JAGANMOHAN REDDY C.J. - The Income-tax Appellate Tribunal has referred this case to this court under section 66(2) on the following question, viz. :
'Whether, on the facts and the circumstances of the case, it is section 34(1) (a) or 34(1) (b) of the Indian Income-tax Act that is applicable to the case ?'
The 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 April 9, 1948. The assessment for this year was made on August 22, 1949, 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 March 31, 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. Along with 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 that he came to the same conclusion, namely, that they were not genuine. In view of this he took proceedings for reopening the assessment under section 34 and, after obtaining the Commissioners permission, notice was issued to the assessee under section 34 which was served on him on November 12, 1954. 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 section 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 section 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 section 34(1) (a) or section 34(1) (b) that is applicable in this case. It is thus necessary to set out that provision. Clauses (a) and (b) of sub-section (1) of section 34 of the Act read as follows :
(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 to 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 that sub-section.'
It may be stated that the term 'within eight years' has been omitted by section 18 of the Finance Act with effect from April 1, 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 of above. We are, however, not concerned with these provisions as the assessment year related to years prior to 1956. The above two provisions, while vesting the jurisdiction in the Income-tax Officer to reopen 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, and 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.
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 latter 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 the provisions of clause (b) of sub-section (1) of section 34 enabling the Income-tax officer to reopen an assessment under that provision and not under section 34(1) (a). He also says that the 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 shows that whatever the assessee has declared has been simply accepted except for two items of Rs. 100 each, one relating to the estimate of personal expenses of partners included in travelling 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 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 in which 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 hold was that the Income-tax Officer who made the original assessment did not suspect the genuineness 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 section 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 thereon 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 section 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 those cash credits are false and not genuine, the provisions of section 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. Commissioner of Income-tax a Bench of this court consisting of one of us held that neither the fact that the loan appeared in the account books or the fact that the Income-tax Officer had inadvertently made an order under section 18 of the Income-tax Act in regard to the interest claimed to be paid thereon precluded their being brought to reassessment under section 34(1) (a). Another Bench of this court in Sowdagar Ahmad Khan v. Income-tax Officer, Nellore, consisting of Chandra Reddy C.J. and Sharfuddin Ahmed J. had that mere production of accounts or other evidence from which material facts with due diligence could be discovered will 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 section 34, the Income-tax Officer proceeds de novo under the relevant sections of 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 section 22(2) of the Act. In Income-tax Officer v. Bachulal Kapoor, 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 25A of the Income-tax Act, and for the assessment years 1953-54,1954-55 and 1955-56, the members of the family were assessed as individuals. Subsequently, it appeared to the Income-tax Officer that 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 moved the Allahabad High Court under article 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 recognized, 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 joint mess 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 section 34(1) (a) were justifiably invoked and that the notice was valid. Subba Rao J., as he then was observed at page 79 :
'In short the case of the revenue was that the compromise was a make believe one and the family in fact continued to be a joint Hindu family. If the case of the revenue was true-on which we do not express any opinion and the fact of the continuance of the joint Hindu family was kept back from the knowledge of the Income-tax Officer, it would be a clear case of the said family escaping assessment during the relevant year. If that be so, section 34(1) would immediately be attracted and the notice issued would be good.'
This was a case of deliberate suppression and, consequently, attracted the provisions of section 34(1) (a), though that question did not arise because the assessment was reopened within four years. Mr. Ramrao appearing for the assessee relies upon a decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, which is, however a case where the majority held that, even though all the primary facts were disclosed, the assessee had on 7those 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 Lordship, observed at page 201 :
'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 else-far less the assessee - to tell the assessing authority what inferences, whether of fact 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 fact or law - he would draw from the primary facts.
If from primary facts more inferences than on 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 ?'
On the facts and 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 explanation and we are not to be understood as accepting the contention of the learned advocate that he in fact did, the provisions of section 34(1) (a) can be properly invoked if it is subsequently discovered by the Income-tax Officer that these cash credits were got up ones and not genuine.
We also reject the contention that a notice to reopen the assessment must itself specify whether it is given under section 34(1) (a) or section 34(1) (b) of the Income tax Act, 1922. This position is well-settled and a Bench of the Madras High Court in Presidency Talkies v. First Additional Income-tax Officer as well as another Bench in P. R. Mukherjee v. Commissioner of Income-tax, 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 section 34(1) (a) or section 34(1) (b) of the Indian Income-tax Act.
In the result, our answer to the reference is that section 34(1) (a) is applicable to the facts and circumstances of this case. The department will have its costs. Advocates fee Rs. 250.