TMI Blog1992 (11) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... in fabrication of steel structures. Original assessment Was made under section 143(3) of the Act by the Income-tax Officer determining the income at Rs. 27,230. There was an appeal before the Appellate Assistant Commissioner and a further appeal before the Tribunal. The assessment on the basis of the Tribunal's order was revised under section 254. Assessment for the assessment year 1973-74 was dealt with by the successor Income-tax Officer. He reopened the assessment for the year 1972-73 in terms of section 147(a) by issuing a notice under section 148 on the ground that the assessee failed to make full and true disclosure of the stock pledged to the State Bank of India, Tinsukia, which was in excess of the value disclosed in the account books and balance-sheet of the assessee by a sum of Rs. 5,04,137. The assessee did not submit any return or reply in response to this notice. The Income-tax Officer subsequently issued a notice in terms of section 142(1) of the Act and it was served on the assessee on July 26, 1980. In spite of time being granted repeatedly to him, the assessee failed to comply with the terms of the notice. Thereupon the Income-tax Officer completed the assessment u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the original assessment made some notings on the stock list showing the closing stock position vis-a-vis the bank overdrafts, the numerous notings on the balance-sheet show that he had examined the bank overdraft accounts, his notings show that he had noted the opening balance, further advances received and the closing balance in the overdraft account ; the value of the closing stock shown in the accounts as Rs. 4,17,270 was not sufficient for obtaining the overdraft of Rs. 6,68,828, that the records do not show as to what enquiries he made on this point and how he became satisfied in spite of the large difference in the value ; (b) there is no indication as to what information and at what point of time and from which source the Income-tax Officer obtained the alleged new information ; (c) the alleged new information was there even before the completion of the original assessment and it came to the surface of the records for the first time in the draft order under section 144B for the assessment year 1973-74 ; (d) the original assessment records do not give any indication of the nature of the enquiries made by the then Incometax Officer regarding the difference in the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section 147(a) should apply, two conditions must be satisfied, namely, (i) that the Officer has reason to believe that income chargeable to tax has escaped assessment for the year ; ii) he must have reason to believe that this was by reason of the omission or failure on the part of the assessee to make a return under section 139 or to disclose fully or truly all material facts necessary for the assessment for that year. The assessee has a duty to disclose all primary facts before the Officer. He has no duty to disclose inferential facts, i.e., inferences which could be drawn from primary facts. See the Supreme Court decisions in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 and CIT v. Bhanji Lavji [1971] 79 ITR 582. The fact that there was some vague information before the Officer indicating receipt of income not shown in the account by itself would not be sufficient to bring to tax the amount. The fact that the Officer could have made further enquiries into the matter but did not do so is not circumstance which would render section 147(a) inapplicable. See CIT v. T.S.PL.P. Chidambaram Chettiar [1971] 80 ITR 467 (SC). Reason for formation of belief for reopening an assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that there was some definite information obtained in the course of proceedings relating to the assessment year 1973-74 which led to a proposal to add Rs. 5,04,137 to the income but it did not receive the approval of the Inspecting Assistant Commissioner. This was based on enquiries made at the bank which showed that the assessee, in order to obtain loan, disclosed hypothecated stock valued at Rs. 9,21,507. The Tribunal pointed out that the notings made by the Officer in the course of original assessment on the balance-sheet and the stock list reveal only that the Officer had the information that the bank had advanced a loan of an amount higher than what was justified by the stock shown in the accounts. This is not sufficient to indicate that the Officer had made enquiries at the bank and had come to know about the correct state of affairs before completing the original assessment. It may be that he should have enquired at the bank. There is no finding that he did so or that he got information from the bank. As suggested in the orders of all the three statutory authorities, the enquiries made by the successor Income-tax Officer, in the course of the assessment proceedings rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all. The second decision relied on also does not support the proposition canvassed on behalf of the assessee. Therefore, the contention that the proceedings are vitiated must fail. The Commissioner of Income-tax examined the merits and recorded a finding in favour of the assessee taking the view that larger stock could not have been hypothecated to the bank and the stock revealed by the accounts must be correct since raw materials are supplied by Government agencies under permits issued by the Director of Industries, that the raw materials are subject to rigid control and check by the Directorate of Industries, the receipt and utilisation of the material is checked by the Government agencies periodically and the registers are signed by the Superintendent of Industries, that annual returns are submitted to the Directorate of Industries in the prescribed form and that at no time the Government agencies had found fault with the assessee in regard to the stock and therefore the probability of the assessee having more stocks than that supplied by the Government agencies is negligible. The Commissioner of Income-tax also took the view that there was a practice in vogue of businessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the stock declaration made to the Textile Commissioner and the bank declaration was based on a rough estimate and not accurate. In the latter decision there was discrepancy between the stock in the books of account and the stock declared to the banks. The assessee, when asked to explain, stated that the stock declared to the banks was inflated in order to secure higher loan facility. The Incometax Officer rejected the accounts and made an addition in the gross profit which he even otherwise concluded was too low. The Appellate Assistant Commissioner agreed with the Income-tax Officer and stated that it was impossible that the banks would have accepted the assessee's declaration of stock without proper verification. The Tribunal declined to interfere except in regard to the quantum of addition. Reliance was placed before the High Court on its earlier decision referred to above. The High Court observed that the earlier decision cannot be regarded as an authority for the proposition that stock declaration made to a bank should not be taken into consideration and pointed out that in the earlier case the accounts of the assessee agreed with the declaration made to the Textile Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be obtained from the open market. He produced only a certificate from the Director of Industries given to a sister concern allegedly having similar business. The Commissioner of Income-tax did not take into consideration the possibility of the assessee obtaining raw materials from irregular sources. The grounds stated by the Commissioner of Income-tax are either not relevant, or if relevant, not based on acceptable materials. For the reasons indicated above, we are satisfied that the decision of the Tribunal that the action taken by the Income-tax Officer under section 147(a) was proper and valid is justified. Question No. 1 has to be answered in the affirmative, i.e., in favour of the Revenue and against the assessee. Question No. 2. - Learned counsel for the assessee contended that, in any view of the case, there was no justification for the addition of Rs. 5,04,137 in the income of the assessee for the assessment year 1972-73. The Income-tax Officer treated the above amount as income under section 69B of the Act. According to this provision, where, in any financial year, the assessee has made investments or is found to be the owner of any bullion, jewellery or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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