PETITIONER:
SRI KRISHNA PVT. LTD. ETC
Vs.
RESPONDENT:
I.T.O. CALCUTTA & ORS.
DATE OF JUDGMENT: 16/07/1996
BENCH:
JEEVAN REDDY, B.P. (J)
MAJMUDAR S.B. (J)
CITATION:
JT 1996 (6) 440 1996 SCALE (5)353
ACT
HEADNOTE
JUDGMENT
THE 16TH DAY OF JULY, 1996 Present:
Hon’ble Mr.Justice B.P.Jeevan Reddy
Hon’ble Mr.Justice S.B.Majmudar Jaideep Gupta, Adv. for M/s. Khaitan & Co, Advs. for the apellants. B.B.Ahuja, Sr.Adv. B.S.Ahuja and S.N.Terdol, Advs. with him for the Respondents.
JUDGMENT The following Judgment of the Court was delivered: SRIKRISHNA PRIVATE LIMITED ETC. V. I.T.O. CALCUTTA & ORS.
JUDGMENTB.P.JEEVAN REDDY,J.
CIVIL APPEAL NO. 1562 OF 1977.
This is an appeal preferred by the assesee against the judgment and order of a Division Bench of the Calcutta High Court allowing the writ appeal preferred by the Revenue [Income Tax Officer, Central Circle-VI and Others] against the judgment of learned Single Judge. The learned Single Judge had allowed the writ petition filed by the assessee questioning the validity of a notice issued under Section 148 read with Section of the Income Tax Act.
In the return filed for the Assessment Year 1959-60, the assessee had shown certain hundi loans totalling Rs.8,53,298/- said to have been taken from a number of persons. The Income Tax Officer accepted the averment and made the assessment. During assessment proceedings for the succeeding year, 1960-61, the assessee again showed hundi loans in sum of more than Rupees seventeen lakhs. The Income Tax Officer enquired into the truth of the averment and found that many of them were bogus claims while some of the alleged lenders were found to be near relations of directors or principal shareholders of the assessee. The Income Tax Officer held that our of the hundi loans of more than Rupees seventeen lakhs claimed by the assessee, loans totalling Rs. 11,15,275/- were not established to be genuine loans and accordingly added that amount as income from undisclosed sources. Having regard to the similarity of the claims and the persons who are said to have advanced hundi loans during the accounting year relevant to the Assessment Year 1959-60, the Income Tax Officer issued a notice under Section 148 calling upon the assessee to file a revised return for the Assessment Year 1959-60. Immediately, upon receiving the said notice, the assessee approached the Calcutta High Court by way of a writ petition questioning the validity of the notice on the grounds that the Income Tax Officer had no reasonable ground to believe that income chargeable to tax has escaped assessment for the said year on account of any omission or failure on his part to make a full and true disclosure of all material facts. The writ petition was allowed by a learned Single Judge, as stated above, whose decision has been reversed in appeal by the Division Bench. This Court entertained the Special Leave Petition filed by the assessee and granted leave on July 26, 1977. This Court however, did not stay the proceedings pursuant to the impugned notice. It directed that the Income Tax Officer may proceed to complete the assessment proceedings but will not issue a demand notice. The Income Tax Officer has accordingly completed the re-assessment.
Section 147, 148 and 151, as they stood at the relevant time, read 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
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
re-assess such income or recompute
the loss or the depreciation
allowance, as the case may be, for
the assessment year concerned
(hereinafter in sections 148 to 153
referred to as the relvant
assessment year).
Explanation-1.-- For the purposes
of this section, the following
shall also be deemed to be cases
where income chargeable to tax has
escaped assessment, namely:-
(a) where income chargeable to tax
has been under assessed; or
(b) where such income has been
assessed at too low a rate; or
(c) where such income has been made
the subject of excessive relief
under this Act or under the Indian-
tax Act, 1922 (11 of 1922); or
(d) where excessive loss or
depreciation allowance has been
computed.
Explanation-2.-- Production before
the Income Tax Officer of account
books or other evidence from which
material evidence could with due
diligence have been discovered by
the Income-tax Officer will not
necessarily amount to disclosure
within the meaning of this section.
