9911796707
TMI Blog1988 (2) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Credit Debit 10-8-1974 Draft No. 9023567 13-11-1974 Balance Rs. 50,000 carried over Rs. 90,000 22-8-1974 Draft No. 198543 Rs. 20,000 22-8-1974 Draft No. A-074088 Rs. 20,000 ---------- &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following terms : "The assessee in his balance sheet has shown credit of Rs. 90,000 in the name of Chaudhary Sukhbirsingh, New Delhi. The credit is not genuine. The amount of Rs. 90,000 therefore, represents assessee's income which has escaped assessment. I have, therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for assessment year 1975-76 income chargeable to tax amounting to Rs. 90,000 has escaped assessment for the year. Action under section 147(a) is therefore necessary to reassess the income. Wardha Dt./12-09-1979 S. L. Deshpande ITO" The said reasons do not mention anything about the communication said to have been received from the Commissioner of Income-tax, New Delhi, nor about the statement said to have been made by said Chaudhary Sukhbirsingh. On the basis of the said reasons the ITO issued notice under section 148 on 12-9-1979 to the assessee which was received by the assessee on 13-9-1979. 3. The assessee filed the return in pursuance of the said notice dated 12-9-1979 on 12-10-1979 declaring the income at Rs. 5,11,625 as originally asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement it cannot be said that the assessee had not disclosed fully and truly all material facts necessary for completing the assessment. Though on the basis of the said statement one may entertain a doubt that some income might have escaped assessment, nevertheless it cannot be said that such escapement was because of non-disclosure of all material facts for completing the assessment. It was thus submitted that the reopening under section 147(a) was bad in law. 4. The ITO did not accept the contention of the assessee and completed the reassessment proceedings by his order dated 22-8-1984. The ITO distinguished the Supreme Court cases cited by the assessee. The assessee relied on the Supreme Court decisions in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1. The ITO placed reliance on the decision of the Calcutta High Court in the case of H. A. Nanji & Co. v. ITO [1979] 120 ITR 593 in which case the Calcutta High Court had referred to the Supreme Court decision cited above and has distinguished the same. The ITO in his assessment order referred to the case of one M/s. Rakoor Industries (P.) Ltd., Delhi, in whose books the credit of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court decisions in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, Madnani Engg. Works Ltd.'s case and CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609. The CIT (Appeals) quoting the extract of the Calcutta High Court judgment in H. A. Nanji & Co.'s case gave the following finding : "Respectfully following the decision of the Calcutta High Court in the matter, I hold that the initiation of proceedings under section 147(a) was based on reasonable belief and on relevant and adequate material. I, therefore, hold that the initiation of proceedings under section 147(a) was valid." He further observed that the assessment suffers from many shortcomings, and, therefore, he set aside the assessment and directed the ITO to ascertain full facts and reframe the assessment. As against this order of the CIT (Appeals) the assessee is in appeal before us. 6. Extensive arguments were advanced on behalf of the assessee and reliance was placed on a number of decisions of the Supreme Court and High Courts. 7. The revenue has also relied on a number of cases. 8. The main argument of the learned counsel for the assessee is that at the time of original assessment he had disclosed fully and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee may be full but was not true and hence the provisions of section 147(a) were applicable to the facts of the case. In reply, the learned counsel for the assessee contended that the subsequent statement of Sukhbirsingh was thoroughly unreliable on the face of its as the same contradicted his own confirmation letter given earlier in which he confirmed having advanced Rs. 90,000 to the assessee by various bank drafts, the fact of having received back the money by bank drafts in his favour, receipt of interest payment and income-tax deducted at source. In support of the plea that the statement given by Sukhbirsingh was palpably false, it was contended by the learned counsel that in the said statement he has denied to have maintained any record while the ITO has referred to some Tribunal's order in which the accounts of Sukhbirsingh & Sons and the balance sheet, etc. were scrutinised. It was further contended that he could not give names of 102 parties without record as alleged by him and that too by contacting these 102 parties. It was thus submitted by the counsel for the assessee that the subsequent piece of information in the form of the statement of Sukhbirsingh may ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts necessary for the purpose of assessment. What are material facts will depend upon the facts of each case. After having stated all material facts it is for the ITO to draw inference and complete the assessment. If