MODI SPINNING & WEAVING MILLS CO. LTD. versus INCOME-TAX OFFICER, SPECIAL INVESTIGATION CIRCLE (B), MEERUT

Citation: [1969] 3 S.C.R. 592 · Decided: 10-02-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

592 
MODI SPINNING & WEAVING MILLS CO. LTD. 
A 
v. 
INCOME-TAX 
OFFICER, 
SPECIAL 
INVESTIGATION 
CIRCLE (B), MEERUT 
February 10, 1969 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.J 
Income Tax A.ct, 1922, s. 34(l)(a)-Notlce in respect of incom• 
escaping assessment--Condition.r precedent to issue of. 
B 
The appellant Company, which was incorporated in 1946, purchased ·· 
and installed machinery from time to time valued at Rs. 75 lacs. 
In 
C 
respect of its assessment to income tax for certain years, it was allowed 
'initial depreciation' on new machinery installed in the relevant previous 
years and was also allowed 'normal depreciation'. at appropriate rates. In 
the assessment year 1956-57 the aggregate of all depreciation allowances 
including 'initial depreciation' exceeded the original cost of machinery 
but in respect of that year as well as for the assessment years 1957-58 
and 1958-59, the Income Tax Officer failed to deduct 'initial depreciation' 
and the company was allowed 'normal ·depreciation' in excess 
of 
the 
D 
ainount permissible under proviso (c.) to s. 10(2) (vi) of the Income 
Tax Act, 1922. 
On November 20, 1964, the Income Tax Officer issued notices of re-
a,...sment for the three yean under section 148 of the Income Tax Act, 
1961. The Company filed returns under protest and thereafter challenged 
the notices of re-assessment by a writ petition under Art. 226 of the 
Constitution. It was common llrOUDd that excessive depreciation Was in 
fact allowed to the Company and that certain income escaped asses!lment, 
but it was contended on behalf of the appellant that the mcome did not 
escape assessment "by reason of the omission or failure on the part of 
the assessee to disclose fully and truly all material facts necessary for 
assessment of that year". 
A Single Judge of the High Court held that 
while the Company committed no error in failing to take into a<i:ount 
the 'initial depreciation' while entering the Written down value in its re-
turn, it was not open to the Company to set out only those facts which 
exaggerated its claim. 
He therefore rejected the petition. 
In dismissing 
a Letters Patent appeal, the High Court took the view that there was 
apparently "a mistake and error on the side of the Company as well a• 
the Income Tax Officer" and that the Income Tax Officer could reason-
ably come to the conclusion that it was due to the omission and failure 
on the part of the assessee in clisclosing fully and truly all material facts 
necessary for the assessment that the error was committed by the Income 
Tax Officer as a resu1t of which some income had escaped assessment. 
On an appeal. 
HELD : The judgment of the High Court must be set aside and the 
case remanded. 
E 
G 
Although the High Court held that the Income Tax Officer had de-
cided that certain income had escaped assessment, it did not consider 
H 
whether the income escaped assessment by reason of omission or failure 
on the part of the Company to disclose fully and truly all material facts 
necessary for assessment, within the meaning of section 34 of the 1922 
Act. [596 Fl 
A 
B 
• 
c 
i> 
F 
G 
H 
MODI MILLS v. I.T.O. (Shah, J.) 
593 
Calcutta Discount Co. Ltd. v, Income Tax Officer, Companies District 
I, Calcutta and Anr., 41 I.T.R. 191; referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 890 tO 
892 of 1968. 
Appeals by special leave from the judgment and order dated 
November 24, 196.7 of the Allahabad High Court in Special 
Appeals Nos. 476 to 478 of 1965. 
S. T. Desai, H. K. Puri and B. N. Kirpa/, for the appellant (in 
all the appeals) . 
Sukumar Mitra, S. C. Manchanda, R. H. Dhebar, R. N. Sach-
they and B. D. Sharma, for the respondent (in all the appeals). 
The Judgment of the Court was delivered by 
Shah, J. Mis Modi Spinning & Weaving Mills Co. Ltd.-
hereinafter called 'the Company'-was incorporated in 1946. 
From time to time the Company purchased and installed machi-
nery of the value of Rs. 75 lakhs for its factory. In proceedings 
for assessment of income-tax, the Company was allowed, in com-
puting its income from business for the assessment years 1950-51, 
1951-52 ·and 
1952-53 "i,nitial depreciation" aggregating to 
Rs. 15,91,511/- in respect of new machinery installed in the rele-
vant previous years. The Company was also . allowed "normal 
depreciation" at the appropriate rates. In the assessment year 
1956-57 the aggregate of all depreciation allowances including 
"initial deprecia

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