148. Issue of notice where income
has escaped assessment--
(1) Before making the assessment,
re-assessment or recomputation
under section 147, the Income-tax
Officer shall serve on the assessee
a notice containing all or any or
the requirements which may be
included in a notice under sub-
section (2) or Act shall, so far as
may be, apply accordingly as if the
notice were a notice issued under
that sub-section.
(2) The Income-tax Officer shall,
before issuing any notice under
this Section, record his reasons
for doing so.
151. Section for issue of notice.--
- (1) No notice shall be issued
under section 148 after the expiry
of eight years from the end of the
relvant assessment year, unless the
Commissioner is satisfied on the
reasons recorded by the Income-tax
Officer that it is a fit case for
the issue of such notice."
Section 139 places an obligation upon every person to furnish voluntarily a return of his total income if such income during the previous year exceeded the maximum amount which is not chargeable to income tax. The obligation so placed involves the further obligation to disclose all material facts necessary for his assessment for that year fully and truly. If at any subsequent point of time, it is found that either on account of an omission of failure of the assessee to fail the return or on account of his omission or failure 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 the Income Tax Officer is entitled to re-open the assessment in accordance with the procedure prescribed by the Act. To be more precise, he can issue the notice under Section 148 proposing to re-open the assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to file the return or on account of the omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason(s) to believe is supposed to be check, a limitation, upon his power to re-open the assessment. [See the leading decision on this subject in Barium Chemicals v. Company Law Board (1966 Suppl. S.C.R.311 at 361 = A.I.R.1967 S.C.295 at 324)] Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reason for such re-opening by the Income Tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income Tax Officer, that it is a fit case for issuance of such notice. The power conferred upon the Income Tax Officer, by Sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the assessing officers. The idea was to save the assessees from harassment resulting from mechnical re-opening of assessment but this protection avails only those assessees who disclose all material facts truly and fully.
Coming to the facts of this case, the reasons recorded by the Income-Tax Officer for re-opening the assessment for the year 1959-60 are to the following effect:
"In the course of the assessment
proceeding for the assessment year
1960-61 investigation were made
into the unsecured loans of Rs.
17,32,298/- which was the position
of the last day of the accounting
year relevant to the assessment
year 1960-61. These investigations
disclosed that a large number of
them were Bogus Hundi Loans or
Loans from near relations or the
Directors or principal
shareholders. Hence, the amounts
credited to some of these accounts
have been assessed as income from
undisclosed sources to the extent
of Rs.11,51,275.00.
Similar loans are noticed for the
assessment year 1959-60 and they
stand at Rs.853,298/- as per
Balance Sheet as on 16th April,
1959.
I have, therefore reasons to
believe that by reason of omission
or failure on the part of the
assessee company to disclose fully
and truly all material facts
necessary for its assessment of
1959-60 in regard to these
accounts, income chargeable to tax
has escaped assessment.
I, therefore , propose action under
Section 147(a) of I.T. Act, 1961."
We may also mention that after hearing this appeal for some time, we found it appropriate to look into the relevant record and accordingly made the following order on October 10, 1995:
"After hearing the appeals for some
time, we find it necessary to look
into the record to satisfy
ourselves with respect to the
following fact:
Whether, at the time of
issuing of notice under
section 148, the I.T.O. had
meterial before him showing
the persons who have lent the
sum of Rs.8,53,298 during the
accounting year relevant to
accounting year relevant to
assessment year 1959-60, were
the very same person who are
said to have lent Rs.11,51,275
(bogus loans) during the
accounting year relevant to
assessment year 1960-61, and
disallowed by the I.T.O. in
that assessment year?
Adjourned for eight weeks."
