TMI Blog1975 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... losed by the assessee prior to the original assessments and which were treated at the time of the original assessments as true were bogus. Section 147 of the Act so far as is relevant for the present purpose reads " If-- (a) the Income-tax 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 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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) 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, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned ......" Both clauses (a) and (b) provide for reassessment of income. Section 149 prescribes the time limit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of section 34(1)(a) quashed the reassessment proceedings and the law laid down there has been restated in the subsequent decisions of the Supreme Court in Commissioner of Income-tax v. Hemchandra Kar , Commissioner of Income-tax v. Bhanji Lavji , Commissioner of Income-tax v. Burlop Dealers Ltd. , Commissioner of Income-tax v. Onkarmal Meghraj , Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur and Gemini Leather Stores v. Income-tax Officer. In Commissioner of Income-tax v. Hemchandra Kar a Hindu undivided family had been assessed for the year 1946-47. Following demonetisation of high denomination currency notes in 1946 the assessee encashed notes of the value of Rs. 19,000 and five members of the family encashed notes of the value of Rs. 1,10,000. The Income-tax Officer reopened assessments of the assessee and the five members of the family and by a reassessment order on January 31, 1955, included Rs. 19,000 in the reassessment of the family and the sum of Rs. 1,10,000 separately in the assessments of the five members of the family. Two days later he issued a notice under section 34(1)(a) for including the sum of Rs. 1,10,000 also in the hands of the fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancing the transactions in the joint venture and the Income-tax Officer accepting that claim made the assessment. Later when information was received that the agreement was a got-up device or a sham transaction, the Income-tax Officer made a reassessment under section 34(1)(a) and that was confirmed in appeal by the Appellate Assistant Commissioner. But the Income-tax Appellate Tribunal set it aside finding that the assessee was under no obligation to inform the Income-tax Officer about the true transaction. When the High Court dismissed a petition by the Commissioner of Income-tax for directing the Tribunal to submit a statement of the case an appeal was filed in the Supreme Court from the decision of the High Court. The Supreme Court dismissed the appeal observing that the assessee had disclosed before the original assessment his books of account and evidence from which material facts could have been discovered, that the assessee was under no obligation to inform the Income-tax Officer about the possible inferences that might be raised against the assessee, that it was for the Income-tax Officer to raise such inferences, that if he had not done so before the original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not charged after the original assessments were made and held that if at the time of the original assessment it was open to the Income-tax Officer to raise the presumption that the three ladies were the wives of the assessee and their children the assessee's children and he did not do that, it was not open to the officer to correct that mistake later by resorting to section 147(a). In Gemini Leather v. Income-tax Officer, although the assessee did not disclose the transactions evidenced by certain drafts, they were discovered by the Income-tax Officer himself but by oversight he did not bring the amounts representing the drafts to tax. Later, when he took recource to section 147(a) to remedy the error resultant from oversight, the Supreme Court observed that, although the assessee had not disclosed the transactions, the Income-tax Officer was in possession of all the primary facts before the original assessment it was open to the Income-tax Officer for enquires and draw proper inference as to whether the amounts represented by the drafts could be treated as the assessee's income, that as the Income-tax Officer did not do that, it was a clear case of oversight on his part, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147(a) merely because the Income-tax Officer had changed his opinion on account of subsequent information received by him. N. Sundareswaran v. Commissioner of Income-tax is a Division Bench decision of this court where also it was held that subsequent discovery by the Income-tax Officer that an inference previously drawn was wrong is not sufficient for reopening an assessment under section 147(a). A different note was struck by the High Courts of Andhra Pradesh, Madras, Bombay, Calcutta and Gauhati in Anne Nagendram and Bomma Reddi Venkayya and Co. v. Commissioner of Income-tax , K. P. Arthanariswamy Chettiar v. First Income-tax Officer , Lakhmini Mewal Das v. Income-tax Officer , M. Varadarajulu v. Income-tax Officer , Lakhmani Mewal Das v. Income-tax Officer, Girindranath Paul v. Income-tax Officer Shriyans Prasad Jain v. R. K. Bhalla , Agarwal and Agarwal P. Ltd. v. K.J. Mukherjee, Bhadarmal Hazarimal v. Income-tax Officer and Commissioner of Income-tax v. Mahalakshmi Textiles Mills Ltd. In Agarwal and Agarwal (P.) Ltd. v. K. J. Mukherjee original assessment was made on the basis of particulars furnished by the assessee that certain goods were purchased from two fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only Full Bench decision. The decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer was distinguished in that case by Arun K. Mukherjee J., who spoke for the majority in the Full Bench, on the ground that while in the case before the Supreme Court disclosure had been made of all material facts concerning the sale of shares to ascertain whether the intention of the assessee was really to change the form of investment or to make business profit, in the case before the High Court the truth or falsity of a primary statement made by the assessee itself had to be determined and that that was not a matter for inference. With great respect, the truth or falsity of the statement made by the assessee of a material fact, namely, that the assessee was not a trader in shares or an investor of shares, itself was in dispute in Calcutta Discount, Co. Ltd. v. Income-tax Officer, and it was about that