TMI Blog1972 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... st had been paid on account of loans taken from them appears from pages 15 to 16 of the paper book. The petitioner states that at the time of the original asssessment proceedings he had produced through his authorised representative all books of account, bank statements and other necessary documents in connection with his returns and the assessment was made by respondent No. 1 after he had been satisfied "on a due consideration of all the necessary materials produced by" the petitioner. Almost six years after the completion of the said assessment the petitioner was served with a notice dated 8th March, issued by respondent No. 2, Income-tax Officer, "E" Ward, Hundi Circle, under section 148 of the Income-tax Act, 1961. The petitioner has, by that notice, been called upon to submit within 30 days from the date of service of the notice a return in the prescribed form of the petitioner's income for the assessment year 1958-59. The notice states that the Income-tax Officer concerned had reason to believe that the petitioner's income which was chargeable to tax for the assessment year 1958-59, has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contents of this paragraph were verified in paragraph 30 of the same affidavit : it is stated there that the last sentence of paragraph 6 was true to the knowledge of the deponent respondent No. 2 and that all the other statements of paragraph 6 were based on information derived by him from the records of the case. At the time of hearing of the arguments Dr. Pal pointed out that on the basis of this verification paragraph 6 would not warrant the action taken by the Income-tax Officer. Mr. Balai Pal, appearing for the revenue authorities, made an application for leave to amend the verification clause. According to the amendment which he sought for all the statements in paragraph 6 would be to the knowledge of the deponent. After hering counsel on both sides we allowed this amendment on 23rd August, 1971. The petitioner's reply to the allegation in paragraph 6 of the affidavit-in-opposition is to be found in paragraph 8 of his affidavit of 15th September, 1967. After general denial the petitioner avers as follows : " In particular I deny that some of the loans shown to have been taken and interests paid thereon during the relevant assessment year were not genuine as alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of K. L. Roy J. made a reference under Chapter V, rule 2, of the Original Side Rules to a larger Bench. Before we embark upon an examination of the questions involved in this case it is necessary to set out the provisions of sections 147 and 148 of the Income-tax Act, 1961 : "147. Income escaping assessment.--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 (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er had made a full and complete disclosure of all material facts at the time of the first assessment he had discharged all his obligations and even if there was any escapement of any part of his income from assessment it cannot be said that such escapement happened because there was an omission or failure on the part of the assessee and consequently it was not permissible to reopen the assessment after four years from the end of the relevant assessment year. Secondly, Dr. Pal contended on the materials in the instant case it cannot be said that the Income-tax Officer had reason to believe that there was an escape of income from assessment by reason of an omission or failure on the part of the assessee. He argued that the conditions precedent to the issue of a notice under section 148 which are contained in sections 147 and 151 have not been complied with and the issue of the, notice under section 148 was, therefore, invalid. Dr. Pal developed the first part of his argument in the following manner : Under section 147(a) of the Act the Income-tax Officer can have jurisdiction to reopen an assessment that has been already completed if only two essential conditions are satisfied, Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee discharged his duty completely as soon as he disclosed all the material facts necessary for his assessment and he was under no obligation either to help (he Income-tax Officer in making correct legal inferences from the facts supplied to him or in correcting any erroneous inferences that the Income-tax Officer may make in making the assessment. Dr. Pal argued that the Income-tax Officer cannot act perfunctorily at the time of original assessment and then seek to correct his error by reopening the assessment when that error was not caused by any failure on the part of the assessee in disclosing the material facts. Dr. Pal further argued that, if the Income tax Officer in making his original assessment has committed an error in coming to a decision regarding the genuineness of the loan, an error which could have been avoided by the exercise of due care and caution and by intelligent enquiries, he cannot on the discovery of subsequent information or on subsequent after-thought make use of the machinery under section 147(a) for reopening the assessment. This part of Dr. Pal's case is sought to be based largely on the principles formulated by the Supreme Court in Calcutta Discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e drawn. It is not for somebody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?.. We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this." (At