Accordingly, the Income Tax Officer has submitted a chart showing that out of the unsecured hundi loans of Rs.8,53,298/- claimed by the assessee, ten persons who are said to have lent a total amount of Rs.3,80,000/- were common to both the the Assessment Years 1959-60 and 1960-61. In other words, these very ten persons are said to have advanced loans again during the next year and all the ten were found to be bogus lenders as recorded in the asssessment proceeding relating to Assessment Year 1960-61. Now, the question is can it be said in the above facts that the issuance of the notice under Section 148 was not warranted? Can it be said in the face of the above facts that the Income Tax Officer had no reaosn to believe that on account of the assessee’s omission/failure to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment fot that year. In the reasons recorded by the Income Tax Officer [as required by Section 148(2)], he had stated clearly that in the course of assessment proceedings for the succeeding assessment year, it was found that out of the unsecured hundi loans pur forward by the assessee, a large number were found to be bogus and that many of the socalled lenders were found to be near relations of the Directors or the principal shareholders. He stated that similar loans are also noticed for the Assessment Year 1959- 60 leading to escapement of income. It is not alleged by the assessee that the Income Tax Officer had not checked up or tallied the names of the alleged lenders for both the assessment years. In the absence of any such allegation - which allegation, if made, could have afforded an opportunity to the Income Tax Officer did find that a large number of alleged lenders who were found to be bogus during the Assessment Year 1960-61 were also put forward as leanders during the Assessment Year 1959-60 as well. Evidently, this is what he mean in the context, when he spoke of "similar loans" being noticed for the year in question as well. In such a situation it is impossible to say that the Income Tax Officer had no reasonable ground to believe that there has been no full and true disclosure of all material facts by the assessee during the relvant assessment year and that on that account, income chargeable to tax had escaped assessment. As we shall emphasise hereinafter, every disclosure is not and cannot be treated to be true and full disclosure. A disclosure may be a false one or true one. It may be full disclosure or it may not be. A partial disclosure may very often be misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. This calls for an examination of the decisions of this Court analysing and elucidating Sections 147 and 148 of the act.
The first and foremost is the decision of the Constitution Bench Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District-I, Calcutta & Anr. [(1961) 41 I.T.R. 191. The case arose under Section 34 of the Income Tax Act [as amended in 1951]. In material particulars, the provisions in Section 34 were similar to those in Section 147. Having regard to the fact that it is the only Constitution Bench decision on the point, it is necessary to examine it in some detail. The Constitution Bench explained the purport of Section 34 in the following words:
"To confer jurisdiction under this
section to issue notice in respect
of assessments beyond the period of
four years, but within a period of
eight years, from the end of the
relevant year two condition have
therefore to be satisfied. The
first is that the Income-tax
Officer must have reason to believe
that income, profits or gains
chargeable to income-tax have been
under-assessed. The second is that
he must have also reason to believe
that such ’under-assessment’ has
occurred by reason of either (i)
omission or failure on the part of
an assessee to make a return of his
income under section 22, or (ii)
omission or failure on the part of
an assessee to disclose fully and
truly all material facts necessary
for his assessment for that year.
Both these conditions are
conditions precedent to be
satisfied before the Income-tax
Officer could have jurisdiction to
issue a notice for the assessment
or reassessment beyond the period
of four years, but within the
period eight year, from the end of
the year in question..... The words
used are ’omission or failure to
disclose fully and truly all
material facts necessary for his
assessment for that year. It
postulates a duty on every assessee
to disclose fully and truly all
material facts necessary for his
assessment. what facts are material
and necessary for assessment will
differ from case to case. In every
assessment proceeding, the
assessing authority will, for the
purpose of computing or or
determining the proper tax due from
an assessee, require to know all
the facts which help him in coming
to the correct conclusion. From the
primary facts in his possession,
whether on disclosure by the
assessee, or discovered by him on
the basis of the facts disclosed,
or otherwise, the assessing
authority has to draw inferences as
regards certain other facts; and
ultimately, from the primary facts
and the further facts inferred from
them, the authority has to draw the
proper leagal inferences, and
ascertain on a correct
interpretation of the texing
enactment, the proper tax leviable.
Thus, when a question arises
whether certain income received by
an assessee is capital receipt, of
revenue receipt, the assessing
authority has to find our what
primary facts have been proved, to
decide what the legal inference
whould be...... 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
extand beyond this."