that the Supreme Court said that it was a matter which it was the Income-tax Officer's task to decide and not for the assessee to disclose. Whether it is a case of sales of shares or whether it is a case of taking loans, when the amounts covered by the sales or loans are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presented before us and which seem to indicate that the assessee's disclosures before the original assessing authority contained false statements were also present before the Supreme Court and that the Supreme Court dealt with that case with full knowledge that the had made such false statements. Each court acts on the materials before it and until and unless there is conclusive evidence to show that certain document or certain facts were present before a court giving a judgment it is not permissible to assume that in delivering a judgment the court concerned must have taken note of those facts and circumstances. All that we can derive from the Supreme Court judgment of Burlop Dealers Ltd.'s case is that since the Income-tax Officer who had made the original adjustment could have reached a correct conclusion regarding the financing agreement on which the assessee sought to rely, the second officer who sought to reassess and, in fact, did the reassessment on identical facts and materials must be regarded as having acted on the basis of a changed opinion. It was on this ground that the Supreme Court held that it was not to the Income-tax Officer, who subsequently disbelieved the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors and himself, one can hardly say that the assessee has made a full and true disclosure of the material facts. The volume of disclosure cannot lend facthood to transactions which did not in fact take place. In such circumstances, how can it be said that the assessee has disclosed all the primary material facts? What he has done is to disclose certain spurious papers and particulars regarding certain transactions which were themselves not facts. It is, in my opinion, a mockery to hold that the assessee has in such a case made a full and true disclosure of facts. By this logic, the disclosures made by the assessee in the instant case are formal evidence of fictitious transactions which never took place; they are a mere cloak to cover up the facts. The fullness and completeness of such disclosures is immaterial. Indeed, the more copious the materials disclosed in a case like this, the more solid is the crust covering up the real facts. It is futile to argue that this kind of disclosure will protect the assessee from subsequent reopening of his assessment under the provisions of section 34 of the old Act or section 147 of the new Act. Such an argument overlooks, in my opinion, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trained in law. The treatment of inference in traditional logic is so lacking in sensibility that it throws doubt on the claim that inference is supposed to be a mark of intelligence and to show the superiority of men to machines. On the other hand the treatment of inference in science and law is different. In science the practice of inference is much wider than the theories of any logician would justify, and it is nothing other than the law of association or of " learned reactions ". In law inferences are drawn using common sense and experience in judging of the effect of particular facts. And it is possible to draw an inference even from a single proposition. Thus, from the simple proposition " A gave me Rs. 1,000 ", given as an example of a statement of a primary fact in the passage quoted above, it can legitimately be inferred that A had at that time Rs. 1,000 in his possession. From the statement A is the dear son of his father" inference can be made that A's death would bring grief to his father. From the statement of the primary fact " there is a black ink-spot " it can be inferred that it is a spot, that it is at a certain place, that it is black and that it is caused by in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is relevant. Under section 131 he has the same powers as vested in a civil court as regards' discovery and inspection of documents and enforcing the attendance of persons. The assessee also is allowed to produce evidence. After all that, the Income-tax Officer has to draw inferences, consider the evidence and come to a conclusion upon properly ascertained facts. Assuming that the logical propositions, that a primary fact is incapable of yielding an inference and that the truth or falsity of a proposition is not a matter for inference, can be applied to a case of this kind, even then they do not even to the least extent take us away from the Supreme Court decisions already referred to. It is for the Income-tax Officer to establish that there was non-disclosure by the assessee of material facts. As the section says that he should have reason to believe about the non-disclosure of facts he should before proceeding under section 147(a) at least take up a definite stand whether the matter he relies upon is not having been disclosed by the assessee is real or not and so whether it is a fact or not and if it is fact whether it is a primary factor an inferential fact. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to punishment with imprisonment under section 277 of the Act. The Act also provides for rectification of mistakes committed by the income-tax authorities in assessment orders. Under section 154 the Income-tax Officer as well as his superior officers can amend the assessment orders to rectify mistakes. If any order passed is prejudicial to the revenue the Commissioner can suo motu revise the assessment order under section 263. But it has to be within two years of the assessment order. Even after two years the income-tax authorities are given power under section 147 to reopen assessment if income has escaped assessment, if it falls within clause (b) within four years and if it falls within clause (a) even after four years. The facts here are also revealing. Even before the original assessment was made the Income-tax Officer suspected the genuineness of the alleged loan transactions and by exhibit P-1 letter he called for details regarding them. All those details were furnished by the assessee in his statements sent along with exhibit P-2 letter. After that the Income-tax Officer sent exhibit P-3 letter to the assessee stating that he had reason to doubt the bona fides of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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