TMI Blog1986 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings under section 147(a) of the Income-tax Act, 1961, for the assessment year 1959-60 ? " It is thus evident that Taxation Case No. 203 of 1976 is at the instance of the Commissioner of Income-tax, whereas Taxation Case No. 204 of 1976 is at the instance of the assessee, M/s. Bihar Cotton Mills Limited, Patna. From the facts as found from the statement of the case, it is evident that for the assessment year 1958-59, the original assessment was made under section 23(3) of the Indian Income-tax Act, 1922 (hereinafter referred as the " old Act"'), on February 19, 1959. Subsequently, the Income-tax Officer initiated proceedings under section 147(a) of the Act, as according to him, he had reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the company for the assessment year 1958-59, the income chargeable to tax had escaped assessment for that year. The initiation of proceedings under section 147(a) was in respect of three credits in certain accounts as under: Date Name Amount Rs. 2-1-1958 M/s. Shrikrishna Ghanshyamdas, Calcutta 29,000 5-2-1958 M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner, these credits have been considered as income from undisclosed sources, they had to be considered only in the assessment year 1958-59 and the Income-tax Officer completed the original assessment without considering at all these credits or their genuineness. The Appellate Assistant Commissioner rejected the plea of the assessee that the Income-tax Officer had no reason to believe that income had escaped assessment as a result of any omission on the part of the assessee. He found that in this case, one Gulabchand Jain, an incometax advocate, had adopted a device for helping assessees to introduce their own secreted profits in their books of account in the names of fictitious persons. For this purpose, certain books of account were got prepared and some assessments were also got framed by filing imaginary returns. In these books of account, moneys were shown to have been advanced by such parties to the needy persons. The persons did not need the money as such because they had in their possession sufficient cash of their own but all that was undisclosed money which could not be brought into the books without inviting the attention of the tax authorities. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se letters were sent by registered post and they came back with the remarks that there was no such person by that name and thus the notices could not be served. None of the parties had either appeared or were caused to be produced before the Income-tax Officer on the date fixed for that purpose. On the aforesaid facts, the Appellate Assistant Commissioner held that adequate opportunities had been given to the assessee but except for stating that the credits were genuine, the assessee had not adduced any evidence to prove their genuineness. The Appellate Assistant Commissioner also found that there was no question of these credits having been accepted in the original assessment for the assessment year 1958-59, as no such facts were given by the assessee in that year. The addition of Rs. 89,000 was, therefore, confirmed by him. The Appellate Assistant Commissioner also rejected the plea of the assessee that the amount in question could not be assessed in the assessment year 1958-59. As these credits had appeared on the dates falling in the financial year 1957-58 and the amounts were to be treated as income from undisclosed sources, the proper year for their assessment, according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the Income-tax Officer had clearly recorded reasons and it was not necessary to show these recorded reasons to the assessee as it was not required by law. The information received by the Department was specific and it related to the credits in the names of these two parties and the information clearly indicated that these two parties were ghost parties and had, in fact, not given any money to any party. Reference was made to the letter received from the Directorate of Investigation which gave details of the racket and also the fact regarding the non-existence of these two parties. The relevant files were placed before the Tribunal. The Tribunal looked into the records and the files produced and found that the Income-tax Officer bad clearly recorded the reasons and these reasons made reference to the information received by the Income-tax Officer about the nature of the credits in the names of these two parties. The Tribunal found from the communication received from the Directorate of Investigation that there was an all India racket of ghost firms which were used for accommodating the concealed incomes of many parties in the form of loans to such parties. As a result o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts but in view of the fact that the information furnished earlier was false. The Tribunal, therefore, held that action under section 147(a) was justified. The Tribunal further rejected the plea of the assessee that the amount was taxable (only) in the assessment year 1959-60 as provisions of section 68 of the Act were applicable. The Tribunal held that for any assessment year prior to the assessment year 1962-63, the previous year for assessing any income from undisclosed sources had to be the financial year. The Tribunal further held that when action under section 147 is taken, the substantive law applicable is the law which was in force in respect of the assessment year and only the procedural law of the Act could be applied. According to the Tribunal, any other view would create an anomalous position and would not be in keeping with the rule of harmonious construction. In this view of the matter, the Tribunal held that the amount in question could be considered as income from undisclosed sources only for the assessment year 1958-59 and not for the assessment year 1959-60. On merits, the Tribunal considered the letters written by the Income-tax Officer to the assessee and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nshyamdas and M/s. Ramkrishna Shyamsundar in the original proceedings. However, he held that in view of the letter and information received by the Income-tax Officer, the confirmatory letters had no value. He further held that though the amount itself could not be assessed in the assessment year 1959-60, the amount of interest of Rs. 5,096 credited in these accounts on December 31, 1958, was a wrong claim because the credit itself was not genuine. The Appellate Assistant Commissioner, therefore, upheld the action of the reopening of the assessment. Regarding the other addition of Rs. 3,18,549, the Appellate Assistant Commissioner