the assessee had disclosed fully and truly all material facts at the time of original assessment then the case cannot be reopened under section 147(a). There may be cases where the assessee might have disclosed all material facts but the ITO, in consequence of some information which may come in his possession after completing the assessment may have reason to believe that income chargeable to tax has escaped assessment. In such a case the provisions of section 147(b) would apply. Even under section 147(b) cases can be reopened only if there is some information subsequent to the making of the assessment. It cannot be reopened on mere change of opinion. These are the basic principles enunciated by different Courts in a number of cases. Keeping in view these basic principles and the facts of the case, the case in hand before us is to be decided. 11. The first case cited by the assessee was that of the Supreme Court in the case of Calcutta Discount Co. Ltd. In that case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H. Manory Ltd. The assessee claimed deduction of Rs. 87,937 from the said amount being half the profit paid to one Ratiram Tansukhrai under a partnership agreement. The assessee stated that on June 5, 1948, it had entered into an agreement with H. Manory Ltd. to do business in plywood and in consideration of financing the business, the assessee was to receive 50 per cent of the profit. The assessee also claimed that it had entered into an agreement on October 7, 1948 with Ratiram Tansukhrai for financing transaction of H. Manory Ltd. and had agreed to pay 50 per cent of the profit earned by it from H. Manory Ltd. to the said Ratiram Tansukhrai. The ITO accepted the return filed by the assessee and relying on the documents and evidence submitted by the assessee in the said proceedings assessed the assessee on Rs. 87,937 only for the assessment year 1949-50. In subsequent assessment year, viz., for assessment year 1950-51, the assessee showed a profit of Rs. 1,62,155 received from H. Manory Ltd. and claimed deduction of Rs. 81,077 said to have been paid to Ratiram as his share. The ITO examined the transaction and the agreement entered into between the assessee and Ratiram on October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequence of information in his possession that the agreement with Ratiram Tansukhrai was a sham transaction, reason to believe that income chargeable to tax had escaped assessment. Such a case would appropriately fall under section 34(1) (b). But the period prescribed for serving a notice under section 34(1) (b) had elapsed. Under section 34(1) (a) the ITO had authority to serve a notice when he had reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for year, income chargeable to tax had escaped assessment." The ratio laid down in the aforesaid case makes it clear that the only duty cast on the assessee is to make full and true disclosure of all the primary facts and he having done so there is no further duty cast on the assessee to instruct the ITO as to what further investigation is to be made and what inference he should draw therefrom. If, however, the ITO comes in possession of certain information in consequence of which he has reason to believe that income chargeable to tax has escaped assessment then the case would fall under section 147(b) and not under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal assessment, the assessee had produced all the hundis, on the strength of which it had obtained loans from creditor as also entries in the books of account showing payment of interest. On the basis of the said evidence the credit entries were accepted and interest payment was also allowed. In the assessment proceedings for subsequent years, it was discovered by the ITO that various items shown as loans against the security of hundies in the petitioner's books of account were fictitious. On the basis of such finding in subsequent years, the ITO had reason to believe that the assessee had failed to disclose fully and truly all material facts necessary for his assessment and it was because of such failure the income chargeable to tax has escaped assessment. The Supreme Court referred to its earlier decision in the case of Burlop Dealers Ltd. and held as follows : "It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of account were false. The assessee discharged the obligation which lay upon it by disclosing its books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (Appeals) has observed that the assessment suffered from many shortcomings. The amounts of loans in question were received through bank and repaid through bank and hence he felt that this factual aspect also requires verification, both from bank as well as the records of Delhi Party. He further observed that this factual position has not been examined by the ITO. As against this, we have the confirmation letters signed by the said creditor giving full details of the loans with draft numbers, etc., and the acceptance of the creditor that he had in fact advance the loan in question to the assessee. In this view of the matter, it cannot be said that at the time of original assessment, the assessee had not disclosed all material facts truly necessary for the purpose of assessment. We have to see the situation at the point of time