A.P. Sen, C.J.
1. This is a writ petition by Nathuram Kapoor to quash the notice issued by the ITO, 'B' Ward, Indore, dated March 29, 1973, under Section 148 of the I.T. Act, 1961, for reopening of his assessment for the assessment year 1956-57.
2. The assessee is a wholesale dealer in cloth and yarn. For the assessment year 1956-57, the accounting year of which ended on 31st March, 1956, the petitioner was assessed on a total income of Rs. 33,077 under Section 23(3) of the Indian I.T. Act, 1922, as per return filed by him. Along with the return, the petitioner filed profit and loss account. The ITO, 'A' Ward, Indore, by his order of assessment dated January 15, 1957, accepted the return stating that there was all round improvement in results due to the improved tone of the market. It appears that the attention of the ITO was not drawn to the fact that there was a cash credit entry in the books of account for that year showing a deposit by Capt. Narendra-singh Motilal Bhandari to the tune of Rs. 1,59,700. The list of sundry creditors showed that a sum of Rs. 1,01,003-2-0 was due to him. The khata of the aforesaid Capt. Bhandari in the books of the petitioner was credited with various sums as representing cash deposits made between April 2, 1955, and November 7, 1955, totalling Rs. 1,64,700 on November 7, 1955, as detailed below :
3. The khata was debited with Rs. 5,000 alleged to have been repaid in cash on June 7, 1955, leaving a balance of Rs. 1,59,700 as on November 1, 1955. Thereafter, various alleged deposits amounting to Rs. 21,303-2-0 and alleged repayments totaling Rs. 80,000 are shown, leaving a balance of Rs. 1,01,003-2-0 at the end of the previous year.
4. It appears that during the assessment year 1960-61 there was an investigation into this item of Rs. 1,59,700 standing to the credit of Capt. Bhandari. The ITO, 'A' Ward, Indore, recorded the statement of the petitioner on November 22, 1960. The petitioner, in his statement, asserted that the dealings between the parties started some 5-6 years before and Capt. Bhandari used to deposit various sums with him; the petitioner never executed any promissory note or any writing, but agreed to pay interest ranging from 6 to 9 per cent. He further asserted that all the sums shown in the khata were deposited in cash by Capt. Bhandari himself and the repayments to him were by cheque. When questioned, he admitted that some two years before he had advanced loans to Capt. Bhandari. On being further questioned, he could not state the amount of loan that he advanced. In conclusion, he asserted that the accounts between the parties had been squared up and nothing was due to either of them.
5. On October 16, 1962, the ITO also examined Capt. Bhandari who denied ever having made any deposits with the petitioner, stating that he was in an extremely bad financial condition and the question of his advancing money to the petitioner did not arise. The material portions of his statement are given below :
'Q. Have you ever advanced money to Nathuram Kapoor of South Tukoganj, Indore ?
A, The question of advancing money does not arise because my financial position is known to the whole town of Indore.
Q. I want a more positive reply whether you have advanced money or not ?
A. Definitely not.
Q Did you ever advance money in the past ?
A. Well, the question of my advancing does not arise.....
Q. What business relation did you have with him ?
A. I have been taking money from him.'
6. When questioned about his signatures appearing on certain letters produced by the petitioner as well as on receipts acknowledging cheques issued by the petitioner in lieu of repayment Capt Bhandari stated that he signed them under compulsion because ha was in financial difficulty. On being further questioned as to when he had borrowed money from the petitioner, he stated that it was some time in 1954-55. The relevant portion of that statement is as under.
'Q. Please let me know the circumstances and compulsion under which you signed them ?
A. I was under financial difficulty and I did not want it to leak out, that is why he took undue advantage of my position.....
Q. When did you borrow the sum from Mr. Kapoor ?
A. I do not exactly remember the date or 1 can say that it was some time in 1954-55 or 56.'
7. It, however, appeais that the ITO, 'A' Ward, Indore, reopened the assessment of Capt. Bhandari under Section 148 of the I.T. Act, 1961. During the course of the proceeding the petitioner was examined by the ITO. Though, at first, the petitioner asserted that he started borrowing money from Capt. Bhandari since 1953 and denied that he ever lent him money, during cross-examination ne made the following statement:
'Q. Have you ever advanced any money to Shri N.M. Bhandari in the year 1953-54?
A. I do not remember anything about it.
Q. Have you ever obtained a receipt for loan advanced to Shri N. M. Bhandari or Nandlal Bhandari and Sons (P.) Ltd., Indore, and Bhandari Iron and Steel Co., Indore ?
