1. By this reference under Section 256(1) of the I.T. Act, 1961, hereinafter called the Act, the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law to this court for its opinion:
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Officer was justified in reopening the assessment under Section 147(a) of the Act for any of the years under dispute ?
2. Whether, on the facts and in the circumstances of the case, there was material on record to justify the finding of the Tribunal for each of these years that the sums represented the income of the assessee from undisclosed sources ?'
2. The facts giving rise to this reference briefly are as follows : The asses-see was assessed as an individual deriving income from money-lending business. The relevant assessment years are 1956-57, 1957-58 and 1958-59. For each of these years, the assessee was originally assessed on 30th May, 1960. At the time of original assessment, the assessee had submitted a list of the parties from whom interest was received by the assessee. No books of account were maintained by the assessee. No enquiry was made at the time of original assessments regarding the source of investments made by the assessee. Subsequently, however, the ITO came to know that the assessee had been in possession of substantial quantity of gold which was sold by the assessee and that the amount of sale proceeds was invested in money-lending business. As the ITO had reasonable grounds to believe that income liable to tax had escaped assessment, he initiated proceedings for reassessment after obtaining the sanction of the CIT for each of the aforesaid three assessment years. The assessee filed returns under protest challenging the legality of reassessment proceedings. The assessee submitted that she had received ornaments from her father and father-in-law. The ITO did not accept the version of the assessee, and the amount obtained by the assessee by sale of ornaments was added to the assessee's income as income from undisclosed sources. On appeal, the orders passed by the ITO were confirmed by the AAC of Income-tax. In second appeal, the Tribunal rejected the contention of the assessee that the reassessment proceedings were illegal. On merits, the Tribunal came to the con-clusion that the AAC was justified in affirming the orders passed by the ITO. On an application made in that behalf by the assessee, the Tribunal has referred the aforesaid questions of law to this court for its opinion.
3. As regards the first question referred to us, Shri Chitale, learned counsel for the assessee, contended that the original assessments were com-pleted on 30th May, 1960, and the ITO making the original assessments could very well have enquired from the assessee the source of her investments. It was further contended that all the primary facts, which the assessee was required to state at the time of original assessments, were placed by the assessee before the ITO and the ITO, therefore, did not have jurisdiction under Section 147(a) of the Act to reassess the assessee.
4. Having heard learned counsel for the assessee and the department with regard to the first question referred to us, we have come to the conclusion that the answer to the first question must be in the negative and in favour of the assessee. It is well settled that to confer jurisdiction on the ITO under Section 147(a) of the Act, two conditions are to be satisfied ; Firstly, the ITO must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment and, secondly, he must also have reason to believe that such escapement has occurred by reason of either, (i) omission or failure on the part of the assessee to make a return of his income under Section 139 of the Act, or (ii) omission or failure on the part of the 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 ITO could have jurisdiction to issue a notice under Section 148 read with Section 147(a) of the Act [see Calcutta Discount Co. Ltd. v. ITO : 41ITR191(SC) ]. Now, what facts are material and necessary for assessment will differ from case to case. In this connection, we may usefully refer to the following observation in Modi Spg. & Wvg. Mills v. ITO : 101ITR637(All) :
'.....while filing a return an assessee is not bound to disclose anyinformation other than that what is required to be mentioned by him in various columns of the prescribed form of return or which he is bound under the provisions of the Act to furnish even though that fact may otherwise be relevant for the purposes of his assessment. Merely because such information has not been furnished in the return it would not mean that the assessee had failed or omitted to disclose fully and truly all material facts necessary for his assessment. As stated, the obligation for supplying such other information could arise only if the Income-tax Officer had required the assessee to furnish information.....'
5. Now, in the instant case, the Tribunal has found that the assessee had produced before the ITO at the time of original assessments a list of persons to whom moneys had been advanced by the assessee and the amounts of interest received from them. It is true that the source of investments was not disclosed by the assessee. But it was not urged before us on behalf of the department that at the time of filing her returns for the relevant assessment years, the assessee was required to furnish information regarding the source of the capital invested in money-lending business. It is also not the case of the department that the ITO had at any stage required the assessee to furnish any information in connection with the source of the capital invested in money-lending business. Learned counsel for the department referred to the following observations of the Supreme Court in CIT v. Chidambaram Chettiar : 80ITR467(SC) :
'It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of section 34(1)(a) particularly when the assessee had failed to place truly and fully all the material facts before him.'
But, as observed in Hongkong and Shanghai Banking Corporation v. ITO : 100ITR531(Cal) , the aforesaid observations are to be understood in the context of the fact that, according to the Supreme Court, there was an omission or failure on the part of the assessee to disclose primary facts in that case. In the instant case, however, it is clear that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for her assessment for the assessment years in question. It must, therefore, be held that a condition precedent for the exercise of powers under Section 147(a) of the Act was not fulfilled in the instant case. In our opinion, therefore, on the facts and in the circumstances of the case, the ITO was not justified in reopening the assessments under Section 147(a) of the Act for any of the years in dispute.
5. Learned counsel for the assessee and the department agreed that in case our answer to the first question referred to us was in the negative and against the department, then the answer to the second question was not necessary in the circumstances of the case.
6. For the aforesaid reasons, our answer to the first question referred to us for our opinion is in the negative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.