TMI Blog1992 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... essment were passed by the Income-tax Officer and all throughout for separate orders of assessment, four separate proceedings were preferred. This court, vide its order dated March 29, 1977, passed in Income-tax Applications Nos. 4748, 4749, 4750 of 1977, directed the Tribunal to state the case and make reference of questions of law and, accordingly, the Tribunal made four references to us. However, the office of this court appears to have combined the four references into one. We, therefore, direct the office to regard this reference as four independent references, and renumber them as Income-tax References Nos. 113, 113/A, 113/B and 113/C of 1978. In order to appreciate the aforesaid questions of law, it would be necessary to state the relevant facts giving rise to the aforesaid references. The relevant facts are stated hereunder : (i) The assessee is an individual who carried on the business of groundnuts, grains and grocery articles and also derived income from running trucks on hire. The assessment years in question are 1962-63, 1963-64, 1965-66 and 1966-67. The assessee filed the returns for the aforesaid four years and the Income-tax Officer, vide order dated August 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in each of the orders passed by the Income-tax Officer, he has categorically written that the balance-sheets were not drawn up by the assessee. Despite this position, the Income-tax Officer has proceeded to assess. The Appellate Assistant Commissioner also found that, in the earlier orders, i.e., for the assessment year 1958-59 to the assessment year 1961-62, the books of account produced by the assessee were rejected and because of non-production of balance-sheets, extra profits were added. The Appellate Assistant Commissioner, therefore, found that it was open to the Income-tax Officer to call upon the assessee to prepare the balance-sheet and to produce the same in exercise of his powers under section 142(1)(ii) or, secondly, it was also open to him to estimate extra profits for each of the years as he has done in the past. The Appellate Assistant Commissioner, therefore, ultimately, found that the assessee had discharged his duty by placing all the material facts before the Incometax Officer for all the four assessment years and also found that the Incometax Officer, though he was aware of the fact that the balance-sheets were not drawn, did not call upon the assessee to draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us for our opinion. In order to answer the questions referred to us, it would be necessary to set out the relevant provisions of the Act. Section 147(a), in so far as it is relevant and as it stood at the relevant time, is reproduced herein : 147. If (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing 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 . . . Explanation 2. - Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section. Reference is also required to be made at this stage to the powers of the Assessing Officer under section 142(1)(ii) because it shall have also to be seen at the time of answering the questions referred to us as to whether the Assessing Officer has failed to exercise the powers which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary facts mainly necessary for the purpose of his assessment. The duty of the assessee is to disclose only primary fact and it is for the Assessing Officer to decide what inferences of facts can be reasonably drawn from the primary facts, and what legal inferences must ultimately be drawn from the primary facts and other facts inferred from them. The assessee is not bound to tell the assessing authority what inferences, whether of fact or law, should be drawn and his failure to communicate to the assessing authority the proper and correct inferences to be drawn from the primary facts cannot be regarded as failure to disclose material facts . The assessee is required to disclose only primary facts and the primary facts to be disclosed by him must be material or relevant to the decision of the question before the assessing authority so that the non-disclosure of such facts would have a material bearing on the question of escapement of income from assessment. If the assessee has disclosed primary facts which are material and necessary for the purpose of his assessment, his assessment cannot be reopened by the Income-tax Officer by resorting to section 147(a), but, if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment year. In the facts of the present case, it shall have now to be examined as to whether the action of the assessee in not filing the balance-sheets for the aforesaid four years along with his returns of income can be said to be a non-disclosure of material facts, i.e., primary facts, which has resulted in escapement of income from being assessed. In order to answer this question, it is first required to be seen as to what is the liability of the assessee under the statute. Rule 12 of the Income-tax Rules, 1962, in Part III of the said Rules deals with returns of income. The return of income is required to be furnished under sub-section (1) or sub-section (2) or sub-section (3) of section 139. Usually, in the case of a person, not being a company, it is required to be in Form No. 2 and is required to be verified in the manner indicated therein. Form No. 2 which is prescribed under the said Rules, inter alia, provides for a number of particulars to be supplied by the assessee. Notes Nos. 1 and 2 at the bottom of the said Form No. 2 being material are reproduced herein Notes : 1. If the accounts are kept on the mercantile system of accounting, a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all, there cannot be disclosure of the balance-sheet because something that does not exist or something that is not at all maintained cannot be said to be not disclosed. The word disclosure , in his submission, stipulates and pre-supposes the existence of a thing or material. If the material or thing does not exist, the question of disclosure thereof would not arise. He submits that such material or thing can be called upon to be brought into existence by the Income-tax Officer by reference to his power under section 142(1)(ii). True it is, that, statutorily, the balancesheet is required to be filed along with the return of income, but he submits that, if the same is not prepared at all, the Income-tax Officer, while assessing the assessee, could have justifiably and within the exercise of his powers under section 142(1)(ii), called upon the assessee to prepare the balance-sheet and to file the same. However, when the Income-tax Officer has not found it necessary to call upon the assessee to prepare the same and to produce the same, it can be said that the said material, namely, the balance-sheet, did not constitute necessary material for the Income-tax Officer for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : It may well be said, and I should think said correctly, that person cannot he said to have omitted or failed to disclose something when, of such thing, he had no knowledge. A similar implication is carried by the word 'disclose', because one cannot be expected to disclosed thing or said to have failed to disclose it, unless it is a matter which he knows or knows of. Agreeing with the aforesaid observations, the Division Bench of the Calcutta High Court found that a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. Lack of knowledge of any further detail was asserted before the Income-tax Officer and he had accepted that confession of ignorance and acted upon it. Similarly, in our opinion, the duty to disclose material facts necessarily postulates existence of a thing or material. If a material is not in existence or if a material is such of which the assessee had no knowledge or cannot, be attributed with any knowledge, there would be no duty to disclose such material. If absence of such material handicaps the Income-tax Officer in assessing the income or in passing the order on the return, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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