page 201 of the report). " It is the duty of the assessee to disclose all the facts which have a bearing on the question but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form, of the investments is really an infer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessee made a statement that he had taken certain loans. For the present we will assume that this statement was a false statement and that the assessee did not take any loan, that is to say, he did not receive any monetary advances from the persons who, he told the Income-tax Officer, were his creditors. Let us further assume that, though the assessee received no money as loans, all the formalities were observed and the hundis were executed and discharged. Since no money passed between the parties on any occasion, the discharged hundis represent certain sham transactions. In other words, the hundis could tend to show as if certain transactions had taken place but, in reality, the transactions never took place. In such a case, the discharged hundis are not evidence of facts. They are mere papers fabricated to give the false appearance of certain monetary transactions which never took place. As mere formal evidence, the discharged hundis are genuine ; but they are genuine in the sense that they are genuine documents and the tenor of their contents is such as if there had been real transactions. Even so it cannot be said that they represent true facts. In such a case, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Lordship delivered at the time of making the reference, that "to demand from the assessee that he should disclose to the Income-tax Officer whether the loans were genuine or not, is to cast on the assessee an intolerable burden". It was further argued that "this is a matter of inference which the Income-tax Officer has to draw. It is no part of the duty of the assessee to assist the Income-tax Officer in this inferential process ". I find it difficult to see the logic of this argument. It is true that one cannot expect an assessee who has stated that he has made certain loans to make another statement to the effect that the loans were not genuine. Such conduct would not be intelligible in ordinary circumstances. But why should the assessee make a false statement to start with ? If the loans are not genuine and if he had not actually received moneys as loans on which he had to pay interest, why should he say that he had taken those loans and had to pay those interests ? The question that Dr. Pal posed before Basu J. proceeds on the assumption that the assessee was within his rights to make a false statement and having once made a false statement it was unnatural and illegitimate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny's case were applied in favour of the assessee in circumstances which are very similar to the circumstances of the instant case. I refer to the decision of Commissioner of Income-tax v. Burlop Dealers Ltd . Dr. Pal argued that this decision of the Supreme Court clearly supports his contention that the instant case is one which comes within the scope of the principles laid down by the Supreme Court in Calcutta Discount Company's case . In order to understand Dr. Pal's argument it is necessary to refer to the facts of the case as well as to the ratio of the Supreme Court decision in some detail. In the case of Burlop Dealers Ltd. the assessee, Burlop Dealers Ltd. (hereinafter referred to as " the company "), disclosed for the assessment year 1949-50, a profit of Rs. 1,75,875 from a joint venture with H. M. Ltd. in plywood chests. The company claimed that the sum of Rs. 87,937, being half the aforesaid profit, had been paid to Ratiram Tansukhrai under an agreement dated 7th October, 1948, under which Ratiram Tansukhrai had agreed to finance the transactions in the joint venture. The Income-tax Officer accepted this claim and brought to tax only the sum of Rs. 87,937 as the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion other than the one which he had reached, a proceeding under section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous." Dr. Pal strongly relied on this decision and developed his argument on the following lines. In Burlop Dealers Ltd. case , what weighed with the Supreme Court is the fact that the first Income-tax Officer who had made the original assessment for 1949-50 and the second Income-tax Officer who assessed for 1950-51 came to different views about the same financing agreement and there is no allegation that there was any lack of disclosure of evidence and materials at the time of the first assessment. Both assessments having been based on the same materials it was purely a matter of inference from the materials that had been furnished before the Income-tax Officers. The two officers made different inferences and the second officer thought that the first officer was erroneous in coming to the inference which he had made. In that situation the Supreme Court held that the assessee was under no obligation to help the assessing Income-tax Officer to make a correct inference from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt and was finally disposed of by that court in the judgment we are just now discussing). (ii) A paper book of Income-tax Reference No. 64 of 1957 before this High Court under section 66(1) of the Indian Income-tax Act, 1922 : This reference relates to the assessment of M/s. Burlop Dealers Limited for the assessment