set aside the assessment for further enquiry. This order of the Appellate Assistant Commissioner has been annexed and marked as annexure-B forming part of the statement of the case. In respect of the assessment year 1959-60, it was submitted before the Tribunal that the Income-tax Officer could not have reason to believe that income had escaped assessment for the assessment year 1958-59 as well as for the year 1959-60. It was further argued that the provision of section 147(a) of the Act had no application in this case and only section 147(b) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redits of Rs. 89,000 in paragraph 2 of my judgment and it shows that the cash credits of Rs. 89,000 were shown on January 2, 1958, February 5, 1958, and February 24, 1958. Thus these credits related to the financial year 1957-58. It cannot be doubted that the original assessment for the assessment year 1958-59 was made under section 23(3) of the old Act for calendar year 1957 on February 19, 1959, and the original assessment for the assessment year .1959-60 was made for calendar year 1958 under section 23(3) of the old Act on February 11, 1959. Mr. B. P. Rajgarhia has filed copies of the original assessment orders for the assessment years 1958-59 and 1959-60. The original assessment orders show that the accounting period of the assessee is calendar year and on this basis the assessee showed cash credits of Rs. 89,000 on January 2, 1958, February 5, 1958, and February 24, 1958, in the assessment year 1959-60 for the calendar year 1958 and the Incometax Officer considered these cash credits in the assessment year 1959-60 and accepted the cash credits as genuine as no addition relating to the cash credits was made in the assessment year 1959-60. Now, it cannot be doubted that under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this decision that the section provides that where any sum is found credited in the books of an assessee for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year and that the section has application where any sum is found credited in the books of an assessee maintained for any previous year. It has also been held in this decision that if the amount is credited in the books of the assessee maintained for any previous year is not the business income of the assessee but is held to be income from undisclosed sources, the income so discovered will, under section 68, be deemed to be the income of that previous year for which accounts were maintained and that the position in this respect under the 1922 Act was different, as such income from undisclosed sources under that Act could be assessed only on the basis that the previous year for such income was the relevant financial year. It has also been held in this decision that the scheme of the charging provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to introduce his own secreted profits in his account books in the names of fictitious persons and for this purpose certain books of account were got prepared and some assessments were also got framed by filing fictitious returns. In view of the statement of Shri Gulabchand jain, the Tribunal rightly came to the finding that these proceedings had not been initiated for making a fishing enquiry and the reason to believe that the income had escaped assessment was based on specific information received by the Income-tax Officer and that the information received was specific regarding these two parties and so the Tribunal held that the Income-tax Officer had reason to believe that initiation of proceedings under section 147(a) of the Act was justified. I also hold that the Tribunal was right in rejecting the plea of the assessee that they had disclosed all the relevant information in the original proceedings. The Tribunal rightly held that strictly under the law in so far as the assessment year 1958-59 was concerned, no information had been furnished about these credits and, therefore, there was no question of any change of opinion. The Tribunal also came to a finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light after the original assessment, the Income-tax Officer has power to reopen the assessment. Mr. B. P. Rajgarhia, for the Revenue, has also relied on the case of Sujir Ganesh Nayak and Co. v. ITO [1974] 97 ITR 372 (Ker), where it has been held that on the assurance given by the petitioner during the assessment proceedings, the officer was apparently content to act and made the assessment and that it was only subsequently on receipt of the information from the income-tax authorities in Bombay that the officer had " reason to believe " that the petitioner had not made a full and true disclosure of the material facts and that the officer was not precluded from taking action under section 147(a) read with section 148. Thus it is evident that if a full and true disclosure is not made of a material fact, then the Income-tax Officer has a right to initiate proceeding for reassessment under section 147(a). Mr. B. P. Rajgarhia has also relied on the case of .M. Varadarajulu v. ITO [1974] 97 ITR 476 (Mad). In this case, on the basis of certain investigations conducted by the Income-tax Department in respect of hundi transactions, it came to light that the "creditors " who had advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successor Income-tax Officer, and that the assessee was required not only to make full disclosure of all facts relevant to the assessment but also a true disclosure thereof and that it is wholly immaterial whether the Income-tax Officer making the original assessment could or could not have found the same to be faked or not. It has also been held in this decision that when the successor Income-tax Officer arrived at a conclusion that the assessee concealed a part of his income by falsely representing the same as loan at the time of the original assessment, he was certainly not proceeding merely on the change of his opinion or view and that, on the other hand, he was proceeding on actual facts as subsequently found out, leading to the conclusion that a part of the income has escaped assessment due to untrue disclosure of material facts and that it was not a case where the assessee, having made a full and true disclosure of facts, the two Income-tax Officers were arriving at two different conclusions, taking either two different views of law or facts fully and truly disclosed or making two different inferences therefrom. Thus it is evident that if true facts are not disclosed at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished at the time of the original assessment, account books and other details, those materials which were straightaway accepted by the Income-tax Officer were found to be not