P. Jaganmohan Reddy, C.J.
1. The Income-tax Appellate Tribunal has referred this case to this Court under Sec. 66(2) on the following questions, viz.:-
'Whether on the facts and the circumstances of the case it is S. 34(1)(a) or 34(1)(b) of the case it is S. 34(1)(a) or 34(1)(b) of the Indian Income-tax Act that is applicable to the case.'
This question will no doubt depend upon the facts of this particular case. The assessee, who is a firm, consisted of six partners, and the assessment is for the year 1948-49, the previous year of which is the year ended 9-4-48. The assessment for this year was made on 22-8-49, and the income as returned by the assessee, namely, Rs. 56, 886 was virtually accepted except for an addition of Rs. 200.
During the course of the assessment proceedings for the assessment year 1950-51, the previous year whereof is the year ended 31-3-1950, the Income-tax Officer found certain cash credits in the accounts to be not genuine, and he held them to be the income of the assessee from undisclosed sources. Alongwith the inquiries made for the assessment year 1950-51, he made inquiries regarding the cash credits that appeared in the books for the assessment year 1948-49 which had not come to the notice of the Income-tax Officer who made the original assessment. The result of this investigation was he came to the same conclusion, namely, that they were not genuine. In view of this, he took proceedings for reopening the assessment under Sec. 34 and after obtaining the Commissioner's permission, notice was issued to the assessee under Sec. 34 which was served on him on 12-11-54. It may be noticed that the service of the notice was beyond four years and within eight years from the date of the assessment.
The assessee challenged the jurisdiction of the Income-tax Officer to reopen the assessment as, according to him, the case was one which fell within the ambit of S. 34(1)(b) which prescribed the reopening of assessments within four years from the date of the assessment while the contention of the Department was that it fell under S. 34(1)(a) which gave jurisdiction to reopen the assessment within eight years.
The contention of the assessee was negatived by all the authorities including the Income-tax Appellate Tribunal, which also refused to state a case because in its view no question of law arose for consideration. The simple question, therefore, is whether it is S. 34(1)(a) or S. 34(1)(b), that is applicable in this case. It is thus necessary to set out that provision. Clauses (a) and (b) of Sub-sec. (1) of Sec. 34 of the Act read as follows:
'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 of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, 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, profits or gains chargeable to income-tax have escaped assessment for any year or have been under-assessed, or assessed at too low a rate or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under the sub-section.'
2. It may be stated that the term 'within eight years' has been omitted by S. 18 of the Finance Act with effect from 1-4-1956, and certain provisos were added prescribing the period of limitation to vary with the amount of escapement of income, namely, whether it is below one lakh of rupees or above. We are, however, not concerned with these provisos as the assessment year related to years prior to 1956. The above two provisions while vesting the jurisdiction in the Income-tax Officer, to re-open assessment, have prescribed two different periods of limitation depending on whether there has been a suppression of income by the assessee not fully or truly disclosing the material facts necessary for the assessment of that year or whether in spite of fully disclosing by the assessee the material facts necessary for the assessment, the income has escaped assessment. If the former is the case, the assessment can be reopened within eight years, land in the latter case within four years. The consequence of the presence of an omission to disclose material facts necessary in one case and the absence thereof in the other is that in the first case the period prescribed for reopening the assessment is longer and in the second case it is shorter. The question, therefore, would be whether the assessee has not fully or truly disclosed the material facts necessary for the assessment for that year whereby the income escaped assessment.
3. Mr. Rama Rao has strenuously contended that there is a finding in his favour that the Income-tax Officer, who had made the original assessment after examining the account books thought that the cash credits were genuine but the later Income-tax Officer came to a different conclusion which means and implies that there has been a change of opinion on the part of the second Income-tax Officer. At any rate, he contends that this is a jurisdictional fact which attracts provisions of Clause (4), sub-sec (1) of Sec. 34 enabling the Income-tax Officer to reopen an assessment under that provision and not under Section 34(1)(a). He also says that Income-tax Appellate Tribunal has proceeded on the same assumption. If so, Section 34(1)(b) alone should be made applicable to his case. The Income-tax Officer had, therefore, no jurisdiction to reopen the assessment. We cannot accept this contention firstly because the original assessment order itself shows that whatever the assessee has declared has been simply accepted except for two items of Rs. 100 each, one relating to the estimation of personal expenses of partners included in traveling charges and the other relating to railway supplies estimate. There is no mention in the order anywhere that the accounts were examined or that the interest paid on the cash credits which are debited in his accounts had been allowed on the basis of that the cash credits were genuine. The statement of the Appellate Assistant Commissioner to which he had adverted cannot be read in isolation and must be considered in the context of the paragraph inwhich it appears. While, no doubt, the Appellate Assistant Commissioner said that the Income-tax Officer, who made the original assessment thought that the credits were genuine, he, however, concluded with these words, viz.:-
'It is obvious that the Income-tax Officer who made the original assessment did not suspect the genuineness of the credits.'
