TMI Blog1981 (8) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... o clearly shown on the liability side. Copies of the accounts of Afghan Fruit Co., Kanhya Lal Moti Ram, Fateh Chand Manohar Lal and Gopal Das Manohar Lal were also furnished to the ITO. Besides the above confirmation letters from the above four parties were also produced before the ITO in the same original assessment proceedings. inspite of the above material produced before the ITO he did not question the genuineness of the loan alleged to have been obtained by the assessee from the above four parties and made the assessment assessing the declared income after making some routine disallowances. The net profit as shown in the profit loss account was Rs. 60,674 and the assessment was made on the total income of Rs. 61,297. 3. It appears that substantially Manohar Lal Gopal Das (Gopal Dass Manohar Lal) was examined by the ITO probably that ofBombay. The following questions and answers given are relevant and are quoted below: Q. What was the income returned by you in the return filed before the 10th,Bombay? Ans. I declare the income of Rs. 3,600 in the return filed before the 10th,Bombay? Q. What was the source of the income of Rs. 3,600? Ans. The amount of Rs. 3,600 repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who are known to be mere name lenders in the asst. yr. 1965-66which has been completed. 1. Gopal Dass Manohar Lal Rs. 20,000 2. Afghan Fruit Co. Rs. 15,000 Besides these there may be other deposits. These deposits were treated as genuine. The above amounts were deposited during the asst. yr. 1964-65. Due to the failure on the part of the assessee to disclose fully and truly, income was escaped assessment for the asst. yr. 1964-65. Permission may be given to reopen the assessment for the said year, sd/ Hari Shanker, ITO Special Circle VII, New Delhi. 5. It may be observed here that no material was placed before us to show any why the ITO was of the opinion that even the credit in the name of Afghan Fruit Co. was not genuine. The Commr. after perusing the above report of the ITO agreed with him that it was a fit case for the issue of notice u/s. 148 of the Act. 6. The notice u/s. 148 of the Act was issued and served on the assessee on18th March, 1970. In response to this notice the assessee filed return of income on18th April, 1970. The return was filed under protest stating that all the particulars documents and evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) that the assessee had during the course of original assessment proceedings disclosed the balance sheet, details of interest paid and had filed copies of accounts of each creditor. It was also claimed that the amounts were received and paid by account payee cheques and that confirmations had also been filed from the Hundi brokers. It was argued that in these circumstance when full material had been disclosed to the ITO, he was not justified in initiating reassessment proceedings as the reasons for the formation of the belief contemplated by s. 147(a) of the Act were not present. Notice in this connection was placed on several decided authorities. The CIT (Appeals) mainly relying on the alleged confessional statement of Manohar Lal Gopal Dass held that he had not advanced any money to the assessee between 5th January, 1963 to September, 1965 i.e. the period covering accounting year relevant for the assessment year under appeal. According to him therefore the assessee had made a false disclosure with regard to obtaining the loan from Gopal Dass Manohar Lal. He of course admitted in para 10 of his order that the assessee had filed a copy of the balance sheet, details of interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. We have also stated above and which has also been accepted by the CIT (Appeals) that the assessee had filed a copy of the balance sheet as on31st March, 1964showing Afghan Fruit Co., Gopal Dass Manohar Lal, Fateh Chand Manohar Lal and Kanhya Lal Moti Ram as creditors on the liability side. Detailed copies of this account together with interest paid to them were also filed at the time of original assessment. Confirmation letters from the parties were also filed. The ITO accepted all this material as full and true without doubting the genuineness of any credit or payment of interest. He changed his mind only after looking into the statement of Manohar Lal Gopal Dass, We have also stated above that these is nothing to record to justify any change of opinion on his part with regard to other three parties namely Afghan Fruit Co., Kanhya Lal Moti Ram Fateh Chand Manohar Lal. Re-examination with regard to the genuineness of the credits in their names was made only after the assessment had been reopened u/s. 147(a) of the Act. 13. We will now examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d authorities. Although a number of authorities were cited before us by the rival parties, but we will refer only to these which in our opinion directly cover the point in issue. The first important case is that of Supreme Court in the case ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC). In this case also one of the creditors had confessed that he was doing only name lending and that other creditors were known name lenders. The Supreme Court found that there was nothing to show that the confession of the first creditor related to a loan to the assessee much less to the loan which was shown to have been advanced by that person to the assessee. The Supreme Court held that the reasons for the formation of the belief contemplated by s. 147(a) of the Act, for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. According to the court rational connection postulates that there must be a direct nexus or time limit between the material coming to the notice ITO and the formation of his belief that there has been under assessment of the income of the assessee because of his failure to disclose fully and truly al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Del) 132 : (1979) 118 ITR 958 (Del). It was held in this case that if the facts disclosed by the assessee are earlier accepted as true at the time of original assessment but there is a possibility of these facts being disbelieved later on that will not fall within the ambit of the assessee s default in fully and truly disclosing all material facts as contemplated by s. 147(a) of the IT Act, 1961. According to the Court the bogus nature of the transactions has to be found out during the first assessment and not in a later assessment as otherwise if that it allowed it would amount to a change of opinion on the same facts. The facts of this case are also more or less similar to those of assessee here also after the completion of the original assessment in which loans taken by the assessee firm had been accepted as genuine and interest on these loans was allowed as deduction. The ITO received information from a list prepared by the department that certain hundi brokers had lent their names to the assessee for bogus credits and on the basis of that information issued a reassessment notice to the assessee. It was held that this was a case of suspected untrust disclosure where the prima ..... X X X X Extracts X X X X X X X X Extracts X X X X
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