when the notice under section 148 is issued. On the basis of the aforesaid facts can it be said that the ITO had reason to believe that income has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts ? For the purpose of reopening the assessment, the ITO may have a tentative belief that some inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972-73 and examined the genuineness of credits in the name of C and arrived at the conclusion that the loans in her name were not genuine. On the basis of the facts which were found during the proceedings for the assessment year 1972-73, the ITO initiated action under section 147 of the IT Act, 1961, in respect of assessment year 1967-68 and 1969-70. The Tribunal held that the reassessment proceedings had been validly initiated. On the aforesaid facts, the High Court held that the assessee had placed all the primary facts before the ITO during the original assessment proceedings. Accordingly it was for the ITO to make the necessary enquiries and draw proper inferences as to whether the transaction of loan on which the payment of interest was disclosed by the assessee was a genuine transaction of loan or not. The ITO having failed to do so, it could not be said that the assessee had not fully and truly disclosed the material facts necessary for the assessments in question. The reassessment proceedings were not valid. 14. The revenue placed its reliance on the decision of the Calcutta High Court in the case of H. A. Nanji & Co. In that case the assessee had claimed deductions fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of which is given below : "It does not, however, appear from the records that the petitioner had produced the discharged hundis, receipts for payment, alleged interest bills of brokers for procuring the purported loans, purported confirmation letters from the parties quoting their income=tax file No. as alleged. It also appears from the records that the said hundi loan account had been accepted by the assessing ITO as such without verification." It is thus clear that in the aforesaid case all the primary facts necessary for the purpose of assessment were not disclosed by the assessee and the assessment was completed without verification. It is in this light the decision of the High Court has to be appreciated. The revenue heavily relied upon the observation of the Calcutta High Court on page 611 of the report, which is as follows : "The decisions cited above lay down that the assessee is under a statutory obligation to disclose fully and truly all primary facts relating to assessment and to produce all relevant documents but he is under no obligation to disclose, differential facts which could be arrived at by a process of reasoning from such primary facts. The question for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief a result of mere pretence or change of opinion on the same primary facts, but it was based on some positive evidence in possession of the ITO which the assessee had failed to disclose at the time of original assessment. In fact in the aforesaid case the assessee had not disclosed the primary facts and the case was as mentioned earlier, all the primary facts necessary for the purpose of assessment were disclosed by the assessment the time of original assessment and there was no material with the ITO to come to the conclusion that the facts disclosed by the assessee earlier at the time of original assessment were untrue. We, therefore, find it difficult to see how the decision of the Calcutta High Court is applicable to the facts of this case. 15. The revenue then relied upon the decision of the Punjab and Haryana High Court in the case of S. P. Mohan Singh v. ITO [1983] 141 ITR 440. In this case the petitioner filed its return for the assessment year 1964-65 declaring an income of Rs. 75,727 along with the statement of accounts, etc. The ITO issued notice under section 143(2) requiring the petitioner to file a copy of the cash credits and squared up accounts along with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he had reasons to be believe that the petitioner had not fully and truly disclosed the material facts at the time of the original assessment and as a result of that the petitioner's income had escaped assessment. On the aforesaid facts their Lordships of the Punjab and Haryana High Court have held that in a case where the facts stated or disclosed by the assessee are either found to be bogus or non-existent, he cannot forestall the.reassessment on the plea that he had fully and truly disclosed all the material, placed by the petitioner before the ITO at the time of the initial assessment did not amount to any 'disclosure' in the light of the Explanation to section 147 and, therefore, the reopening of the assessment was valid. The High Court upheld the validity of issue of notice under section 147(a) because on the facts of the said case and the material which came in possession of the ITO subsequent to the original assessment the ITO found that the material disclosed by the assessee at the time of original assessment was bogus and untrue. If there is sufficient material to come to the conclusion that the facts disclosed by the assessee at the time of original assessment were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and supports it by