(Emphasis added)
In that case, the alleged not-disclosure of material facts fully and trulyto put it in the words of the court - was the failure of the assessee to disclose "the true intention behind the sale of the shares". The assessee had stated during the assessment proceedings that the sale of shares during relevant assessment years was a casual transaction in the nature of mere change of investment. The Income Tax Officer found later that those sale were really in the nature of trading transactions. The case of the Revenue was that the assessee ought to have stated that they were material, on the basis of which, he has reasons to believe that the assessee had put forward certain bogus and false unsecured hundi loans said to have been taken by him from non-existent persons of his dummies, as the case may be, and that on that account income chargeable to tax has escaped assessment. According to him, this was false assertion to the knowledge of the assessee. The Income Tax Officer says that during the assessment relating to subsequent assessment year, similar loans [from some of these very persons] were found to be bogus. On that basis, he seeks to re-open the assessment. It is necessary to remember that we are at the state of re-opening only. The question is whether, in the above circumstances, the assessee can say, with any justification, that he had fully and truly disclosed the material facts necessary for his assessment for that year. Having created and recorded bogus entires or loans with what face can the assessee say that he had truly and fully disclosed all material facts necessary for his assessment for that year. True it is that Income Tax Officer could have investigated the truth of the said assertion which he actually did in the subsequent assessment year - but that does not relieve the assessee of his obligation, placed upon him by the statute, to disclose fully and truly all material facts Indubitably, whether a loan alleged to have been taken by the assessee, is true or false, is a meterial facts and not an inference, factual or leagal, to be drawn from given facts. In this case, it is shown to use that ten persons [who are alleged to have advanced loans to the assessee in a total sum of Rs.3,80,000/- out of the total hundi loans of Rs.8,53,298/-] were established to be bogus persons or mere name lenders in the assessment proceedings relating to the subsequent year. Does it not furnish a reasonable ground for the Income Tax Officer to believe that on account of the failureindeed not a mere failure but a positive design to mislead - of the assessee to disclose all material facts, fully and truly, necessary for his assessment for that year, income has escaped assessment? We are of the firm opinion that it does. It is necessary to reiterate that we are now at the stage of the validity of the notice under Section 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind.
A recent decision of this Court in Phool chand Bajranglal v. Income Tax officer [(1993) 203 I.T.R.456], we are gratified to note, adopts an identical view of law and we are in respectful agreement with it. The decision rightly emphasises the obligation of the assessee to disclose all material facts necessary for making his assessment fully and truly. A false disclosure, it is held, dose not satisfy the said requirement. We are also in respectful agreement with the following holding in the said decision:
"Since the belief is that of the
Income tax Officer, the Sufficiency
of reasons for forming the belief
is not for the court of judge but
it is not for the court of judge
but it is open to an assessee to
establish that there in fact not at
all a bona fide one or was based on
vague, irrelevant and non-specific
information. To that limited
extent, the court may look into the
conclusion arrived at by the
Income-tax Officer and examine
whether there was any meterial
available on the record from which
the requisite belief could be
formed by the Income-tax Officer
and further whether that material
had any rational connection or a
live link for the formation of the
requisite belief."
Learned counsel for the assessee, Sri Gupta placed strong reliance upon the decisions of this Court in Chhugamal Rajpal v. S.P. Chaliha & Ors [(1971) 79 I.T.R.603], Income Tax Officer, I Word, Dist. VI, Calcutta v. Lakhmani Mewal Das [(1976) 103 I.T.R.437] and Commissioner of Income Tax, Calcutta v. Burlop Dealers Limited [(1971) 79 I.T.R.609] as laying down propositions contrary to those laid down in Phool Chand Bajranglal. We cannot agree. The principle is well-settled by Calcutta Discount and it is not reasonable to suggest that any different proposition was sought to be enunciated in the said decisions. Calcutta Discount emphasises repeatedly the assessee’s obligation to disclose all material facts necessary for his assessment fully and truly in the context of the two requirements - called conditions precedent which must be satisfied before the Income Tax Officer gets the jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. Nor can anyone suggest that a false disclosure satisfies the requirement of full and true disclosure. All the requirement stipulated by Section 147 must be given due and equal weight. Finality of proceedings is certainly a consideration but that avails one who has fully and truly disclosed all material facts necessary for his assessment for that year - and not to others. All the decisions relied upon by Sri Gupta have been elaborately discussed and distinguished in Phool Chand Bajranglal and we fully agree with the same. We think it unnecessary to repeat those reasons. In particular, we agree with the reasons given in Phool Chand Bajranglal for holding that the decision of this Court in Burlop delears must be confined to the particular fact-situation of that case and that it cannot be construed to be of universal application irrespective of the facts and circumstances of the case before the Court.
