TMI Blog1972 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ras Electricity System and others. For the assessment year 1960-61 he submitted a return showing a loss of Rs. 35,763. An assessment order was made on September 30, 1961, after readjusting some debits and ultimately determining the total loss of Rs. 5,696. For the assessment year 1961-62, the total income was determined at Rs. 54,918 under assessment order dated October 30, 1963, made under section 143(3) of the Income-tax Act, 1961. In respect of assessment years 1960-61 and 1961-62, the assessee had shown in his accounts a sum of Rs. 3,15,000 and Rs. 3,45,000, respectively, as representing borrowings on hundis from Multani bankers and also claimed deductions for interest paid in respect of those borrowings. These borrowings have been shown in the account books of the assessee also. He also gave a list of all the names of the creditors from whom he is said to have borrowed on hundis with their addresses to the Income-tax Officer. He produced the discharged hundis. The account books also disclosed that the interest on these hundis were paid by cheque. It was after a consideration of these materials available with the assessee, the above said assessment orders were made. It appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or entertained any reasonable belief that the disclosure by the assessee of material facts at the time of assessment was not full and true and that the income had escaped assessment. The Income-tax Officer should have examined those persons whose names were given by the assessee at the time of assessment with reference to the transactions they had with the assessee and those statements should have disclosed that the assessee had not made a full and true disclosure of all material facts. Only then the Income-tax Officer could be said to have bona fide entertained a belief that the assessee had not fully and truly disclosed all the materials and because of that the income or any part thereof has escaped assessment. This, in short, is the contention of the learned counsel for the petitioner. It is true that the department had not questioned the persons who were said to have advanced loans to the petitioner with reference to the particular loan transactions shown by him in his account books. But those statements were recorded from them generally about their business and their lending capacity. It is also true that some of them have claimed to have had genuine transactions also apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards any primary fact which could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income-tax Officer to issue notices under section 34 of the Indian Income-tax Act, 1922 (now under section 148). Whether these grounds are adequate or not for arriving at the conclusion that there was a non-disclosure of the material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts." The learned counsel for the petitioner then contended that the reports submitted by the Income-tax Officer to the Commissioner of Income-tax and the sanction of the Commissioner are not in strict compliance with sections 147, 148 and 151 of the Act. Though the learned counsel had no material with him in support of this contention, he advanced this argument on the basis that the counter-affidavit does not disclose that the report and the sanction complied with the provisions of the Act except stating that the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing a notice under section 148, the Income-tax Officer must have either reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. " The Supreme Court further noted that to question No. 8 in the report which reads " whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 ", it is merely noted " yes " and signed by the Commissioner of Income-tax. On this the Supreme Court observed: "We are also of the opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of escapement, it is clear from a reading of the entire report that the Income-tax Officer, prima facie, believed that there was an escapement of the income due to the non-disclosure of material facts at the time of original assessment. It is also seen that the Commissioner has not mechanically accorded permission. The note prepared and shown in the note file shows that the facts were analysed and a note was put up to the Commissioner and on being satisfied the Commissioner accorded sanction. The provisions of sections 148 and 151(2) are, therefore, satisfied. It was then contended by the learned counsel for the petitioner that the assessee had disclosed all material facts by producing all his account books wherein these loan transactions have been entered into disclosing the names and addresses of all those persons from whom he had borrowed on hundis, the discharged hundis and the payment of interest by cheque. There was no further obligation on him to instruct the Income-tax Officer about the inference to be drawn on these facts. If the Income-tax Officer felt any doubt he could have examined the creditors and satisfied himself. He having not done so, cannot be permit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and a petition filed under section 66(2) was also dismissed by the High Court. Thereupon, the Commissioner of Income-tax filed an appeal to the Supreme Court. The Supreme Court held: "The Income-tax Officer had, in consequence 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)." The Supreme Court further observed: "We are of the view that under section 34(1)(a) if the assessee had disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from these facts. The terms of the Explanation to section 34(1) also do not impose a more onerous obligation .... but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous. In the decision above-cited, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present addresses. Some others might have closed the business and left for distant places in North India and yet others in order to save their own liability to income-tax might have stated that they did not lend and many other factors might have also influenced their minds and so on. These are all matters which really go into the question of appreciation of whatever evidence that might be produced ultimately in the reassessment proceedings. They have no relevance to the question of jurisdiction of the Income-tax Officer to initiate proceedings under section 147(a). But we have no doubt that while appreciating the evidence available, the assessing and appellate authorities will take these circumstances into consideration and pass the reassessment orders on merits. It is next contended by the learned counsel for the petitioner that the Income-tax Officer could not invoke his powers under section 147(a) to reopen the assessment for the years 1960-61 and 1961-62, which were made under the Indian Income-tax Act, 1922, and if section 297(2)(d)(ii) were to be interpreted as enabling the Income-tax Officer to reopen the assessment under section 147(a) that provision violates article 14 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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