explanation and evidence and a party to the transaction is found on enquiry never to have had his place of business at the disclosed address, obviously the disclosure could not be a true disclosure. Accordingly, the assessee could not be heard to complain that the assumption of jurisdiction by the ITO in initiation proceedings under section 34(1) (a) was not warranted in law. It is obvious in this case that subsequent to the assessment the ITO found as of fact that the party from whom the assessee had received advance of Rs. 30,000 never existed and accordingly the ITO came to a definite conclusion that explanation offered earlier by the assessee was false and it was on this belief that the jurisdiction under section 34(1) (a) was founded. The High Court on examination of records was satisfied that there was definite material on record on the basis of which the ITO could reasonably believe that the disclosure made by the assessee at the time of original assessment was not true. It was on this basis the reopening under section 34(1) (a) was justified. In the present case, as mentioned earlier, there was no sufficient material to come to the reasonable conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the reassessment is completed on 28-2-1984. Thus the same is barred by time as per the provisions of section 153(2) (b) (ii). We, therefore, hold that the reopening of the assessment by the ITO under section 147(a) is bad in law and the appeals filed by the assessee are allowed. Per Shri G. R. Raghavan, Accountant Member - For the reasons recorded hereunder, I am unable to agree with the conclusion of the Judicial Member, that, the reopening of the assessments for the years 1975-76 and 1977-78 u/s 147(a) is bad in law. 2. These two appeals by the assessee are against the combined order of the CIT (Appeals) in his appeal Nos. CIT (Appeals) /1,2/84-85, dated 31-7-1984 relating to the assessment years 1975-76 and 1977-78. The common ground of appeal for both these years is, that, the CIT (Appeals) was not justified in upholding the reopening of the assessments for these years under the provisions of section 147(a). The facts are briefly as under : The assessment for 1975-76 was completed on 27-4-1976 on a total income of Rs. 5,43,270. The same was reduced in appeal by the AAC to Rs. 5,11,625. The balance sheet filed with the original return showed a credit of Rs. 90,000 in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of information received after the original assessment as to the genuineness of the credit, but however, the assessment made on 28-2-1984 was time barred inasmuch as, it would have been completed before 31-3-1981. On merits as well, it was submitted, that whatever documentary evidence was available in this regard with the assessee was furnished at the time of the original assessment and absolutely no fresh evidence had been brought on record by the ITO to disprove the genuineness of the loans. It was also submitted, that, the assessee had no opportunity of cross-examining the concerned parties and the ITO had also failed to take into account the affidavit of the broker who had arranged the loans. 4. The CIT (Appeals) upheld the reopening of the assessments u/s 147(a) following the decision of the Calcutta High Court in H. A. Nanji & Co.'s case. He found, that the Calcutta High Court in the above decision, on more or less identical facts, had considered all the three Supreme Court's decisions relied upon by the assessee and referred to earlier, and distinguished the same with reference to the facts in that case. He reproduced certain crucial passages in the judgment at pages 611 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.'s case in this regard. It was further submitted that, the material, on the basis of which the ITO reopened the assessment, was only an inferential fact based on the same material which the assessee had disclosed as primary facts, and, such an inferential fact could not confer jurisdiction on the ITO to have recourse to section 147(a). The assessee's learned representative heavily relied on the Supreme Court's decisions in Burlop Dealers Ltd.'s case, Madnani Engg. Works Ltd.'s case and Dinesh Kumar Gordhandas' case. In fine, it was submitted, that, all primary facts as referred to in the Supreme Court's decision in Calcutta Discount Co. Ltd.'s case, were made available to the ITO at the time of the original assessments; there was no failure on the part of the assessee to disclose fully and truly any primary facts; the material relied upon by the ITO was only an inferential fact, which was based on the primary facts already disclosed at the original assessment stage and, therefore, the ingredients necessary for invoking the provisions of section 147(a) were absent, and at best, the case, if at all, would only be covered by the provisions of section 147(b), which however, were time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions and the authorities cited, I am of the considered opinion, that, the assessee in this cases had failed to disclose fully and truly all material facts necessary for its assessment would entitle the ITO to have reason to believe, that his income has escaped assessment. In the present case, much has been made of the fact, that the assessee had filed a confirmatory letter which