year 1950-51. (iii) The judgment of this High Court in the aforesaid reference which has been reported in 48 I.T.R. 153 (Burlop Dealers Ltd. v. Commissioner of Income-tax). With the help of these documents Dr. Pal tried to show that the assessee had made certain statements which could be described as incorrect at the time of the original assessment for the year 1949-50. He argued that there had been some suppression of facts by the assessee during the assessment for 1949-50. He referred, in particular, to paragraph 4 of the order of the Income-tax Tribunal and relied on the following observation of the Tribunal : " In the instant case, as we have stated above, the assessee at the original stage of the assessment, produced before the Income-tax Officer the relevant agreements between itself and M/s. Manory Ltd. as also with, M/s. Ratiram Tansukhrai. It also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit a reopening of the assessment on the ground that the Income-tax Officer who had made the original assessment could have reached a correct conclusion regarding the story of the financing agreement put up by the assessee. We have carefully considered Dr. Pal's argument but we cannot persuade ourselves to accept his contention that the Supreme Court in Burlop Dealers Ltd. case disallowed a reopening of the assessment even with the knowledge that the disclosure made by the assessee at the time of assessment contained false statements. We are really concerned with the principles that are enunciated by the Supreme Court and the ratio of its judgment. There is nothing in the judgment of the Supreme Court which shows that the additional documents which were 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 assessee 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 documents or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,886. Subsequently, on 3rd June, 1966, a notice was issued by the Income-tax Officer under section 148 of the Income-tax Act, 1961, telling the assessee that the Income-tax Officer had reason to believe that the assessee's income for the year 1960-61 had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. The assessee was asked to deliver another return for the assessment year 1960-61. The notice mentioned that it was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Bihar and Orissa, Patna. We might as well say here that this notice is almost verbatim the same as was served on the assessee in the instant case before us. Upon receipt of that notice, Chhugamal Rajpal challenged on various grounds the validity of the notice as well as the proceeding commenced on the strength of that notice in a writ petition before the High Court of Patna. One of the grounds of challenge was that the notice did not comply with the requirement of section 151(2) of the Income-tax Act. This ground of challenge was not accepted by the Patna High Court which dismissed the petition. The matter then went up on appeal to the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) the name and address of the assessee, (2) status, (3) assessment year for which notice under section 148 is proposed to be issued, (4) whether it is a new case or one in which reassessment has to be made, (5) in the case of reassessment the income which was originally assessed or determined, (6) whether the case falls under clause (a) or clause (b) of section 147, (7) brief reasons for starting the proceedings under section 147 (including the items which are believed to have escaped assessment), (8) whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148, (9) whether the assessing officer is satisfied that it is a fit case for issue of notice under section 148. All the particulars are given in a tabular form except with regard to item No. 7 for which the reasons are given separately. The reasons in both cases are recorded on the back of the tabular form used by the Income-tax Officer for the report. Both the reports confirm that the Commissioner was satisfied. So far as the tabular form is concerned there is no manner of doubt that there is no material difference between the two reports : the factual details, e.g., the names of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are bogus " ; in the instant case before us the same statement is made in an oblique manner by the phrase information regarding the bogus nature of these things ". In the instant case there is, however, a reference to one lender who is supposed to have confessed that he was doing only name-lending. In the Supreme Court case there is a statement of the Income-tax Officer "hence, proper investigation regarding these loans is necessary". Such a statement is, however missing in the case before us. In neither of the two cases does the Income-tax Officer state clearly that he had reason to believe that, (a) part of the income of the assessee had escaped assessment, and (b) that such an escapement was caused by an omission or failure on the part of the assessee. There is a statement in the present case that "the assessee is still claiming that the credits are genuine" in the assessment proceedings of 1962-63. There is no such statement in the Supreme Court case. The Supreme Court case has specified the amount of escapement involved as Rs. 1,00,000. There is no such specification in the present case though the form requires that the items which are believed to have escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. The Supreme Court also observes that