TMI Blog1985 (12) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... he Inspecting Assistant Commissioner had also levied a penalty of Rs.31,000 on the appellant on the ground of concealment of income separate appeal preferred against the said order of penalty was also pending at the material time. The Income-tax Officer, " G " Ward, Hundi Circle, Calcutta, recorded on December 15, 1970, as follows: " While completing the original assessment, interest of Rs. 9,000 paid to Shri J. P. Jaiswal on loans was not disallowed. Subsequently it has been found that the loans alleged to have been advanced by Sri Jaiswal were not genuine and hence interest on the said loans was disallowed in later years and the same was confirmed in appeal. I have, therefore, reasons to believe that for this failure and/or part omission on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the total income was underassessed." On January 2, 1971, the appellant received a notice under section 148 of the Income-tax Act issued by the said Income-tax Officer, " G " Ward, Hundi Circle, Calcutta. It was stated in the said notice which was dated December 26, 1970, that the said Income-tax Officer had reasons to believe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance-sheet, detailed statement of accounts and also the complete list of loans obtained by the appellant from different parties. Details of the creditors with their addresses and income-tax file numbers and other evidence were also produced. The Income-tax Officer, it was alleged, after taking into consideration the aforesaid, completed the said assessment under section 143(3) of the Income-tax Act, 1961. It was alleged that in the facts and circumstances, the Income-tax Officer acted illegally and wrongly assumed jurisdiction under section 147 of the Income-tax Act, 1961, although the condition procedent for the assumption of such jurisdiction had not been satisfied. It was alleged further that there was absolutely no material before the Income-tax Officer on which he could have reason to believe that the petitioner's income for the said assessment year had escaped assessment. It was alleged that the Income-tax Officer had started a fishing investigation and proceeded on a mere change of opinion on materials already disclosed. Manotosh Sarcar, the then Income-tax Officer, " G " Ward, Hundi Circle, Calcutta, at the relevant time, affirmed an affidavit on August 4, 1971 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result whereof the appellant's income chargeable to tax escaped assessment or was underassessed for the relevant assessment year. The said notice under section 148 of the Income-tax Act, 1961, was accordingly issued to the appellant after obtaining the necessary approval from the Commissioner of Income-tax, West Bengal-I, Calcutta. The other allegations in the petition were denied and the contentions were disputed. An affidavit affirmed on September 19, 1972, by Badri Prosad Shah, a partner of the appellant (firm), was filed in reply to the aforesaid affidavit of Manotosh Sarcar. It was alleged in this affidavit that Jagannath Prasad Jaiswal had been regularly assessed to income-tax by the Income-tax Officer, " F " Ward, Howrah. His income-tax file number was set out. A loan of Rs. 75,000, it was alleged, was obtained from Jagannath Prasad Jaiswal on June 2, 1958, and the appellant paid interest on such loan at the rate of 12%. Both the assessments of the appellant and the said Jagannath Prasad Jaiswal up to the assessment year 1962-63 were completed on the basis that this loan was genuine. Manotosh Sarcar, the succeeding Income-tax Officer, changed his opinion in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said loan. It could not be said that the appellant had failed to disclose any material fact necessary for the assessment. The learned advocate for the appellant submitted that the law on the question is settled by this court as also by the Supreme Court and cited the following decisions: (a) CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC). In this case, the assessee disclosed a profit from a joint venture in the relevant assessment year and submitted that half of the profit had been paid to another party under an agreement for financing the joint venture. In the original assessment, only half of the profit was taxed. In the subsequent assessment year, on a similar claim of the assessee, the Income-tax Officer re-examined the transaction and came to the conclusion that the financing agreement was a device to split profit and the entire profit of the venture was taxed. The decision of the Income-tax Officer was upheld in further proceedings. In the meantime, a notice was issued under section 34(1)(a) of the Indian Income-tax Act, 1922, for reopening the assessment for the relevant year. The assessment was reopened and the half of the profit which was stated to have escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to disclose fully and truly all material facts necessary for the assessment which has resulted in the escapement of his income. On such facts, a Division Bench of this court, following the decision of the Supreme Court in Burlop, Dealers Ltd. [1971] 79 ITR 609 (SC) and decision of the Kerala High Court in Sujir Ganesh Nayak Co. v. ITO [1976] 104 ITR 524, held that it was not possible for the assessee to have disclosed the confession of the creditors which was not in existence at the material time, that no nexus or rational connection was established or shown between the subsequent information and the formation of belief of the Income-tax Officer and that the fact that the assessee could have confessed at the original assessment that the disclosed loans were not genuine would not be a material fact within the meaning of section 147 of the Act. (c) ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR I (SC). In this case, interest paid by the assessee to the creditors who were shown to have lent money to the assessee on hundis were allowed to be deducted as expenditure in the original assessment. Subsequently, the Income-tax Officer sought to reopen the assessment on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an under-assessment. It was observed by the learned judge as follows (at pp. 427 and 428): " Simply because a transaction is held fictitious in a subsequent assessment proceeding, similar transaction in an earlier assessment year cannot be ipso facto held fictitious ... it should also be noted that mere disclosure of certain alleged facts will not ipso facto absolve the responsibility of the assessee ...... If the assessee relies on certain transactions which in reality did not exist but were fictitious and imaginary, then it must be held that the assessee had not disclosed primary and material facts fully and truly. " On the facts of the case, the reopening was upheld. He also cited CIT v. Nathuram Gokulka [1983] 141 ITR 791. In this case, a Division Bench of this court held that where there were contradictions between the statements made at the time of the original assessments and the statements made in the subsequent disclosure petition, the contradiction itself could be considered to be sufficient material on which reasonable person could form a tentative belief that at the time of the original assessment, true materials and facts have not been disclosed and on that basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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