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Dinesh Kumar Gordhandas Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 245 of 1979
Judge
Reported in[1983]140ITR211(MP)
ActsIncome Tax Act, 1961 - Sections 147
AppellantDinesh Kumar Gordhandas
RespondentCommissioner of Income-tax
Appellant AdvocateG.M. Chaphekar, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
.....believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. in other words, the income-tax officer must on information at his disposal believe that income has been under-assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. it was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. the ito having failed to do so, it cannot be said that the assessee had..........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 legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. there can be no doubt that the duty of.....
Judgment:

Mishra, J.

1. This is a reference under Section 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal, at the instance of the assessee, whereby the following question has been referred for our opinion :

'Whether, on the facts and in the circumstances of the case, the Appellate Trjbunal was justified in holding that the proceedings under Section 147(a) of the Income-tax Act, 1961, were validly initiated against the assessee in respect of the assessment years 1967-68 and 1969-70 ?'

2. The assessee is a registered firm carrying on the business in adat. The firm is constituted of two partners, namely, Dineshkumar and Kamal-kumar. Originally, the assessment for the assessment years (for short, 'the A.Ys.') 1967-68 and 1969-70 were completed on a total incomes of Rs. 26,914 and Rs. 23,016 on Novembers, 1968, and July 27, 1970, respectively. While completing these assessments the ITO had allowed the assessee's claim for payment of interest amounting to Rs. 1,488 and Rs. 2,446 paid to Smt. Chandravalbai. He also did not take any action in respect of the fresh credits introduced in her name during the above two assessment years. After completion of the aforesaid assessment, the ITO took up the assessment proceedings for the A.Ys. 1972-73 and examined the genuineness of the cash credits in the name of Smt. Chandravalbai. Daring the above year, there was a credit balance of Rs. 21,248 in her name including Rs. 5,000, which were credited during the accounting period relevant for the A.Ys. 1972-73. In the books of accounts of the assessee, there was yet another account in her name styled as 'Chandravalbai pyau', which showed a credit balance of Rs. 10,000. The ITO required the assessee to establish the genuineness of the credits in the accounts of the lady and in this process he examined the creditor. Smt. Chandravalbai admitted having advanced the said amount to the assessee. As regards the source, she stated that she had a sum of Rs. 24,000 with her in the year 1943, which was kept by her at home. The ITO did not accept this contention in view of a statement to the effect in a will executed by her on June 1, 1973, wherein although there was mention of some immovable properties and ornaments, yet there was no mention of the aforesaid amount. The ITO, therefore, concluded that Smt. Chandravalbai had no cash available with her to advance any amount to the assessee-firm, the partners of which were her close relations. He, therefore, ignored the statement of Smt. Chandraval-1 bai and included towards the total income of the assessee a sum of Rs. 5,000 as income from undisclosed sources. This amount represented the fresh deposits appearing in the name of the lady during the accounting year relevant for the A.Ys. 1972-73. The findings of the ITO were upheld by the AAC and also by the Tribunal to the extent of Rs. 4,000.

3. Later on, a penalty of Rs. 4,000 was imposed by the ITO under Section 271(1)(c) of the Act, which was also upheld by the Tribunal.

4. On the basis of the facts which were found during the proceedings for the assessment years 1972-73, the ITO initiated action under Section 147 of the I.T. Act, 1961, in respect of the A.Ys. 1967-68 and 1969-70. During these two A.Ys. there were fresh credits to the extent of Rs. 3,500 and Rs. 5,000, respectively, in the account of the lady. Interest to the extent of Rs. 1,488 and Rs. 2,446 was also claimed as having been paid to Smt. Chandravalbai and these sums were originally allowed by the ITO. After reopening the assessments the ITO added back the fresh cash credits of Rs. 3,500 and Rs. 5,000 and also disallowed the interest of Rs. 1,448 and Rs. 2,446 which were originally allowed.

5. Against the reassessments so made by the ITO, the assessee went in appeal before the AAC challenging the order of the ITO on the grounds that the ITO had no jurisdiction to initiate proceedings under Section 147{a) of the Act and that the quantum of penalty was excessive. The AAC held that the assessee did not disclose the full particulars of Smt. Chandraval-bai's account fully and truly at the time of original assessment and, hence, the ITO was quite competent to reopen the said proceedings on the basis of the information which came into his possession at the time of completing the assessment for the A.Ys. 1972-73. On merits also the contention of the assessee was rejected, on the basis of the findings of the Income-tax Appellate Tribunal relating to the appeal for the A.Ys. 1972-73.

6. Against the order of the AAC the assessee filed an appeal before the Income-tax Appellate Tribunal assailing the order of the AAC. The Tribunal rejected the appeal. Thereafter, on an application under Section 256(1) of the I.T. Act, 1961, by the assessee the aforesaid question has been referred to us by the Tribunal for our opinion.

7. It is not in dispute that during the original assessment proceedings for the relevant years the assessees had filed copies of the balance-sheet, details of the interest account and also a copy of the pyau account and had shown the amount of interest on the amount advanced to him by Smt. Chandravalbai, the creditor.