the Commissioner has accorded his permission mechanically. This was not enough. He should have recorded that he was himself satisfied that this was a fit case for the issue of a notice under section 148. The report of the Income-tax Officer as well as the circular of the Commissioner indicate, according to the Supreme Court, that the officers gave no importance to the provisions of section 147 and section 1 51 and that they have substituted the form for the substance. We shall now discuss, with reference to these criticisms made by Hegde J., of the Income-tax Officer's report in the Supreme Court case, the corresponding report in the case before us and try to ascertain if there is any qualitative distinction between the two reports. Defect (a). There is nothing in the Income-tax Officer's report in either case regarding the reason for concluding that the case concerned was a fit case to issue a notice under seetion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case is far less specific and far less definite in the matter of recording his belief as to the alleged bogus nature of the transactions. Defect (f). This defect is also common to both cases. In neither report is there any reference to the omission or failure on the part of the assessee or to any reason to believe that the income has escaped assessment. In the instant case, of course, there is a statement that action under section 147(a) is called for to reopen the assessment and assess the credits as the undisclosed income of the assessee. This may perhaps be taken as an oblique reference to escapement of income from assessment. Defect (g). In view of the earlier defects, it is obvious that defect (g) is also common to both reports. I have read both the reports and compared them repeatedly to find out if there is any real and qualitative distinction between the two reports. I confess I have found none. There is, of course, some difference in the language of the two reports. But the essential characteristics of both the reports are exactly the same. In the Supreme Court case I have found at least some vague hint about an undefined doubt in the mind of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question in column 8 of the report of the Income-tax Officer which reads : "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148." In the Supreme Court case Hegde J. observed that if the Commissioner had read the report carefully he could never have come to the conclusion on the material before him that it was a fit case to issue a notice under section 148. Hegde J. further observes : " The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substitnted the form for the substance." These observations apply with equal force and vigour to the action of the Income-tax Officer and the Commissioner of Income-tax in the instant case. This branch of Dr. Pal's argument suffers from one infirmity. The contention that the notice under section 148 was issued without a proper satisfaction of the Commissioner on the reasons recorded by the Income-tax Officer to the effect that it was a fit case for the issue of such a notice had not been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. It appears that the department produced before the Supreme Court the report of the Income-tax Officer in Form B to the Central Board of Revenue. This report contained the following reasons for starting the proceedings under section 34(1A) : " For the reasons hereinafter recorded I believe that income, profits and gains earned by the assessee in his personal capacity and in conjunction with others and chargeable to income-tax have escaped assessment and that the amount of such concealed income relating to the accounting years covering the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1949, amount to or is likely to amount to Rs. 1,00,000. The reasons for such belief, inter alia, is as follows : (1) The assessee who is or was at the relevant time a managing director in about a dozen limited companies along with " Oberois " is believed to have made some secret profits which were not offered for assessment. (2) The assessee is believed to have received a sum of Rs. 22 lakhs from "Oberois" and this sum or at least part of which represents income which has escaped assessment. (Sd.) A. K. Bhowmik, Income-tax Officer, Dist. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of jurisdiction by the Income-tax Officer under section 147 read with section 148 have not been fulfilled in the instant case. Various cases were cited before us on behalf of the revenue authorities at the time of hearing. For the sake of completeness I shall very briefly refer to some of the more important cases on which the counsel relied strongly. Thus, great reliance was placed on the decision of the Supreme Court in S. Narayanappa v. Commissioner of Income-tax . In this judgment the Supreme Court has indicated why the reasons for issuing a notice under section 34 of the old Income-tax Act are not open to investigation by the court. Mr. Balai Pal argued that in the light of this particular judgment of the Supreme Court, as soon as there are some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue a notice under section 34 of the old Act. Relying on the principle that adequacy of the grounds is not a justiciable issue, Mr. Balai Pal argued, that it is not open t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year 1955-56. This notice was challenged under article 226 of the Constitution