also furnished the permanent account number of the creditor and apart from this, there was no other primary fact, which the assessee was bound to disclose to the authorities. It was also submitted, that, it was not for the assessee to advise the ITO as to what inferential conclusions he was to draw from an examination of those facts. At first flush, this argument is quite attractive. However, if we consider the issue deeply without being dazzled by the attractiveness of the argument, the hollowness of the same becomes amply evident. The section not only requires the assessee to disclose all material facts but it lays emphasis on a full and true disclosure. In the present case, can it be said that the assessee had made a full and true disclosure of all the material facts for its assessment ? The following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO also referred to the circular setting out the names of the hundi creditors and the respective amounts involved. On these facts, it was held, that, it could not be said, that the discovery of the creditors of the assessee as bogus creditors, was an inferential fact based on the same materials which the assessee had disclosed as primary facts nor was the belief, that, the income had escaped assessment, a result of pretence or change of opinion on the same primary facts. It was further held, that, when such names disclosed by the assessee were found in the list of bogus creditors the ITO could prima facie, believe, that, the income had escaped assessment and, therefore, the reopening u/s 147(a) was well within the limits of that section. In coming to this conclusion, their Lordships had referred to the decisions of the Supreme Court in Calcutta Discount Co. Ltd.'s case, Burlop Dealers Ltd.'s case and Madnani Engg. Works Ltd.'s case. All these cases were distinguished on facts by the Calcutta High Court from the case before it. The observations made by the Calcutta High Court, while distinguishing these decisions are quite significant in this context and, therefore, I reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist was an inferential fact based on the same material which the assessee had disclosed as primary facts in respect of the assessment in the usual course nor was the belief a result of mere pretence or change of opinion only on the same primary facts or one a prudent man acting bona fide could not have arrived at." The further passage in this decision at page 612 which has been extracted by the CIT (Appeals) in his order also supports my view in this behalf. 10. I am, therefore, fortified by this decision that the belief the income of the assessee had escaped assessment is not an inferential fact based on the same materials, which the assessee had disclosed as primary fact for the simple reason, the belief of the ITO is with reference to a subsequent occurrence which is quite significant and material in this context, namely, that the so called creditor had himself confessed, that, he had dealt in bogus loan transactions and the assessee was one, who had been accommodated by him in this regard. This fact would blow the theory of inferential fact, made much of, on behalf of the appellant, sky high. 11. It is also necessary to draw a distinction between the falsity of the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see were accepted initially and the assessment was completed. Subsequently, as a result of investigation and raids by the Income-tax Department, it was found that the alleged creditors had engaged in hawala business and, therefore, the ITO reopened the assessment u/s 147 (a). It was held by the Punjab & Haryana High Court, that, the subsequent information constituted the basis for the belief of the ITO, that the assessee had not fully and truly disclosed all material facts and, therefore, the provisions of section 147(a) were applicable. In Ess Ess Kay Engg. Co. (P.) Ltd.'s case it has been held, that, an assessment could be reopened u/s 147(a) if the facts disclosed by the assessee at the original assessment stage were found to be untrue on the basis of the material discovered later by the assessing authority. In that case, certain commission payments were originally allowed as a deduction in the assessment of the assessee. Subsequently, on the basis of fresh material, the ITO found, that, all the material particulars were not disclosed in this regard and, therefore, reopened the assessment u/s 147(a). A similar view has been taken by the Kerala High Court in Sujir Ganesh Nayak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail) and grain mainly. The head office is at Hinganghat. There are branches at Durg, Bikaner, Nagpur, Rajnandgaon and Bhatapara. The accounting year is the Diwali Year. The method of accounting is mercantile 4. There are two assessments involved (1975-76 and 1977-78). The assessment for 1975-76 was completed on 27-4-1976 on a total income of Rs. 5,43,270. It was reduced in first appeal to Rs. 5,11,625. The balance sheet filed in the original assessment proceedings showed a credit balance of Rs. 90,000 in the account of one M/s. Chaudhary Sukhbir Singh & Sons. A 'confirmatory letter' dated 10-2-1976 from the party was also filed in support of the said credit. It may be noted that the account of the above party in the books of the assessee was recorded as under : Credit Debit 10-8-1974 Draft No. 9023567 13-11-1974 Balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet has shown credit of Rs. 90,000 in the name of Chaudhary Sukhbir Singh, New Delhi. The credit is not genuine. j The amount of Rs. 90,000 therefore, represents assessee's income which has escaped assessment. I have, therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for assessment year 1975-76 income chargeable to tax amounting to Rs. 90,000 has escaped assessment for the year. All action under section 147(a) is therefore necessary to reassess the income. Vardha, Dt. 12-9-1979 S. L. Deshpande, ITO." A notice u/s. 148 was thereupon issued on 12-9-1979 to the assessee and was served on the assessee on 13-9-1979. 