A. If ever I advanced any loan, I must have taken a receipt.'
8. During his cross-examination he further stated :
' Q. How the money used to be repaid to Shri N. M. Bhandari ?
A. The money used to be repaid in cash and cheques by both.'
9. When questioned whether the account books for the year 1955-56 were there, the petitioner replied :
' Q. Is roker and khata of that you (year ?) still with you ?
A. I have not preserved the books of accounts for 1955-56 nor I have got in my possession, as various books of accounts were taken away by the Income-tax Department in 1955 when my shop and residence was raided.'
10. In view of the denial by Capt. Bhandari of the alleged deposits standing to his credit in the account books of the petitioner and the petitioner's failure to rebut it, the ITO, 'B' Ward, Tndore, by his report dated March 27, 1973, sought permission for the issue of notice under Section 148 of the I.T. Act, 1961. The material portion of the report reads :
'In consequence of information, which came into possession after completion of the original assessment in the form of denial by the so-called lender, and assessee's inability to rebut it satisfactorily. I have reason to believe that by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income of Rs. 1,59,700, representing unexplained cash credits in the account of Capt. Narendrasingh Bhandari, chargeable to tax, has escaped assessment. Necessary permission for the issue of notice under Section 148 may, therefore, kindly be accorded.'
11. The ITO by his letter of even date addressed to the CBDT, New Delhi, forwarded the aforesaid report and sought the requisite approval. The Board by its telegram dated March 28, 1973, accorded sanction for service of the notice as required under Section 151(1) of the Act, being satisfied that it was a fit case for the issue of such notice. Thereupon the ITO served the petitioner with the impugned notice of March 29, 1973.
12. The petitioner avers in para. 15 of the petition :
'The respondent No. 1 had, in the first instance, given his recommendation that the instant case was not a fit one from (for ?) the reopening of the assessment. This view was supported by the Inspecting Assistant Commissioner of Income-tax, Indore Range, Indore, and the Commissioner of Income-tax, Madhya Pradesh, Bhopal. However, the Board of Direct Taxes overruled these recommendations and telegraphically ordered the respondent No. 1 to reopen the case.'
13. It is somewhat strange that these facts should have come to the knowledge of the assessee. That, however, is a matter for the Board and the CIT, Madhya Pradesh, to investigate. The respondents, in their return, rightly assert that the petitioner is not entitled to know what transpired between the ITO and the higher authorities before the issuance of the notice. It is contended that the same was in the nature of preliminary inquiry before the starting of the reassessment proceedings. They contend that the legal requirements, namely, recording of reasons by the ITO, his report and sanction of the Board, were fully complied with.
14. Shri K. A. Chitale learned counsel for the petitioner, contends that no prior sanction of the Board under Section 151 of the Act was obtained by the ITO on the basis of any order recording his reasons that it is a fit case for reopening the assessment of the petitioner for assessment year 1956-57 and for issuing of a notice under Section 148 to the petitioner. It is urged that the impugned notice dated March 29, 1973, issued by the ITO was not based on independent and unfettered exercise of his discretion but on the direction of the Board. The submission is that the authority, power and jurisdiction under Sections 147 and 148 of the Act are required to be exercised by the ITO and by none else. They cannot be controlled by the CIT or the Board even though they are higher than the ITO in the official hierarchy. We are afraid, the contention does not really arise in the facts and circumstances of the present case.
15. On a plain construction of Sections 147 and 148 of the Act, the ITO is to initiate the proceedings and he cannot act to the dictates of the higher authority. It is quite clear that Section 151(1) of the Act does clothe the Board after the expiry of eight years from the end of the relevant assessment year, or the Commissioner under Section 151(2) after the expiry of four years from the end of such period, with authority to accord the requisite sanction for issue of notice under Section 148. That is borne out by the scheme of the Act. In cases falling under Clause (a) of Section 147, Section 149(1)(a)(i) enjoins that no notice for the relevant assessment year, if eight years have elapsed from the end of that year, shall be issued unless the case falls under Sub-clause (ii). Sub-clause (ii) provides that where eight years, but not more than sixteen years, have elapsed from the end of that year, no such notice shall be issued unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year. The provisions of Sub-section (1) of Section 149 are subject to the provisions of Section 151. Under Section 151(1), no notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. Similarly, by Section 151(2) it is provided that no such notice shall be issued after the expiry of four years, unless the Commissioner is satisfied on such reasons recorded by the ITO that it is a fit case for the issue of such notice. These are the checks and balances provided by the Act for the protection of an assessee.