on two grounds. First, it was argued, since the income for the assessment year 1955-56 had already been assessed in the hands of the individual members of the joint Hindu family it could not be assessed again as the income of the family. This contention was, of course, based on the principle of "avoidance of double taxation". The second contention was that the Hindu undivided family did not legally exist until the order under section 25(a) of the Indian Income-tax Act, 1922, had been set aside. The Allahabad High Court accepted the first contention of the assessee and quashed the notice. The Allahabad High Court did not, however, decide the second contention. On appeal, the Supreme Court rejected the first contention and remanded the case to the Allahabad High Court for decision on the second contention of the assessee. In that case there was no ground made out by the assessee before the Allahabad High Court on the basis of section 34 of the old Act. In fact, the question of impropriety of reopening of an assessment under section 34 on the ground that there was no reason to believe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment. The assessee's contention that notices for reassessment were invalid on the ground that the original assessment orders showed that the cash credits in question had already been considered and accepted by the Income-tax Officer was rejected by the Supreme Court by pointing out 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 and that he has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of document which are relevant. This is a decision in an entirely different context of facts and does not, in our opinion, help, Mr. Pal. At best, this is a case which supports Mr. Balai Pal in meeting the first contention of Dr. Pal in which he tried to make out a case on the authority of the Calcutta Discount Company's case that the assessee having disclosed all particulars about the hundis the Income-tax Officer had no jurisdiction to commence reassessment proceedings. I have already rejected that contention of Dr. Pal and, therefore, it is not necessary for Mr. Balai Pal to rely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt that the notice that was issued under section 148 in the instant case was issued without jurisdiction. In the result, this application succeeds. The rule is made absolute and the impugned notice quashed. In the facts and circumstances of the case, I make no order is to costs. SABYASACHT MUKHARJI J.--I had the advantage of reading the judgment delivered by my Lord. With great respect, I am, however, unable to agree with the conclusions arrived at by my Lords. This application under article 226 of the Constitution has been referred to this Bench as a result of the report made by T. K. Basu J., under Chapter V, rule 2, of the Rules of the Original Side of this court. The question with which we are concerned in this application is whether the Income-tax Officer had jurisdiction to initiate proceedings against the petitioner for the assessment year 1958-59. Before, however, that question is considered, it would be necessary to refer to certain facts. The petitioner carries on business of manufacturing bricks and construction works. For the assessments year 1958-59, the petitioner was assessed under section 23(3) of the Indian Income-tax Act, 1922, and the total income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer as alleged or at all. Save what appears from the notice dated March 8, 1967, and save what are matters of records, allegations made in paragraph 4 of the petition are denied. Subsequent to the assessment for the assessment year 1958-59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. The Income-tax Officer had reason to believe and bona fide believed that the said alleged loans and the interests alleged to have been paid thereon are not genuine. If necessary I crave leave to produce before the hon'ble judge hearing the application, the relevant records on the basis of which the said Income-tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of this application." In the original verification of the said affidavit it was stated that the last sentence of paragraph 6 was true to the knowledge of the deponent and the other part of paragraph 5 was based on information derived from the records of the case and believed to be true by the deponent. At th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely on any document or materials and counsel for the revenue produced before us the report in connection with the starting of proceedings under section 147 of the Income-tax Act, 1961. We directed a copy of the said report to be filed as an exhibit to this proceeding and a supplementary paper book should be filed containing the aforesaid document. The reasons that have been recorded in the report are as follows : " There are hundi loan credits in the name of Narayansingh Nandalal, D. K. Naraindas, Bagwandas Srichand, etc., who are known name-lenders, and also hundi loan credit in the name, Mohansingh Kanayalal, who has since confessed be was doing only name-lending. In the original assessment these credits were not investigated in detail. As the information regarding the bogus nature of these credits is since known, action under section 147(a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee. The assessee is still claiming that the credits are genuine in the assessment proceedings for 1962-63. Commissioner's sanction is solicited to reopen the assessment for 1958-59, under section 147(a)." The question with which we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the judgments of T. K. Basu J. as well as of K. L. Roy J., as mentioned hereinbefore. Our attention was also drawn to a judgment by Sankar Prasad Mitra J., dated 17th and 18th of June, 1970, in matter No. 523 of 1968 in the case of Madnani Engineering Works (P.) Ltd. v. Income-tax Officer. I will deal with the aforesaid judgments later. Before the question is considered further, however, it is necessary to consider the relevant statutory provision. Relevant portion of section 147 of the Income-tax Act, 1961, provides as follows : 147. Income escaping assessment.