true and hence the assessee could not be taken to have disclosed materials fully or truly and this would attract section 147(a) and that the Tribunal was, accordingly, right in its view that the assessee had not furnished all the materials necessary for assessment and hence reopening of the assessment under section 147(a) of the Act was justified. Thus, from the various decisions relied on by Mr. B.P. Rajgarhia for the Revenue, it is evident that even if materials are placed at the time of the original assessment, but subsequently it is found that the assessee had not disclosed full and true facts, then reassessment can be made under section 147(a) of the Act. In the present case before us, the assessee had furnished confirmatory letters and had disclosed cash credits but subsequently on the basis of the statement of Shri Gulabchand Jain, it was found that the assessee had not disclosed true facts and had claimed falsely that the cash credits were genuine and so the reassessment even for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the respondent had escaped assessment by reason of its failure to make true and full disclosure of the material facts. Thus, it is evident that if there are materials to show that the disclosure is not true, then the reassessment proceeding would be valid. In this case, the appeal had been filed against the writ petition which had been filed immediately after issue of notice of reassessment. In the case of before us, the assessment had already been made on the materials available to show that the assessee had not made a true disclosure relating to the cash credits in the assessment year 1959-60 and so the reassessment could be made even in view of this decision of their Lordships of the Supreme Court. Mr. B. P. Rajgarhia, against the aforesaid decision of the Supreme Court, relied on the decision of their Lordships of the Supreme Court in the case of Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638, where it has been held that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence. He has to bring to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already pointed out that the Delhi High Court in the decision in Basti Sugar Mills Co. Ltd. v. CIT [1983] 142 ITR 487, has already clearly held that if there is no true disclosure, then assessment can be reopened. Under such circumstances, this decision also is not helpful to the assessee. Mr. K. N. Jain has also relied on the case of Asa John Devanathan v. Addl. CIT [1980] 126 ITR 270 (Mad). In this case, in the course of the original assessments for the years 1957-58 to 1963-64, the assessee produced the books of account and also gave a list of various creditors from whom borrowings had been effected on the security of hundis. Interest paid to these parties as well as their full addresses were furnished. The discharged hundis were also produced. The original assessments were completed by making certain additions for cash credits with no addition on account of any hundis. Reassessment proceedings under section 147(a) of the Act were initiated on the basis of a general circular of the Commissioner which indicated that many of the bankers who were supposed to have lent monies were purely name-lenders. It was in those circumstances that it was held that as the circular of the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings can be initiated under section 147(a) of the Act. In view of the latter Calcutta decisions, it is difficult to follow the decision in Calcutta Credit Corporation Ltd. v. ITO [1971] 79 ITR 483. Mr. K. N. Jain has also relied on the case of CIT v. Hemchandra Kar [1970] 77 ITR 1, which is a decision of their Lordships of the Supreme Court. In this case, it was held that because the primary facts were within the knowledge of the Income-tax Officer when he completed the first reassessment, the escapement of income took place by reason of the failure of the Income-tax Officer to include the sum of Rs. 1, I 0,000 in the assessment of the Hindu undivided family when he was in full possession of all the necessary and material facts and in those circumstances, it was held that the requirements of section 34(1)(a) of the old Act were not satisfied. The facts of this case are not helpful to the assessee. In the present case before, us, it has to be held that in the assessment year 1959-60, the assessee had not disclosed true facts to the Income-tax Officer and so the Incometax Officer accepted cash credits of Rs. 89,000 and interest paid, thereon and so it cannot be doubted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters from the creditors in the original proceedings, but in view of the findings of the Income-tax Officer, the confirmatory letters had no value. It cannot be doubted that unless the reassessment proceeding for the assessment year 1959-60 was initiated, it cannot be found whether this amount should be added in the assessment year 1959-60 or in the assessment year 1958-59. It was only after the initiation of section 147 proceeding in the assessment year 1959-60 that the Income-tax Officer made assessment of the cash credits of Rs. 89,000 both in the assessment year 1959-60 as well as in the assessment year 1958-59. However, once it is held that cash credits of Rs. 89,000 has to be added in the assessment year 1958-59, the addition had to be deleted for the assessment year 1959-60 and so the Appellate Assistant Commissioner rightly held that the amount of Rs. 89,000 could not be added in the assessment year 1959-60 and so it cannot be doubted that the amount of Rs. 89,000 cannot be held to be rightly added by the Income-tax Officer in the reassessment proceeding under section 147(a) for the assessment year 1959-60. The Appellate Assistant Commissioner upheld the action of reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment for the assessment year 1959-60 as originally the cash credits were shown by the assessee in the assessment year 1959-60. Mr. B.P. Rajgarhia has relied on the case of V. Jaganmohan Rao v. CIT/ EPT [1970] 75 ITR 373, where their Lordships of the Supreme Court have held that once proceedings under section 34 are validly initiated, the jurisdiction of the Income-tax Officer is not restricted to the portion of the income that had escaped assessment and that section 34 in terms says that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains and, therefore, once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. It has also been held in this decision that once valid proceedings are started under section 34(1)(b) of the old Act, the Income-tax Officer not only had the jurisdiction but it was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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