6. The assessee filed a return in pursurance of the said notice of 12-9-1979 disclosing total income of Rs. 5,11,625 as originally assessed. Thereafter the ITO apparently did not proceed with the matter. On 21-9-1983 the ITO took up the proceedings not only for this assessment year but also for the assessment years 1976-77 and 1977-78. These two assessment years had also been reopended by then u/s 147 (a) of the Act. In his letter of 21-9-1983 issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said statement one could entertain a doubt that some income might had escaped assessment but nevertheless it could not be said that such an escarpment was because of non-disclosure of material facts for completing the assessment. 9. The ITO rejected the above submission and completed the reassessment by his order dt. 22-8-1984. The ITO relied on the decision in H. A. Nanji & Co.'s case. In that decision the Calcutta High Court had distinguished the following decisions : (i) Calcutta Discount Co. Ltd.'s case (ii) Burlop Dealers Ltd.'s case (iii) Madnani Engg. Works Ltd.'s case The ITO also referred in his order to the case of one M/s. Rakoor Industries Pvt. Ltd., Delhi, in whose books there was a credit in the name of Chaudhary Sukhbir Singh. An addition was made on this could in that case and that addition was also confirmed by the Delhi Bench of the Tribunal. Apparently in that case the department examined the books of account of Chaudhary Sukhbir Singh & Sons and it was seen that the total assets as per the balance sheet stood at Rs. 2,24,484. According to the assessee, it was evident from this that the said party was maintaining books of account but in the statement sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .'s case was also a relevant decision in this regard. In that case at the time of the original assessment the assessee had produced all the hounds on the strength of which it had obtained loans from the creditors as also entire in the books of account showing payment of interest. On the basis of this material the credit entries of interest. On the basis of this material the credit entries were accepted and interest payment was also allowed. This was for the assessment year 1959-60. In the course of the assessment proceedings for the year 1963-64 the ITO was of the view that various items shown as loans against the security of the hundis in the assessee's books of account were fictitious. He, therefore, reopened the proceedings u/s 147(a) for the assessment year 1959-60. The Supreme Court held that the action of the ITO in reopening the assessment was bad in law, because there was no non-disclosure on the part of the assessee. It observed (at p. 5) specifically as under: "The respondent could not be said to have failed to make a true and fully disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of necessary primary facts. It was because of this the court held there that the assessee had failed to disclose all primary facts in the original assessment. That factual situation did not obtain in the instant case. The instant case was one where all primary facts necessary at the time of the original proceedings. (vii) The decisions in S. P. Mohan Singh's case was also distinguishable. The Court held there that where the facts stated or disclosed by the assessee in the original proceedings are either found to be bogus or non-existent, reassessment cannot be opposed on the plea that the assessee had fully and truly disclosed all material facts. If there was sufficient material to conclude that facts disclosed by the assessee at the time of the original assessment were entire and bogus or the documents produced were fabricated or misleading and because of such false representation income had escaped assessment then sec. 147(a) would apply, i.e., the basic fact to be considered in whether at the time of issue of notice u/s 148 there is material to conclude that the facts disclosed by the assessee at the time of original assessment were untrue and because of that income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In August 1979 the ITO received a copy of a letter issued by the Commissioner (Appeals)-IV, New Delhi. This was to the effect that Sukhbir Singh had admitted before the ITO at Delhi that he was doing hawala business (name-lending) for a number of years and that he had also furnished a list showing the names of the parties with whom he had done this business. The details of such transactions and the list of names included the sum of Rs. 90,000 alleged to have been advanced to the assessee-firm. That