TMI Blog1993 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was assessed to income-tax at Azamgarh (U, P.). In the income-tax returns for the assessment year 1963-64, the assessee claimed that it had borrowed a sum of Rs. 50,000 from M/s. Jain Finance Distributors (India) Private Limited, Calcutta (hereinafter called "the Calcutta company"), on May 19, 1962. An entry dated May 25, 1962, in that behalf, was made by the assessee in its books of account as well as in the balance-sheet as a liability. The loan was stated to have been raised in cash and it was also claimed to have been returned in cash in 1968, though the interest on loan was stated to be paid by cheque/bank drafts till repayment in 1968. During the assessment proceedings, the Income-tax Officer directed the assessee to file a copy of the account of the Calcutta company to support the loan transaction. The assessee produced a confirmatory letter dated November 15, 1963, from the Calcutta company, confirming the payment of loan of Rs. 50,000 to the assessee. The case of the assessee before the Income-tax Officer was that one of its partners, namely, Bajrang Lal (since deceased) had gone to Calcutta on May 19, 1962, with draft for Rs. 31,000 and Rs. 151 in cash in order to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the guise of loan from Jain Finance Distributors (India) Pvt. Ltd. No 'finance was ever distributed', only the name of the concern was lent. This position has been accepted in the assessments of the company for 1962-63, 1963-64 and 1964-65. In the circumstances you are requested not to treat any transaction with this concern as genuine. I can furnish further information to you if you send me full particulars of transactions which you may be enquiring about. (Sd.) A.R. Das Gupta, Income-tax Officer, 'K' Ward, (Companies Distt. 111, Calcutta." After receipt of the above communication, the assessing authority, on August 26, 1971, issued a notice to the assessee stating therein that he was prima facie satisfied that the loan transaction of Rs. 50,000 was not genuine and that since the assessee had failed to disclose fully and truly all the material facts necessary for assessment for the year 1963-64, income chargeable to tax had escaped assessment and that he, therefore, proposed to reopen the case for the assessment year 1965-66 under section 147(a) of the Income-tax Act, 1961 (hereinafter called "the Act"). Objections were invited from the assessee. In his reply dated Novembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the facts gathered by him from the contents of the letter of the Income-tax Officer at Calcutta, the confession allegedly made by the creditor before the Income-tax Officer at Calcutta, in respect of assessment years 1962-63 to 1964-65 and the statement of the creditor before him. The assessee was called upon to reply but he did not give any reply to the show-cause notice. While matters rested thus, the assessee filed Writ Petition No. 1541 of 1974 in the High Court of judicature at Allahabad, on March 18, 1974, seeking the quashing of the notices issued under section 148 of the Act and to restrain the Income-tax Officer from continuing with the reassessment proceedings. A Division Bench of the High Court, after a detailed consideration of facts and law, came to the conclusion that the information furnished by the Income-tax Officer, Calcutta, could form the basis for entertaining a reasonable belief on the part of the Income-tax Officer, Azamgarh, that, as a result of a false representation made by the assessee regarding the raising of cash loan from the Calcutta company, his income had escaped assessment during the relevant assessment year and it dismissed the writ petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section . . . 149. Time limit for notice.-(1) No notice under section 148 shall be issued, (a) in cases falling under clause (a) of section 147 (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii) . .. (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year. " From the plain phraseology of the above sections of the Act, it appears that two conditions precedent which are required to be satisfied before an Income-tax Officer can acquire jurisdiction to proceed under clause (a) of section 147 read with sections 148 and 149 of the Act, beyond the period of four years but within a period of eight years from the end of the relevant year, are : (a) that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either been underassessed or had escaped assessment and (b) that the Income-tax Officer must have reason to believe that such escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment during the relevant assessment year on account of omission on the part of the assessee to disclose true and full facts during the assessment proceedings. Learned counsel maintained that the subsequent information from the Income-tax Officer, Calcutta, was vague and, therefore, the enquiry under section 147 of the Act could not be commenced and, in any event, the subsequent information could not justify the reopening of the assessment, particularly, when it was open to the Income-tax Officer to have conducted an enquiry during the original assessment proceedings to clear any doubts which he may have entertained with regard to the loan transaction. Learned counsel referred to certain judgments in support of his submissions. We shall refer to them in the course of this judgment. Mr. K.P. Bhatnagar, learned counsel appearing for the respondent, on the other hand, submitted that the obligation of an assessee is not merely to make disclosure of the basic or primary facts at the time of assessment but to make a "true and full" disclosure of such basic facts, and an omission to do so would clothe the Income-tax Officer with the jurisdiction to reopen a concluded assessment. He conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case support the above view of the High Court. The assessee was being assessed to tax at Azamgarh. It was claimed that it had raised a cash loan of Rs. 50,000 in May, 1962, from the Calcutta company on interest. According to the assessee, the loan was raised by one of the partners of the firm who had gone to Calcutta for making purchases of cloth, etc. In paragraph 3 of the writ petition filed by the assessee in the High Court, it was stated thus : "That, on May 13, 1962, one of the partners, namely, Sri Bajrang Lal, who is since deceased, had gone to Calcutta with a draft of Rs. 31,000 and of Rs. 151 in cash. The amount was carried by the said partner in order to make payment of outstandings against the firm. In Calcutta the said partner raised the loan of Rs. 50,000 on May 19, 1962. This loan was raised for making purchases of cloth and also for payment of other outstandings against the firm." The interest on the loan was being paid to the Calcutta company by draft/cheque and not in cash till the loan was claimed to have been repaid in cash in 1968. Since the assessee itself stated in paragraph 3 of the writ petition he loan had been raised for making purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the original assessment proceedings. It was under these circumstances that the assessment was sought to be reopened and a notice under