If both these passages are read together, the conclusion of the Appellate Assistant Commissioner becomes clear in that what he held was that the Income-tax Officer who made the original assessment did not suspect the genuiness of the credits though in fact they were not genuine. There is nothing to imply that he examined the books or that he accepted the accounts after a close scrutiny. The Tribunal did not accept the contention that the cash credits were genuine and once that fact went against the assessee, the assessee did not contest that the assessment could be reopened under S. 34(1)(a) of the Act. The Tribunal has observed:
'We have absolutely no doubt in our mind, as will be presently shown that the Income-tax Officer had reasonable grounds to believe that cash credits in certain accounts did not purport to be what they prima facie appeared and as such the interest therein was not an admissible deduction. Hence, the assessment in the present case has to be completed within a period of 8 years, and if this is so, then the assessee urged no other ground to challenge the validity of the assessment so far as the provisions of Sec. 34 were concerned.'
Where the Income-tax Officer in our view after considering the cash credits accepted them and allowed interest when it is subsequently discovered that these cash credits are false and not genuine, the provisions of S. 34(1)(a) can be invoked because that would be a non-disclosure fully or truly of all material facts necessary for the assessment. In Manikonda Venkata Narasimham v. Commr. of Income-tax, Hyderabad : 39ITR575(AP) , a Bench of this Court consisting of one of us held that neither the fact that the loans appeared in the account books for the fact that the Income-tax Officer had inadverently made an order under S. 18 of the Income-tax Act in regard to the interest claimed to be paid thereon precluded their being brought to re-assessment under S. 34(1)(a). Another Bench of this Court in Sowdagar Ahmad Khan v. Income-tax Officer, Nellore, : AIR1964AP443 , consisting of Chandra Reddy, C. J., and Sharfuddin Ahmed, J., had held that mere production of accounts or other evidence from which material facts not amount to disclosure of material facts. If subsequent to the assessment the entries or cash credits which were overlooked in the original assessment were detected, it was open to the department to reopen the proceedings. When once an assessment is reopened under Sec. 34, the Income-tax Act and is obliged to follow the same procedure as in the case of a first assessment. The proceedings under Section 34 must be deemed to relate to proceedings which commenced with the publication of notice under Sec. 22(2) of the Act. In Income-tax Officer v. Bachulal Kapoor : 60ITR74(SC) , their Lordships of the Supreme Court were dealing with a case where under a compromise a Hindu family was divided and was being assessed. The Income-tax Officer accepted the claim of partition under Section 25-A of the Income-tax Act, and for the assessment years 1953-54, 1954-55 and 1955-56, the members of the family in fact was not divided and he issued a notice under Section 34 to the respondent in regard to the assessment year 1955-56. The respondent thereupon move the Allahabad High Court under Art. 226 of the Constitution for quashing the notice on the ground that the income for the assessment year in question had already been assessed, that it could not be assessed again as the income of the family and that as the family had ceased to exist and the partition was recognised, no valid notice could be issued to the respondent in his capacity as the karta of the family. In his counter-affidavit the Income-tax Officer stated that he had information that, notwithstanding the compromise decree, the members of the family were living together and had a jointness and the business was run by the respondent and that, therefore, the compromise was a make believe one and the family in fact continued to be a joint Hindu family. It was held by the High Court that the notice issued by the income-tax officer was invalid but on appeal the Supreme Court held that the provisions of S. 34(1)(a)Ltd. v. Income Tax Officer : 41ITR191(SC) , which is however, a case where the majority held that even though all the primary facts were disclosed the assessee had on those facts treated the income as an investment which contention was accepted by the Income Tax Officer. The subsequent change of opinion on the part of the next Income-tax Officer that it is not an investment was merely a change of opinion. It is an inference based upon facts for which the assessee cannot be held responsible. That case cannot be of assistance to the assessee. Das Gupta J., delivering the judgment of the majority of their Lordships observed at p. 201(of ITR) = (at p. 376 of AIR):
'Once all the primary facts are before the assessing authority he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody also 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.
It 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.'
5. On the facts in the circumstances of the case and the application of the law as disclosed by the decisions referred to above we have no hesitation in coming to the conclusion that the assessee did not fully and truly disclose all the material information necessary for the assessment. Even where the cash credits were examined by the Income-tax Officer, who accepted his explanation and we are not to be understood as accepting the contention of the learned advocate that he in fact did, the provisions of Sec. 34(1)(a) can be properly invoked if it is subsequently discovered by the income-tax officer that those cash credits were got up ones and not genuine.
6. We also reject the contention that a notice to reopen the assessment must itself specify whether it is given under Sec. 34(1)(a) or Sec. 34(1)(b) of the Income-tax Act. This position is well settled and a Bench of the Madras High Court in Presidency Talkies Ltd. v. First Addl. Income Tax Officer : 25ITR447(Mad) as well as another Bench in P. R. Mukherjee v. Commr. of Income Tax : 30ITR535(Cal) , have held that this is not necessary. It is only after the facts are investigated that the question would arise whether the income-tax officer would act under Sec. 34(1)(a) or Sec. 34(1)(b) of the Indian Income Tax Act.
7. In the result our answer to the reference is that Sec. 34(1)(a) is applicable to the facts and circumstances of this case. The department will have its costs. Advocate's fee Rs. 250.
8. Answered accordingly.