PARASHURAM POTTERY WORKS CO. LTD. versus INCOME TAX OFFICER, CIRCLE-1, WARD A, RAJKOT, GUJARAT

Citation: [1977] 2 S.C.R. 92 · Decided: 16-11-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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92 
PARASHURAM POTTERY WORKS CO. LTD. 
v. 
INCOME TAX OFFICER, CIRCLE-1, WARD 'A', RAJKOT, 
GUJARAT 
November 16, 1976 
(H. R. KHANNA AND V. R. KRISHNA IYER, JJ.] 
Income Tax Act, 1961-Secs. 147, 148, 149, lllcome Tax Act 1922-Sec. 10 
(2) vi-Reopening of assessment-Omission 011 the part of assessee to disclose 
fully and truly all material facts-Duty to disclose primary facts-Duty to draw 
references of l.T.0.-Whether l.T.O. can correct his error or give effect to change 
in his opinion in reopening proceedings. 
The appellant a Public Limited Company filed its Income Tax Return relat-
ing to the assessment years 1957-58 and 1959-60 tinder the Income Tax Act, 
1922. The Income Tax Offieer passed assessment orders on 16-4-1959 and on 
30-3-1961 respectively in respect of the two years. 
Certain depreciation was 
allowed by the Income Tax Officer for both the years. 
On 5-10-1965, 
the 
Income Tax Officer addressed a letter to the appellant stating that there had 
been a mistake in the calculation of the depreciation allowance. The appellant 
was asked by that letter if it had any objection to the rectification of the mistake 
in the calculation of the depreciation amounts for the above-mentioned two years. 
On 2nd February, 1966, the Income Tax Officer addressed a letter under section 
147(a) of the Income Tax Act, 1961 alleging that the income of the appellant 
had escaped assessment for failure of the appellant to disclose all materials facts. 
The appellant in his reply stated that the depreciation was calculated by the 
Income· Tax authorities and there was no failure on the part of the appellant in 
disclosing all the facts. 
Thereafter, the Income Tax Officer issued the notices 
on 4-3-1966 stating that he had reasons to believe that the income of the appel-
lant chargeable to tax for the assessment years in question had escaped assess-
ment within the meaning of section 147 of the 1961 Act. 
The appellant was 
called upon to furnish fresh return. 
The appellant challenged the said notices by filing a Writ Petition in the 
High Court. According to the appellant there was no omission or failure on 
its part to disclose fully and truly all material facts necessary for the assessment; 
that all material facts were placed before the assessing authority; and that the 
fact that initial depreciation on the new assets had been allowed was also on 
the record of the department. It was further contended that if there was any 
pversight on the part of the Income Tax Officer the appellant could not be 
held responsible. The respondent filed an affidavit in the High Court contending 
that the· appellant did not disclose in the return that initially depreciation in 
respect of certain items of capital assets had been allowed in the past and that 
the same should be taken into account while calculating the depreciation allow-
able for the assessment years in question. 
The High Court dismissed the Writ 
Petition on the ground that there was an omission or failure on the part of the 
appellant to disclose truly and fully the fact that the initial depreciaion had 
been allowed in respect of ite.ms of capital assets in question during the previous 
years. 
Under section 10 of the 1922 Act an assessec is liable to pay tax under the 
head "Profits and Gains of Business, Profession or Vocation, carried on by him". 
Such profits or gains shall be computed after '}laking a n~mber of all?wanc:es. 
Those allowances included the allowances provided by section 10(2)(v1) which 
deals with deprecia.tion under section 147(a) of the Income Tax Act, 
~9~1. 
if the Income Tax Officer has reason to beli~ve that the reason of the om1ss1<;>n 
or failure on the part of the assessee to disclose fully and truly all material 
facts necessaiy for his assessment, income chargeable to tax has escaped assess-
ment for that year he may subject to the provisions of sections .118 to 151 
assess or reassess such income or recompute the loss or the deprecia!lon allow-
"· 
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PARASHURAM POTTERY v. I. T. OFFICER (Khanna, J.) 
93 
ance as the case may be. According to section 148 of 1961 Act pefore making 
the assessment, reassessment, or recomputation under section 147, the Income 
A 
Tax . Officer shal! serve on t~e assesse7 a notice contaii:iing all or any of the 
reqmrements which may be mcluded m a notice under section 149(1). The 
In~ome Tax Officer has also before issuing such notice to record his reasons for 
domg so. Section 1

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