16. It cannot be doubted that before issuing a notice under Section 148(1) the ITO must record reasons for doing so as enjoined by Section 148(2). Section 147 provides for assessment or reassessment in cases where income has escaped assessment. The department's right to take action under Section 147 is subject to the conditions laid down therein. These requirements have been fully complied with in the instant case. In the facts and circumstances of the present case, it is amply clear that due to the denial by the so-called lender, i.e., Capt. Bhandari, and the petitioner's inability to rebut it satisfactorily, the ITO had reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for the assessment year 1956-57 his income amounting to Rs. 1,59,700 chargeable to tax has escaped assessment. In view of this, it is futile to contend that the impugned notice by the ITO issued under Section 148(1) is liable to be struck down for the non-fulfilment of the conditions pre-requisite under Section 147(a) of the Act.
17. Section 147(a) of the Act, so far as relevant, reads 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 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.....
he may, subject to the provisions of Sections 148 to 153, assess or reassess such income.....'
18. It is plain from the very wording of Section 147(a) that the ITO should have 'reason to believe' that income chargeable to tax has 'escaped assessment' for the relevant year by reason of the omission or failure on the part of the assessee to disclose 'fully and truly all material facts' for his assessment for that year. The facts and circumstances of the present case speak for themselves. It is needless for us to stress that there was sufficient material, i.e., direct and circumstantial evidence, on which the ITO had reason to believe that income of the petitioner for the assessment year 1956-57 has escaped assessment by reason of his failure to disclose fully and truly all material facts. It cannot, therefore, be said that the belief was not of an honest and reasonable person based upon reasonable grounds. Nor can it be said that the ITO has acted on mere suspicion, gossip or rumour.
19. It cannot be denied that the ITO cannot abdicate his functions under Section 147 or Section 148. It cannot be said in the instant case that the ITO acted to the dictates of the CBDT which is the highest executive authority constituted under the Central Boards of Revenue Act, 1963. Its powers of administration, supervision and control extend over the whole department. It has power to make rules and issue orders, instructions and directions to all officers and persons employed in the execution of the Act, with two exceptions: (a) it cannot interfere with the discretion of the AAC in the exercise of his appellate functions as is clear from prov. (b) to Section 119(1), and (b) it cannot direct the ITO or any other income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner (Sirpur Paper Mills Ltd. v. CWT : 77ITR6(SC) ; J. K. Synthetics Ltd. v. CBDT : 83ITR335(SC) ; S. B. Adityan v. First ITO : 52ITR453(Mad) ; Vidarbha Housing Board v. ITO : 92ITR430(Bom) ). The latter principle, which was implicit in Section 119, prior to its amendment in 1970, is now made explicit in prov. (a) to s, 119(1). However, the Board has the power to issue general circulars which are binding on the department (Dr. T.P. Kapadia v. CIT : 87ITR511(KAR) ; Bela Singh Dattlat Singh v. CIT : 62ITR250(All) ). In other words, the quasi-judicial functions of an income-tax authority cannot be controlled by the Board in a particular case; but they can be so controlled to the extent that general directions are issued by the Board. (See Kanga and Palkhivala's Law and Practice of Income Tax, 7th edn., pp. 773, 774).
20. In this case, it is amply clear that the ITO by his covering letter dated March 27, 1973, forwarded his report to the Board for according sanction to serve the petitioner with a notice under Section 148(1). The Board by its telegram dated March 28, 1973, accorded the requisite sanction under Section 151(1), being satisfied that this was a fit case for the issue of a notice under Section 148. After receipt of its sanction the ITO served the petitioner with the notice dated March 29, 1973, under s 148(1), stating that he was satisfied that income of the petitioner chargeable to tax for the assessment year 1956-57 has escaped assessment within the meaning of Section 147(a) of the Act. In the sequence of events, we fail to see how the Board could be charged with having made a direction to the ITO to issue a notice to the petitioner under Section 148, i.e., to dispose of a particular case in a particular manner contrary to prov. (a) to Section 119(1) of the Act. On the contrary, all that the Board did was to permit the initiation of proceedings by the issue of a notice under Section 148 after the expiry of eight years from the end of the relevant assessment year as it was satisfied on the reasons recorded by the ITO that it was a fit case for the issue of such notice.
