, nor the original contracts of 
sale which were entered into with the buyers at that place, or any of the 
D accounts which related to the foreign banks. No reasons were given for 
the supply of manganese ore at lower than the market rate. It is for the 
assessee to disclose all the primary facts before the Income-Tax Officer to 
enable hint to account the true income of the asses<;ee. Thus, the proven charge 
of under-invoicing per se satisfies the second condition. [631G-H, 632A-C] 
E 
l.3 The appellant's assessable income has to be determined on 
the basis of the price received by it for the goods exported. If the true 
price had not been disclosed and there was under-invoicing, the logical 
conclusion prima-facie is that there has been failure on the part of the 
appellant to disclose fully and truly all material facts before the 
Income-Tax Officer. In the circumstances, both the conditions 
F 
required to attract the provisions of Section 147(a) have been complied 
with. [632DJ 
2. Although the notice only mentioned Section 146 of the Act 
without indicating whether it was under Sub-Section (a) or Sub-Section 
(b), the reasons recorded by the Income-Tax Officer sp

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