It is brought to our notice that certain other decisions of this Court have rightly emphasised the requirement of full and true disclosure and have held that failure or omission to do so, legitimately attracts the power under Section 147. In Inspecting Assistant Commissioner of Income Tax v. V.I.P. Industies Limited [(1991) 191 I.R.R.661], a three-Judge Bench had this to say:
"After hearing learned cousel for
both the parties, we are unable to
uphold the order of the High Court.
It appears the notice of the
Income-tax Department that the
facts disclosed in the return are
not a true and correct declaration
of facts. In that view of the
matter, we set aside the order of
the matter, we set aside the order
of the High Court passed in Writ
Petition No.1634 of 1988 (V.I.P.
Industries v. Inspecting Assistant
Commissioner [1991] 187 ITR 639
(Bomb.)), and send the case back on
remand to the Income-tax Officer
for a decision in accordance with
law after giving an opportunity of
hearing to the parties concerned.
The special leave petitions are
disposed or."
In Central provinces Manganese Ore Co Ltd. v. Income Tax Officer, Nagpur [(1991) 191 I.T.R.662] again, this court observed:
"The only question which arises for
out consideration is as to whether
the two conditions required to
confer jurisdiction on the Income-
tax Officer under section 147 (a)
of the Act have been satisfied in
this case. The first is that the
Income-tax Officer must have reason
to believe that the income
chargeable to income-tax had been
under assessed and the second that
such under assessment has occurred
by reason of omission or failure on
the part of the assessee to
disclose fully and truly all
material facts necessary for its
assessment for the year 1953-54.
So far as the first condition
is concerned, the Income-tax
officer, In his recorded reasons,
has relied upon the fact as found
by the Customs Authorities that the
appellant had under-invoiced the
goods it exported. It is no dought
correct that the said finding may
not be binding upon the income-tax
authorities but it can be valid
reason to beliveve that the
chargeable income has been under-
assessed. The final outcome of the
proceedings is not relevant. What
is relevant is the existence of
reasons to make the Income-tax
Officer believe that there has been
under-assessment of the assessee’s
income for particular year. We are
satisfied that the first condition
to invoke the jurisdiction of the
Income tax Officer under Section
147 (a) of the Act was satisfied.
As regards the second
condition, the appellant did not
produce the books of account kept
by them at their head office in
London nor the original contracts
of sale which were entered into at
London with the buyers. The
appellant did not produce before
the Income-tax Officer any of the
accounts with related to the
foreign buyers. No reasons were
given for the supply of manganese
ore at a rate lower than the market
rate. It is for the assessee to
disclose all the primary facts
before the Income-tax Officer to
enable him to account for the true
income of the assessee. The proven
charge of under-invoicing per se
satisfied the second condition. The
appellant’s assessable income has
to be determined on the basis of
the price received by it for the
goods exported. If the true price
has not been disclosed and there
was under invoicing, the logical
conclusion prima facie is that
there has been failure on the part
of the appellant to disclose fully
and truly all material facts before
the Income-tax Officer. We are,
therefore, satisfied that both the
conditions required to attract the
provisions of section 147 (a) have
been complied with in this case.
In Income Tax Officer v. Mewalal Dwarka Prasad (176 I.T.R.529), this Court held that if the notice issued under Section 148 is good in respect of one item, it cannot be quashed under Article 226 on the ground that it may not be valid in respect of some other items. We need not, however, dilate on this aspect for the reason that no argument has been urged before us to the effect that since the notice under section 148 is found to be justifiable in respect of some loan disclosed and not with respect to other loans, it is invalid.
For the above reasons, the appeal fails and is dismissed with costs. Advocate’s fee Rupees ten thousand consolidated. CIVIL APPEAL NOS. 2101-03 OF 1980:
No separate arguments have been addressed in these appeals obviously because the decision in Civil Appeal No 1562 of 1977 would govern these cases as well. For the reasons given for dismissing Civil Appeal No.1562 of 1977, these appeals are also dismissed.
No costs.