--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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change of investment. Subsequently, the results of the company's trading from year to year showed that the company had really been carrying on trade in the sale of shares. It was, however, found by the Supreme Court that there was no non-disclosure of any primary fact regarding the sales of these shares. The Supreme Court held that in order to confer jurisdiction under section 34(1)(a) of the Indian Income-tax Act, 1922 two conditions had to be satisfied. The first was that the Income-tax Officer must have reason to believe that income, profits or gains, chargeable to income-tax had been under assessed. The second was that he must also have reason to believe that such under-assessment had occurred by reason of either, (i) omission or failure on the part of the assessee to make the return of his income under section 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts for his assessment for that year. Both these conditions, the Supreme Court held, were conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment under section 34(1)(a). The Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits or gains, chargeable to income-tax had been under-assessed ; and (ii) he must have reason to believe that such "under assessment" had occurred by reason of either, (a) omission or failure on the part of the assessee to make a return of his income under section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions were conditions precedent to be satisfied. The Supreme Court further observed that the expression "reason to believe" under section 34 did not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith ; it could not be a pretence. It was open to the court to examine whether the reasons for the belief had a rational connection or a relevant bearing to the formation of the belief and were not extraneous or irrelevant to the purpose of the section. To that limited extent the action of the Income-tax Officer instituting proceedings under section 34 of the Act was open to challenge in a court of law. At page 221 of the report the Supreme Court observed : " But the legal position is that if there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in good faith, (iii) that belief must be formed on some reasons or materials, and (iv) the materials must be such as would have a rational connection to the formation of the belief that income had escaped assessment or had been under-assessed as a result of either--(a) omission or failure on the part of the assessee to make a return, or (b) to disclose truly and fully all material facts necessary for assessment at the time of the original assessment, and (v) such facts must be basic primary facts and not inferential facts. The above conditions, in my opinion, are the true effect of section 147(a) of the Income-tax Act, 1961, as explained by the Supreme Court. It has also been further held that when a challenge is thrown by the assessee, the revenue must satisfy the court that the conditions precedent for the issuance of the notice have been fulfilled. In the aforesaid background, it would be necessary to examine the facts of this case to consider whether the aforesaid conditions have been fulfilled. It is not the case here that the assessee did not file any return. The case here is that the assessee did not fully and truly disclose all material facts. The contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case Commissioner of Income-tax v. Burlop Dealers Ltd. and it was contended that the facts of that case were identical with the facts of the instant case. Reliance was also placed on the decision in the case of Chhugamal Rajpal v. S. P. Chaliha . It was contended that upon facts more or less similar the Supreme Court had held that the Income-tax Officer did not form the belief and could not have formed the belief. It was contended that in the instant case as in the last mentioned case that the Income-tax Officer was using the machinery under section 147 for the purpose of investigation in the instant case to find out whether these loans were genuine or not. It was urged that this could not give the Income-tax Officer jurisdiction to reopen a completed assessment. Explanation (2) of section 147 provides that mere production before the Income-tax Officer of account books and other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of the section. In this case, counsel for the assessee contended that it was not a case of mere production of the evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicated are--(a) that some of the alleged creditors of the petitioner in respect of whose loans interest had been allowed in the original assessment were known name-lenders, and (b) that one of the creditors, namely, Mohansingh Kanayalal, had since confessed that he was doing "only name-lending". Mohansingh Kanayalal is one of the creditors of the petitioner in respect of whose loans interest had been alleged to have been paid. So far as the first material is concerned, namely, that some of the creditors were known name-lenders, no basis have been indicated as to how it became known that they were known name-lenders and when it was known. Therefore, in my opinion, counsel for the assessee can legitimately contend, specially in view of the decision of the Supreme Court which I shall notice later, that this could not be a material upon which a belief could have been formed that the assessee did not truly or fully disclose material facts at the time of the original assessment. But there is also this information and material that Mohansingh Kanayalal had confessed that he was doing "only name-lending" meaning thereby that he did not lend any money to any one and did not necessarily len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is genuine or not genuine, sham or real, may often depend upon the inference to be drawn from certain basic and primary facts but all the necessary primary facts for drawing a proper inference or conclusion mast be truly and fully disclosed. If an assessee did not receive any sum of money from a particular creditor and did not pay to that person any sum as interest, then if that assessee had said or suggested that he had paid any sum as interest to that person, at the time of the original assessment, then it can certainly be said that the assessee did not at the time of the original assessment disclose all facts truly. It may be that, in some cases, the question whether a transaction is money-lending or not or whether an aesessee received any sum as income or not may depend upon inferences to be drawn from certain facts and may also depend in certain cases upon certain legal inferences. But that does not absolve, in my opinion, the assessee of the obligation to disclose truly and fully all primary facts. Otherwise, without receiving a sum of money or without making any payment, it can be contended that money was paid or interest was paid. This fact of making payment of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamal Rajpal v. S. P. Chaliha . It is, therefore, necessary to examine the said decision in detail. In proceedings for assessment for the assessment years 1960-61, the assessee-firm had produced its books of accounts and also a statement giving the full names and addresses of the various creditors from whom it had claimed to have borrowed on hundies during the accounting year in question. Assessment was completed after enquiry. Thereafter, on June 3, 1966, the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, initiating reassessment proceedings for that year. The assessee-firm filed a writ petition in the High Court at Patna, challenging the validity of that notice, inter alia, on the ground that the requirements of section 151(2) of the Act had not been complied with. But the writ petition was dismissed by the High Court. The Supreme Court has noted that, at the time of the original assessment, the assessee produced before the Income-tax Officer a statement showing the various creditors from whom it had borrowed on hundis during the accounting year in question. In that statement it had given full names and addresses of the alleged creditors. When th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation was necessary. From the aforesaid statement of the Income-tax Officer, the Supreme Court concluded that the Income-tax Officer thought that that was a case for investigation, which according to the Supreme Court could not be the reason for issue of notice under section 148 of the Act. Upon those facts, the Supreme Court came to the conclusion that the Income-tax Officer had no material before him which would satisfy the requirements of either clause (a) or (b) of section 147 and the Supreme Court held that the notices were without jurisdiction. As mentioned hereinbefore, counsel for the assessee contended that the facts of the instant case were similar to the facts before the Supreme Court. It is undoubtedly true that there are various features of the instant case which are similar to the case before the Supreme Court. But, on a closer examination of the decision of the Supreme Court it will be clear what the Supreme Court was deciding in the aforesaid decision. In my opinion, the Supreme Court was deciding that section 148 could not be utilised as a machinery for investigation. Investigation must be carried out before and a prima facie belief should be formed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there were materials upon which such a belief as aforesaid could reasonably be formed. In the aforesaid view of the matter, it appears to me that the said decision of the Supreme Court cannot be of assistance to the assessee in the instant case. Reliance was placed by counsel for the assessee on the decision in the case of Commissioner of Income-tax v. Burlop Dealers Ltd. where on the evidence and the materials produced during the original assessment for the assessment year 1949-50, the assessee disclosed a profit of Rs. 1,75,875 from a joint venture in plywood chests and claimed the sum of Rs. 87,937 being half the profit which was paid to one Ratiram Tansukhrai under an agreement dated October 7, 1948, for financing