TMI Blog1977 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceeding for the said year, the firm, in compliance with the notice under sections 142(1) and 143(2) of the Income-tax Act, 1961, produced books of accounts, list of loans, list of interest paid, etc., as required by the Income-tax Officer for the purpose of assessment. It is alleged that the facts relevant to the assessment were fully and truly disclosed and brought to the knowledge of the Income-tax Officer. The Income-tax officer, by his order dated September 26, 1963, completed the assessment of the firm under section 143(3) on the total income of Rs. 82,101. Thereafter, a notice under section 148 of the Income-tax Act, 1961, dated March 20, 1971, was issued by the Income-tax Officer to the firm alleging that he had reason to believe that income chargeable to tax for the assessment year 1962-63 had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. By the said notice, it was proposed to reassess the income for the said assessment year, and the assessee was also called upon to file a return for the purpose of reassessment. In compliance with the said notice under section 148, the respondent filed a return under protest on April 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These loans are found to have been accepted in the original assessment as genuine as claimed by the assessee without making any verification. Now, it transpires that the alleged loan credits also include credits in the names of Bhagawandas Arjundas, Kanailal Ramchand, Naraindas Pitambardas, Arjunlal, Bhagawandas, Banshidhar Gourishankar, M/s. Indermal Biswanath, which have subsequently been found to be not genuine. Therefore, I have reasons to believe that the loans in question are not genuine and these are the asssessee's concealed income which has escaped assessment for the assessee's failure to disclose truly and fully all material facts that were necessary for its original assessment." The above statement is a cyclostyled one excepting that the names of the creditors mentioned in the statement are typewritten. One of the grounds which weighed with the learned judge in making the earlier rule absolute was that cyclostyled reasons were recorded by the Income-tax Officer. The rule out of which this appeal arises was made absolute by the learned judge on the same ground. Section 147 of the Income-tax Act, 1961, inter alia, provides as follows : " 147. If-- (a) the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w proceed to consider whether there were materials before the Income-tax Officer justifying the reopening of the assessment for the assessment year 1962-63. In paragraph 7 of the application for stay filed by the appellants in this court, it has been stated as follows : " 7. That subsequently during the course of the assessment for the assessment year 1964-65, completed on 28th August, 1968, and also for the assessment year 1965-66, it was found by the Income-tax Officer concerned that the assessee-firm introduced cash credits in its books of accounts in the form of hundi loans. Enquiries in the matter revealed that the said hundi loans were not genuine inasmuch as no confirmation letter was issued by the parties advancing the loans nor any other evidence about the said loan transactions were furnished and produced before the assessing Income-tax Officer. " Paragraph 8 of the said application states as follows : " 8. That as after the completion of the assessment for the year 1962-63, and during the course of the assessment for the years 1964-65 and 1965-66, it came to light that the hundi loans introduced in the year 1961-62 were not genuine and as the assessee failed to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1964-65 were fictitious, false and collusive. The Income-tax Officer also recorded the names of some hundi merchants who were doing name-lending business. The names of such merchants as mentioned in the said order of the Income-tax Officer also include the names of Kanailal Ramchand and Bhagawandas Arjundas. In the reasons recorded by the Income-tax Officer referred to above, the said two names also appear. It was contended on behalf of the appellants that, in view of the said assessment order and reasons recorded therein, the Income-tax Officer had ample justification for his belief that the income for the assessment year in question had escaped assessment. On the other hand, it was contended on behalf of the respondent that there was no material before the Income-tax Officer for the formation of a reasonable belief. In any event, it was submitted, the belief that was formed by the Income-tax Officer was not an honest belief but it was a mere suspicion. Further, it was contended that the assessee had filed all documents including the receipts, balance-sheet, profit and loss account, etc., and the Income-tax Officer could have with due diligence found out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,500 which was shown to have been advanced by that person to the assessee-respondent. There is also no indication as to when that confession was made and whether it related to the period from April 1, 1957, to March 31, 1958, which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it relates to the period from April 1, 1957, to March 31, 1958, and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather far-fetched. " Further, the Supreme Court observed : " As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live-link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials available to the Income-tax Officer and the assessment which is sought be reopened, issuance of a notice under section 148 may be said to be on the basis of a mere suspicion. In the instant case, the materials, namely, the findings made in the assessment proceeding for the assessment year 1964-65 relate to the respondent in respect of the hundi loans from identical hundi merchants. In such a case, it is difficult to hold that the notice was issued merely on suspicion. In the case of Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), the facts were different. In that case, the Income-tax Officer relied on certain communications received by him from the Commissioner of Income-tax from which it appeared that the creditors were name-lenders. The distinction between Chhugamal's case [1971] 79 ITR 603 (SC) and the present one before us is that, while in the former it was not found that the creditors were name-lenders in respect of loan transactions with the assessee, in the latter it was so found. It has been already stated that the hundi merchants from whom the respondent was alleged to have taken loans were found to be name-lenders relating to the alleged loan transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been held that if the assessee had disclosed primary facts relevant to the assessment, he is under no obligation to assist the Income-tax Officer about the inference which the Income-tax Officer may make from those facts. From the discussion made above, it is clear that the reason of the Income-tax Officer for issuing the notice under section 148 is that the respondent did not disclose the primary facts. The condition for the application of the above principle laid down by the Supreme Court in Burlop Dealer's case [1971] 79 ITR 609 (SC) is disclosure of primary facts relevant to the assessment which necessarily means disclosure of true primary facts. If such facts are disclosed then the assessee is not required to assist the Income-tax Officer in making his inference from the same. But the condition precedent is the disclosure of true primary facts. The Income-tax Officer in the present case has reason to believe that such facts were not disclosed by the assessee at the time of the original assessment. In this connection, we may refer to a Bench decision of the Gauhati High Court in Bhadarmal Hazarimal v. Income-tax Officer [1975] 100 ITR 159 (Gauhati). It has been observed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was made on behalf of the respondent, but Anil K. Sen J., who delivered the judgment of the Bench, could not accept the contention of the respondent that because the reasons were cyclostyled, it should be held that the Income-tax Officer acted mechanically and did not apply his mind. Most respectfully, we agree with his Lordship. The contention of the respondent, therefore, fails. Next, it was contended on behalf of the respondent that the Additional Commissioner of Income-tax did not at all apply his mind when he endorsed his satisfaction that it was a fit case for the issue of a notice under section 148. It appears that the records were before the Additional Commissioner along with the reasons of the Income-tax Officer. It would be mere speculation to hold that the Commissioner did not apply his mind before he granted permission to the Income-tax Officer to issue a notice under section 148. This contention of the respondent cannot be accepted. Lastly, it was argued on behalf of the respondent that under section 151(2) of the Income-tax Act, 1961, it was the Commissioner who could grant permission for the issue of a notice under section 148, but in the instant case, the perm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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