was why the ITO action under section 147(a). (ii) The assessment for 1977-78 was reopened with a view to disallow interest of Rs. 4,750 allowed as a deduction in the original assessment. In the reassessment under section 147(a) the ITO disallowed such interest. (iii) The Commissioner (Appeals) upheld the reopening of the assessment but held on merits that the ITO had merely gone on the basis of the statement recorded by the ITO, Delhi and that the matter had to be looks into again by the ITO for verification of the credit and also to give the assessee an opportunity of cross-examining the Delhi party. (iv) The facts and circumstances of the case showed that the assessee had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the erroneous inference which the ITO may draw from such material facts which are otherwise full and true. In the later case reopening is not possible as it would be only a change of opinion but in the former case action under section 147(a) would be justified. The instant case falls in this category. The disclosure of facts made by the assessee was rendered false by a subsequent event and section 147(a) was applicable to such a case. [See S. P. Mohan Singh's case.] (ix) Subsequent confessions made by alleged hundi creditors to the effects that they had indulged in hawala transactions would constitute material for the formation of the belief of income escaping assessment because of non-disclosure on the part of the assessee. See Kripa Ram Ramji Dass' case. (x) Section 147(a) could be applied if the facts disclosed by the assessee at the original assessment stage were found to be untrue on the basis of material discovered later by the ITO. See Ess Ess Kay Engg. Co. Ltd.'s case as also Sujir Ganesh Nayak & Co.'s case. In other words, if the disclosure of facts made by the assessee subsequently turns out to be false or not full, the ITO can form the belief of escarpme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, this is a case where no reasons have been recorded that would fulfill the strict retirements of sec. 148(2). But I find that there are other reasons as well for holding that the action taken u/s 147 (a) was not valid. In Burlop Dealers Ltd.'s case the assessee-company disclosed a profit of Rs. 1,75,875 from a joint venture in plywood chests. It claimed that half the profit of Rs. 87,937 was paid to one R under an agreement dated 7-10-1948 for financing the transaction of the venture. The ITO brought to tax only Rs. 87,937 as the profit earned from the venture. For the assessment year 1950-51 the assessee had similarly claimed that it had paid half the profit from the joint venture to R but on examination of the transaction the officer held that the agreement of 7-10-1948 a was a got-up device to reduce profits and taxed the entire profit from the venture; and that was ultimately upheld. Meanwhile on 13-5-1955 a notice u/s 34(1) (a) of the old Act of 1922 [in pair material with sec. 147 (a) of the new Act] was issued for reopening the assessment for that year in the reassessment the sum of Rs. 87,937 allowed as a deduction in the original assessment. 15. The question b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown as loans against the security of hundis in the assessee's books of account of the assessment year 1959-60 were in fact fictitious and that credits against the names of certain parties, viz., A, C, R, M and D were found not to be genuine and hence there was room to claim that the assessee was guilty of non-disclosure in the original assessment leading to escarpment of income chargeable to tax. A Single Judge of the High Court dismissed the writ petition but on appeals a Division Bench allowed the potion and question the notice. The matter went up to the Supreme Court. 19. The Supreme Court held, affirming the decisions of the Division Bench, that the extent of reason to believe on the part of the ITO was first of all a justiciable issue; that secondly, it was seen that the assessee had produced in the original assessment all the hundis on the strength of which it had obtained loans from creditors, as also entries, in the books of account showing payment of interest; and it was for the ITO to investigate and determine whether these documents were genuine or not and the respondent could not be said to have failed to makes a true and full disclosure of the material facts by not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account already stands recorded in paragraph 4. On this letter itself Chaudhary Sukhbir Singh stated that he had checked the above statement of account and confirmed that the same was correct. He also gave his permanent A\c. No. and then signed the above declaration. According to the Departmental Representative, this was not before the Income tax officer at the original assessment. But my attention was invited to page 53 of the paper book by the learned counsel for the assessee. At page 53 is a copy of the reassessment order dated 28-2-1984. That clearly mentions that in the original assessment proceedings the assessee filed the confirmatory letter signed by somebody as authorized agent. The Departmental Representative then contended that interest payment of Rs. 3,200 was not disclosed in the original assessment and hence there was failure to disclose fully and truly