8. Now, the question is whether production of the aforesaid documents and disclosure of the nature of the transaction of loan on which interest was paid amounted to a disclosure to the ITO of the primary facts or not. Section 147(a) of the I.T. Act, 1961, under which action in this case has been taken by the ITO reads as under :

'147. 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 assessment year to the Income-tax Officeror 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 '.

9. In order that the ITO may exercise the jurisdiction under the aforesaid clause, two distinct conditions precedent are required to be fullfilled : (1) he must have reason to believe that the income has escaped assessment, and (2) that he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year. Now, the disclosure of material facts within the contemplation of Clause (a) of Section 147 is disclosure of primary facts. In construing the corresponding provisions placed in Section 34 of the Indian I.T. Act, 1922, the Supreme Court (by majority judgment) in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) has observed as under (pp. 199, 200):

'Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income-tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. 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 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 legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.

There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when someaccount books or other evidence has been produced there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example--'I have produced the account books and the documents: You, the assessing officer, examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account books and the documents.' His omission to bring to the assessing authority's attention those particular items in the account books or the particular portions of the documents, which are relevant, will amount to 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section gives a quietus to all such contentions ; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them--including particular entries in account books, particular portions of documents, and documents and other evidence, which could have been discovered by the assessing authority from the documents and other evidence disclosed.

Does the duty, however, extend beyond the full and truthful disclosure of all primary facts In our opinion, the answer to this question must be in the negative. 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 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 may be pointed out that the Explanation to the sub-section has nothing to do with 'inferences' and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose 'inferences'--to draw the proper inferences being the duty imposed on the Income-tax officer.

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 extend beyond this.

The position, therefore, is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of 'underassessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some nondisclosure of material facts.

Clearly, it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such nondisclosure. '

(Shah J., in his separate judgment, observed) (pp. 210, 217) :

'The expression 'reason to believe' postulates belief and the existence of reasons for that belief. The belief must be held in good faith : it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income-tax Officer; The forum of decision as to the existence of reasons and the belief is not in the mind of the Income-tax Officer. If it be asserted that the Income-tax Officer had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression, therefore, predicates that the Income-tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income-tax Officer must on information at his disposal believe that income has been under-assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion : it must be founded upon information... If the conditions precedent do not exist, the jurisdiction of the High Court to issue high prerogative writs under article 226 of the Constitution to prohibit action under the notice may be exercised. But if the existence of the conditions is asserted by the authority entrusted with the power and the materials on the record prima facie support the existence of such conditions, an enquiry whether the authority could not have reasonably heldthe belief which he says he had reason to hold and he did hold, is, in my judgment, barred.'

10. The law laid down in Calcutta Discount Co's case : [1961]41ITR191(SC) had been restated in several decisions of the Supreme Court, as observed in Gemini Leather Stores v. ITO : [1975]100ITR1(SC) . Judging the case before their Lordships, it was held in Gemini Leather Stores' case that (p. 4):

'In the case before us the assessee did not disclose the transactions evidenced by the drafts which the Income-tax Officer discovered. After this discovery the Income-tax Officer had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight.'

11. Now, in the light of the aforesaid principles it has to be held that the assessee had placed in the possession of the ITO during the original assessment proceedings, all the primary facts. Accordingly, it was for him (the ITO) to make necessary enquiries and draw proper inferences as to whether the transaction of loan on which payment of interest was disclosed by the assessee, was a genuine transaction of loan or not. The ITO having failed to do so, it cannot be said that the assessee had not fully and truly disclosed all material facts necessary for the assessment in question. All the primary facts having been disclosed by the assessee to the ITO, if the ITO failed to hold further inquiry as discussed above merely because in subsequent assessment proceedings, he elected to discard the testimony of Chandravalbai and happened to come to the conclusion that there was in fact no loan advanced by her to the assessee on which interest could have been paid by him, it cannot be held that the ITO acquired jurisdiction to initiate action under Clause (a) of Section 147 of the Act. It will be a case of mere change of opinion. As such, it cannot be regarded that merely because the loan account was not filed by the assessee, he failed to disclose fully and truly all material facts. The obligation of the assessee was to disclose primary facts. A distinction has to be made between primary facts and collateral facts. The loan account constituted merely an evidence of the primary transaction of loan. Therefore, a non-production of the loan account, a production of which could have been directed bythe ITO, had ho acted with due care and precaution during the original assessment proceedings, cannot be regarded to be a failure to disclose fully and truly all material facts within the contemplation of Section 147(a) of the Act. In Lokendrasingh v. ITO : [1981]128ITR450(MP) , also it has been hold by this court that (headnote):

'When primary facts were already before the Income-tax Officer and after some routine enquiry, the Income-tax Officer could have assessed the income on the basis of such information, it is not open for him to invoke the provisions of Section 147(a) of the Income-tax Act, 1961, and reopen the assessment even though he may have omitted to notice the facts mentioned in the return by oversight.'

12. In view of the discussion aforesaid our answer to the question referred is as under :

'On the facts and in the circumstances of the case the Appellate Tribunal was not justified in holding that the proceedings under Section 147(a) of the I.T. Act, 1961, were validly initiated against the assessee in respect of the A.Ys. 1967-68 and 1969-70.'


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