21. In S. Sewa Singh Gill v. CIT , the CIT directed an ITO to make a 'draft assessment order' and get it approved by the IAC before finalising the assessment. It was held that there was no legal warrant in directing an ITO to make an assessment subject to the approval of the IAC or of any other superior officer. We do not see how the decision is applicable here. Further, that was a decision prior to the introduction of Section 144B by the Taxation Laws (Amendment) Act, 1975. In Mahadayal Premchandra v. CTO : 1SCR551 , the CTO, without exercising his own judgment, asked for 'instructions' of the Assistant Commissioner and thereafter taxed the assessee on such instructions without giving his own reasons for doing so. It was, therefore, held that the whole procedure was contrary to the principles of natural justice. This decision also is distinguishable. In Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) , the ITO in his report to the Commissioner under Section 151(2) referred to certain communications received by him from the Commissioner from which it appeared that the creditors were mere name-lenders and the loan transactions were bogus and that, therefore, proper investigation regarding the loans taken by the assessee was necessary. In those circumstances, it was held that the ITO mechanically applied for sanction under Section 151(2) without applying his own mind as to whether the loans to which he referred were not genuine transactions. Their Lordships accordingly held that the notice issued under Section 148 was invalid. It is quite obvious that the important safeguards provided in Sections 147 and 151 cannot be lightly disregarded. The ITO must have reason to believe that income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts under Section 147(a). That case again is not applicable.
22. The first contention of learned counsel for the petitioner that the requirements of Section 147(a) were not fulfilled for the issue of a notice under Section 148 or that the notice under Section 148 was issued by the ITO under the dictates of the Board under Section 151(1) must, therefore, be rejected.
23. Learned counsel for the petitioner next contends that there is a distinction between primary facts and inferential facts and the duty of the assessee extends only to disclosing primary facts fully and truly. When the assessee has disclosed all the primary facts he is under no obligation to point out the factual inference which might be drawn from those facts. It is stated that if an assessee discloses certain facts which are accepted as true by the ITO after inquiry and an assessment is made on that basis, the ITO is thereafter precluded from reopening the assessment even if subsequent information exposes the facts disclosed to be false. In support of this contention reliance is placed on Calcutta Discount Co. Ltd. v. 110 : 41ITR191(SC) ; Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) ; Calcutta Credit Corporation Ltd. v. ITO : 79ITR483(Cal) ; Madhya Pradesh Industries Ltd. v. ITO : 57ITR637(SC) ; Sheo Nath Singh v. AAC : 82ITR147(SC) ; ITO v. Lakhmani Mewal Das : 103ITR437(SC) and Gemini Leather Stores v. ITO : 100ITR1(SC) . There is no quarrel with the principles laid down in these cases; but the difficulty is as to the application of those principles to the facts of the present case.
24. It is no doubt true that the 'material facts' which the assessee is required to disclose at the time of the assessment are the primary facts material and necessary for the purpose of his assessment. It is for the ITO to scrutinize the accounts of the assessee and, after being satisfied as to their correctness, to make the assessment. It is, however, necessary to state that, as laid down in Expln. 2 to Section 147 of the Act, the mere production before the ITO of the account books or other evidence from which material evidence could, with due diligence, have been discovered by the ITO, will not necessarily amount to disclosure within the meaning of that section. In the present case, the ITO, at the time of the original assessment, never required the assessee to prove the cash credits standing in the name of Capt. Bhandari. Nor does the order of assessment show that his attention was drawn to these cash credits. On the contrary, there is nothing in the order of assessment to indicate that the ITO ever applied his mind or held an inquiry to find out the genuineness or otherwise of the cash credit of Rs. 1,59,700.
25. In ITO v. Lakhmani Mewal Das : 103ITR437(SC) Khanna J., speaking for their Lordships, stated the legal position thus (p. 445) :
'The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law.'
26. The enunciation of law by the Supreme Court is binding on us. (See also the decisions in Assam Forest Products (P.) Ltd. v. CIT ; Hazi Amir Mohd. v. CIT ; ITO v. Mahadeo Lal Tulsian : 110ITR786(Cal) and Lakshmi Chand Swaika v. ITO : 112ITR212(Cal) ). Incidentally, the respondents in their return have placed the material on the basis of which such belief was made, namely :
'The respondent No. I had reasonable ground for believing that income had escaped assessment. Such material was in the form of the statement of the petitioner dated 9-11-1972 and 27-12-1972 recorded in the revisional proceedings in the case of Shri N. M. Bhandari for the very assessment year, namely, 1956-57. This statement was recorded during the cross-examination of the petitioner by the counsel of Shri Bhandari. The petitioner was for the first time cross-examined on this occasion. In this statement he clearly indicated that he had advanced loans to Shri Bhandari, and to the concerns in which he had interest, all of which were not prima facie found reflected in the statements filed by the petitioner along with the original return for the assessment year 1956-57.'