all material facts. According to the Departmental Representative, the Confirmatory letter also not having mentioned anything relating to interest, action under section 147[a] was justified on account of non disclosure. However, it was not in dispute before me that interest payments shown as made to the creditor were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding for 1967-68 showed that no correspondence was exchanged between the so called sole selling agents and the company. (c) I was found that the existence of shri S. K. Puri and Yodha Ram, who are said to be the two travelling agents employed by the firm and submitted daily progress reports, was doubtful as the assessee had failed to furnish even the basic information about them. (d) The assessee's claim that M/s. Kay Engineering sales corporation had issued circulars, letters, etc., to its distributors was doubtful and was not supported by any evidence. (e) Shri K. S. Khosla, who was working as director in charge (sales) in the account year relevant to the assessment year 1965-66, continued to work in this year as well and drew his salary and T. A. Bills. This was in addition to the payment made by the assessee to M/s. key Engineering Sales Corporation on account of overrinding commission." Acting on the above material (the Court noted] the ITO had rightly reopended the assessment for the assessment year 1966-67. In this regard it observed that the assessee had not disclosed fully and truly all the material particulars as regards the commission paid by it to the sole selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m filed a write petition challenging the notice claiming that there had been full and fair disclosure of all basic facts. A single judge accepted the case of the assessee. The matter then came up before a Division Bench. 25. The Division Bench held that though the assessee did disclose the hundi loans in the assessment proceedings that by itself did not lead to the conclusion that escarpment of assessment, if any, was merely the result of a different view taken by the successor-ITO. The successor ITO arrived at the conclusion that the assessee concealed a part of its income by falsely representing the same as loans in the original assessment. That could note said to be a mare change of opinion or view. On the other hand the successor ITO was proceeding on the actual facts as subsequently found out leading to the conclusion of escarpment of income due to non disclosure. The court noted in this regard that from the reason assigned by the ITO in his report to the Commissioner and in his affidavit before the Court that certain transactions which were represented as loans a the time of the original assessment were believed to the succeeding two years were found to be not genuine. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be legal inference or inference of fact. Hence, the ITO before proceeding u/s. 147(a) must at least take up a definite stand whether the matter he relies upon as not having been disclosed by the assessee is real or not and whether it is a primary fact or not and if it is a fact whether it is a primary fact or an inferential fact. The Court went on to note that in the case before it the controversy was about the truth or falsity of certain loans. They were either facts or not facts. It the loans were real transactions and so, are facts, then there is no non-disclosure whether they be primary facts of internal facts. On the other hand, if they are bogus and consequently, not facts, then also sec. 147(a) has no application, because mention of them in the return is only a positive or affirmative statement of false transactions which are not in the origin of facts and by no stretch of imagination can it said to be a negative act of non-disclosure of facts. In either case section 147(a) has no application. The ratio of this decision applies equally strongly here. 29. The last decision I would notice in this regard is in Panchanan Hati. In that case, subsequent to the original asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on the facts and in the circumstances of the case the CIT (Appeals) erred in holding that the proceedings were rightly initiated by the ITO u/s 147(a) of the IT act 1961." 2. In support of the respective contention of both the learned representatives for the assessee and revenue many authorities were cited by them which were considered by the Tribunal. While arriving at the decision after careful analysis of the respective submissions on both sides, this Bench of the Tribunal consisting of Shri P. I. Mohan Singh, Judicial Member and Shri G. R. Raghavan, Accountant Member, differed from each other in their conclusions. 3. In his detailed order dated May 29, 1985, the learned Judicial Member for the various reasons discussed therein ultimately held that the reopening of the assessment by the ITO u/s 147 (a) of the act was bad in law and thus allowed the appeals of the assessee. 4. On the other hand, in his detailed order dated June 27, 1985 the learned accountant Member for the different reasons discussed therein could not agree with the conclusions as aforesaid of the judicial member but held that the assessment should be set aside and restored the case to the ITO for making ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