the transactions in the joint venture. The Income-tax Officer brought to tax only Rs. 87,937 as the profit earned from the joint venture. For the assessment year 1950-51, the respondent had similarly claimed that it had paid half of the profits from the joint venture to Ratiram Tansukhrai, but on examination of the transaction the officer held that the agreement of October 7, 1948, was a got-up device to reduce profits and taxed the entire profit from the venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention to the decision relating to the subsequent year for the same assessee, namely, the assessment year 1950-51, which is reported at [1963] 48 ITR 153 (Burlop Dealers Ltd. v. Commissioner of Income-tax). It appears to me that the information that the agreement between the assessee and Ratiram Tansukhrai in that case was a sham transaction was the information derived from closer examination or revaluation of all the material facts which had been disclosed at the time of the original assessment. That was not a case of any objective information coming into the possession of the Income-tax Officer subsequent to the assessment indicating that the statement made in the original assessment was untrue. This position is made clear if one carefully reads the decision. At the penultimate paragraph of the judgment, the Supreme Court has observed : " Mere production of the books of account or other evidence from which material facts could with diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1), but where on the evidence and the materials produced, the Income-tax Officer could have reached a conclusion other than the one which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular case there had been any omission or failure of material facts, would essentially depend on the facts of each case, it is not necessary, in my opinion, to discuss the aforesaid decisions. Counsel for the revenue drew our attention to the decision of the Supreme Court in the case of Income-tax Officer v. Bachu Lal Kapur. Counsel for the revenue contended that the facts of that case were identical with the facts of the instant case. It is true that there the Supreme Court had observed that, if a Hindu undivided family had been assessed after partition as a result of the compromise decree, and the information regarding the continued existence of the joint family had been withheld, the compromise was a make believe and if that information was true, then that would be a case for reopening under section 34(1). The Supreme Court in that case, in my opinion, had no occasion to decide whether it would be a case of an omission to file return or a case of failure to disclose facts fully and truly or whether that was a case under section 34(1)(a) or section 34(1)(b), nor was it urged before the Supreme Court that there were no grounds to fulfil the conditions precedent for the issuanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contending that these were genuine, the assessee was being charged for having made an untrue disclosure because the assessee had stated that it had received certain sums of moneys from certain persons as loans when in fact the assessee did not receive any money at all from these persons, because the assessee stated at the time of the original assessment that it had paid interest to certain persons when in fact it did not, if the information now received be true. As I have viewed the facts of this case in the aforesaid light, I am unable with respect to agree with the conclusions reached by T. K. Basu J. Our attention was drawn to the judgment of K. L. Roy J. in Matter No. 234 of 1969 (Lakhmini Mewal Das v. Income-tax officer ) between the same parties as mentioned hereinbefore. I am in respectful agreement with the conclusion reached by his Lordship. In view of the several decisions mentioned hereinbefore, it is not, however, necessary to refer to his Lordship's judgment in greater detail. Counsel for the assessee criticised the observation of the learned judge about the change in the judicial trend. Without, however, going into the question whether there has in fact been any ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int as such point was not taken in the petition. It is true that in the petition it was stated that the conditions precedent for the issue of the notice had not been fulfilled but that was stated only in the context of the assertion that the Income-tax Officer did not have materials to form the belief and he did not in fact form the belief. There is no indication in the petition about the ground of non-compliance with the provisions of section 151(2) of the Act by the Commissioner. This point was also not urged before T. K. Basu J. Had this point been taken the Commissioner might have filed an affidavit explaining the position. In the premises we should not entertain this ground about the non-compliance with the provisions of section 151(2) of the Act. It is for the assessee to establish what are the conditions precedent for the issue of the notice that have not been fulfilled. Furthermore, I am of the opinion, that in the facts of this case it cannot be said that there has been non-compliance with the provisions of section 151(2) of the Act. In the case of Chhugamal Rajpal v. S. P. Chaliha , the Supreme Court has held that the sanction had not been properly given in that case in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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