27. The ITO has sworn the return dated December 12, 1977, stating that he had reasonable grounds for believing that income had escaped assessment in this case. The material for such belief was in the form of statements of the petitioner recorded on November 22, 1960, November 9, 1972, and December 27, 1972. The statement dated November 22, 1960, of the petitioner was recorded in connection with assessment proceedings for the assessment year 1960-61. By oversight a reference to the statement was not made in the return. Thus, there can be no doubt that in the present case, there existed reasonable grounds for the formation of the belief by the ITO as required by Section 147(a) which were sufficient to clothe him with jurisdiction to issue the notice under Section 148. Whether the grounds are adequate or not is not a matter for the court to investigate.
28. Explanation 2 to Section 147 of the Act provides that production before the ITO of account books or other evidence from which material evidence could with due diligence have been discovered by him will not amount to disclosure of all material facts by the assessee. Learned counsel for the petitioner, however, placing reliance on ITO v. Calcutta Chromotype Pvt. Ltd. : 97ITR55(Cal) contends that the Explanation deals only with account books and other evidence which are produced before the ITO, but it does not cover the balance-sheet which the assessee is obliged to file along with the return. We do not think that it is necessary for us to go into this question.
29. Similarly, it is not necessary for us to dilate on the contention of learned counsel for the petitioner that there was no material before the ITO on which he could have reason to believe that income chargeable to tax had escaped assessment for the assessment year 1956-57. We have dealt with the point at length and no useful purpose would be served by covering the ground over again. As already stated, the ITO in his report dated March 27, 1973, has stated that the denial of the so-called lender, i.e., Capt. Bhandari, and the failure of the petitioner to rebut it satisfactorily, was the reason for the formation of his belief. He has, furthermore, placed on record the material on which he had reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all the material facts, income chargeable to tax had escaped assessment for the year in question. Even assuming that the petitioner had fully disclosed the material facts by filing the balance-sheet, the disclosure was not a truthful disclosure. There was, therefore, omission or failure on his part to disclose truly all the material facts.
30. Article 226(3) of the Constitution, as inserted by Section 38 of the Constitution (Forty-second) Amendment Act, 1976, interdicts the court from entertaining any petition for the redress of any injury referred to in Sub-clause (b) or Sub-clause (c) of Clause (1) if there is any other remedy for the redress of such injury provided for by or under any other law for the time being in force. The petitioner, undoubtedly, has the remedy of showing cause against the notice issued by the ITO under Section 148(1) of the Act. If the ITO is not satisfied with his explanation as to the source of the cash credit of Rs. 1,59,700, the petitioner has further remedy of an appeal to the AAC under Section 246, of a second appeal to the Income-tax Appellate Tribunal under Section 253, and thereafter of a case stated to the High Court under Section 256 of the Act. Prior to the Forty-second Amendment, the Supreme Court, in Calcutta Discount Co. Ltd. v. ITO : 41ITR191(SC) , held that if the two conditions Jaid down in Section 34(l)(a) of the 1922 Act, which corresponds to Section 147(a) of the 1961 Act, are not fulfilled, the ITO would be acting without jurisdiction. In that case, the assessee had disclosed all primary facts regarding sale of shares and the Supreme Court held that action under Clause (a) could not be taken on the ground that the assessee had claimed it to be a mere change of investment and had not disclosed 'the true intention behind the sale'; the question whether the sale was a trading transaction was for the ITO to decide, i.e., a mere change of opinion. Their Lordships accordingly struck down the notice under Section 34(1)(a). Learned counsel for the petitioner, however, contends that the same is the law even after the Forty-second Amendment of the Constitution and he relies upon Dr. H.K. Mahatab v. ITO : 111ITR900(Orissa) , Mohindra Mohan Sirkar v. ITO : 112ITR47(Cal) , Shardaben Jayantilal Shah v. R. S. Belsare, TRO : 112ITR156(Guj) . In view that we have taken we do not think it necessary to go into this vexed question. We may, however, point out that a view to the contrary has been taken in Jai Hanuman Trading Co. P. Ltd. v. CIT
31. For all the reasons stated above, the writ petition must fail. It is dismissed. There shall, however, be no order as to costs. Security deposit be refunded to the petitioner after verification.