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TMI Blog1993 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 make payment of outstandings at Calcutta. For making certain purchases of cloth and for payment of other outstandings against the assessee, the said partner, while in Calcutta, raised a cash loan of Rs. 50,000 from the Calcutta company and, on his return to Azamgarh on May 25, 1962, necessary entries were made in the books of account of the assessee showing a credit of Rs. 50,000 from the Calcutta company by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions 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 November 25, 1972, the assessee contended that there had been no non-disclosure on its part in respect of the loan transaction of Rs. 50,000 and that since all the primary facts had been disclosed by the assessee at the stage of the original assessment, the provisions of section 147(a) were inapplicable. After considering the reply, the Income-tax Officer issued a notice under section 148 of the Act to the assessee proposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled 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 petition with costs on November 24, 1976. The assessee applied for a certificate of fitness to file an appeal to the Supreme Court under article 133 of the Constitution. The Division Bench of the High Court, while granting the certificate, opined : "On one of the questions which arise out of our order in the writ petition, there is considerable divergence of views amongst different High Courts. Some High Courts have taken the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 escapement or underassessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. The Income-tax Officer is obliged, before initiating proceedings under section 148 of the Act, to record the reasons for the formation of his belief to reopen t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, 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 contended that, in the instant case, the Income-tax Officer at Azamgarh came to possess specific information from the Income-tax Officer, Calcutta, which was sufficient for the formation of his belief that the assessee had not made a true and full disclosure in the return and that income chargeable to tax had escaped assessment on that account. According to Shri Bhatnagar, the question as to whether the grounds are adequate or not is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchases of cloth and for clearing other outstanding debts, in the normal course of human conduct, if not the entire amount of Rs. 50,000, at least a substantial amount would have been spent or paid towards the purchases and to clear off the other debts at Calcutta, However, on the assessee's own showing, it was not so. This is evident from what the assessee stated in paragraph 4 of the writ petition which reads : "That when Sri Bajrang La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer 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 income of the assessee chargeable to tax had escaped assessment. Unlike the general "circulars" issued by the Commissioner of Income-tax in that case, in the instant case, the Income-tax Officer at Azamgarh had entertained doubts about the genuineness of the loan transaction of Rs. 50,000 and, therefore, had made enquiries from the Income-tax Officer at Calcutta. The reply received from the Income-tax Officer at Calcutta was specific and went t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. Sharma then made an attempt, based on CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC), to urge that since it was permissible for the Income-tax Officer during the original proceedings to have conducted an investigation and verified the material facts, after the assessee had made a disclosure of the primary facts, about the genuineness of the loan transaction, the assessing authority could not, on account of an omission on his part to do so, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 received from HM and claimed that it had transferred 50% of the amount equal to Rs. 81,077 to the account of Ratiram as his share. The Income-tax Officer did not agree and held that the alleged agreement between the assessee and Ratiram was merely a got up device to reduce the profits received from HM and brought the entire amount of Rs. 1,62,155 to tax. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 matter of fact, after the conclusion of the original assessment proceedings, there was no fresh material at all available with the Income-tax Officer in Burlop Dealers' case [1971] 79 ITR 609 (SC) which could have enabled the Income-tax Officer to entertain any reason to believe that the income of the assessee had escaped assessment for the assessment year 1949-50. An assessment order for the subsequent year could not by itself lead to any inferen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific. It would in this connection be advantageous to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sum of Rs. 1,50,000, after holding that the said sum had escaped assessment on account of the omission of the assessee to disclose truly and fully the material facts at the time of original assessment. The following three questions were referred for opinion to the High Court (at page 471): "(1) Whether the assessment under section 34 was valid and proper? (2) Whether the Income-tax Officer rightly acted in giving effect to the order of the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 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 understood. Again in A.L.A. Firm v. CIT [1991] 189 ITR 285, a three-judge Bench of this court to which one of us (S.C. Agrawal J.) was a party, after an elaborate discussion of the subject opined that the jurisdiction of the Income-tax Officer to reassess income arises if he has, in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe that income chargeable to tax had escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of sections 147(a) and 148 of the Act and is against the settled law laid down by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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