section 148 of the Act, after obtaining the requisite permission from the Commissioner of Income-tax, was issued. The judgment in Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), relied upon by Mr. Sharma, is clearly distinguishable. In Chhugamal's case [1971] 79 ITR 603 (SC), the Income-tax Officer had initiated reassessment proceedings on the basis of a "circular" issued from the office of the Commissioner of Income-tax, Bihar and Orissa, which stated that three persons named in that circular were merely name-lenders and their transactions were bogus and proper investigation regarding the loans from such persons was necessary before accepting the returns. The Income-tax Officer, merely on the basis of that "circular", initiated reassessment proceedings. This court held that the circular by itself, without any other material and investigation, could not afford any basis to the Income-tax Officer for forming a reasonable belief that the assessee had not made a full and true disclosure of the relevant facts on account of which the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 1, 1957, and March 31, 1958, had escaped assessment in the instant case, however, the facts are entirely different. From the communication of the jurisdictional Income-tax Officer at Calcutta, it came to light that the managing director of the Calcutta company, Mr. Surana, had, during the assessment proceedings of that company for the period 1962-63, 1963-64 and 1964-65, made a confession to the effect that he did not lend money to any party whatsoever. The information, therefore, was specific that no money had been lent to any one during 1962-63, 1963-64 and 1964-65. Thus, the period during which the Calcutta company had only lent its name was specified. That period corresponded to the period during which the assessee had claimed to have received a cash loan of Rs. 50,000 from the Calcutta company. It is, therefore, not correct to say that the information available with the Income-tax Officer, Azamgarh, in the present case was of the same vague nature as the information available with the Income-tax Officer in Mewal Das' case [1976] 103 ITR 437 (SC). The judgment in Mewal Das' case [1976] 103 ITR 437 (SC), therefore, cannot advance the case of the assessee at all. Mr. Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1949-50, the assessee submitted a profit and loss account disclosing in the relevant year of account a sum of Rs. 1,75,875 as profit in a joint venture from H. Manory Limited (hereinafter HM) and claimed that Rs. 87,937 being half the profit earned from HM was paid to one Ratiram under a partnership agreement. According to the assessee, it had entered into an agreement with HM on June 5, 1948, to do business in plywood chests and, in consideration of financing that business, the assessee was to receive 50% of the profits of the business. The assessee claimed that it had entered into an agreement with Ratiram for financing the transactions of HM in the joint venture and had agreed to pay to Ratiram 50% of the profit earned by it from the business with HM. The Income-tax Officer accepted the return filed by the assessee and, in computing the total income for the assessment year 1949-50, he included a sum of Rs. 87,937 (50% of Rs. 1,75,875) only as the profit earned on the joint venture with HM. In the assessment year 1950-51 also, the assessee filed a return accompanied by a profit and loss account, disclosing total profit of Rs. 1,62,155 in the relevant accounting year re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income of the assessee for 1949-50. Reference applications under section 66(1) and 66(2) of the Indian Income-tax Act, 1922, failed. The Revenue Commissioner approached this court and it was held (at page 613) : "The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under section 34(1)(a). Thus, it is seen that in Burlop Dealers' case [1971] 79 ITR 609 (SC), apart from the Income-tax Officer holding during the assessment proceedings of the same assessee for a subsequent year, that the alleged agreement between the assessee and Ratiram was bogus, there was no other information or material from any other external source which came to the notice of the Income-tax Officer after the assessment proceedings which could enable the Income-tax Officer to form a reasonable belief that the income of the assessee had escaped assessment in the earlier year. As m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason of the omission of the assessee to disclose fully and truly all material facts necessary, for his assessment for the assessment year 1944-45 during the original assessment proceedings. He, accordingly, issued a notice under section 34(1)(a) of the 1922 Act (corresponding to section 147) to the assessee. In reply to that notice, the assessee filed a return similar to the one filed earlier and denied having received Rs. 1,50,000 secretly from the mortgagor. That plea was not accepted by the Income-tax Officer who included the additional sum of Rs. 1,50,000 in the income of the assessee, earlier determined for the assessment year 1944-45 and taxed him accordingly. On appeal, the Appellate Assistant Commissioner set aside the order of the Income-tax Officer and remanded the case. for redoing the assessment after giving the assessee an opportunity to cross-examine the parties examined by the Income-tax Officer, on the basis of whose statement he had come to the conclusion that a sum of Rs. 1,50,000 had been secretly paid to the mortgagee by the mortgagor. The Income-tax Officer, after giving necessary opportunity to the assessee, made a fresh order of assessment including that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-disclosure of material facts. There can be no doubt that at the time he issued, notice under section 34(1)(a)on the basis of the material before him, the Income-tax Officer could have formed the necessary belief. In the notice issued, he says that he had formed that belief. In our opinion, the requirements of section 34(1)(a)are fully satisfied. The fact that there was some vague information before the Income-tax Officer that the assessee's father had secretly received sum of Rs. 1,50,000 from the mortgagor was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessee had stoutly denied that fact and the court records did not support that information. It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of section 34(1)(a) particularly when the assessee had failed to place truly and fully all the material facts before him . . . ..." The above observations apply with full force to the facts of the present case and also go to show as to how the judgment in Burlop's case [1971] 79 ITR 609 (SC) is required to be unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer and Examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealers' case [1971] 79 ITR 609 (SC) as laying down the law to the contrary fell into an error and did not appreciate the import of that judgment correctly. We are not persuaded to accept the argument of Mr. Sharma that the question regarding the truthfulness or falsehood of the transactions reflected in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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