1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, the order of the ITO reopening the assessment was justified within the meaning of Clause (a) of Section 147 of the I.T. Act '
2. The material facts giving rise to this reference briefly are as follows :
The assessee is an individual and the assessment years in question are 1964-65 to 1966-67. The assessee had disclosed that he had purchased a plot and constructed a residential house thereon and that the construction had commenced in the year 1963 and was completed in the year 1966-67. The assessee had further disclosed the details of construction and investment. No enquiry was made by the ITO about the cost of construction and the assessment was completed. Later on, the ITO referred the question of valuation to the departmental valuation cell, which estimated the cost of construction at Rs. 99,360. On the basis of the report of the departmental valuation cell, the ITO issued a notice to the assessee under Section 147(a) read with Section 148 of the Act for a reassessment for assessment years 1964-65, 1965-66 and 1966-67. The ITO was not satisfied with the explanation furnished by the assessee and he proceeded to reassess the assessee for those assessment years and assessment orders were accordingly passed. Aggrieved by the orders of the ITO, the assessee preferred appeals before the AAC. The AAC held that Clause (b) of Section 147 of the Act was not attracted and as disclosure of primary facts made by the assessee was full and true in all respects, the proceedings initiated by the ITO under Section 147(a) of the Act were not valid. The AAC, therefore, allowed the appeals. Aggrieved by that order, the department preferred appeals before the Tribunal. The Tribunal allowed the appeals and remanded the case to the AAC for consideration of the matter on merits. Aggrieved by this order of the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this court for its opinion.
3. In the instant case, since a period of four years had already elapsed from the close of the assessment years in question and no notice could be issued under Section 147(b) of the Act, it is obvious that the notice issued by the ITO was based on Section 147(a) of the Act. To this effect was the finding of the AAC, which was not assailed before the Tribunal by the department because the only ground of appeal urged before the Tribunal in the memorandum of appeal filed by the department was that the AAC had erred in holding that the proceedings initiated under Section 147(a) were invalid. In these circumstances, it is difficult to appreciate the following observation of the Tribunal :
'Under Clause (b), any kind of information obtained by the ITO is sufficient to reopen the assessment even if originally a proper assessment had been made, but for any reason whatsoever, income chargeable to tax had escaped assessment. This clause is obviously applicable to the present case because if the amount of investment incurred by the assessee for construction of the house was larger than the one disclosed by him, the income of the assessee from undisclosed sources had escaped assessment.'
4. However, it is not necessary to pursue this matter further because, later on, in its order, the Tribunal has proceeded to consider the matter on the footing that Clause (a) of Section 147 was attracted and that is also the question referred to us. We have, therefore, to consider whether the Tribunal was right in holding that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
5. Now, in the instant case, the assessee had disclosed that he had acquired a plot of land and that he had constructed a house thereon. The finding of the AAC in this behalf, which has not been set aside by the Tribunal, is as follows :
'The TTO was informed that the house was constructed on a plot measuring 6,893 sq. ft., which was purchased on 15-2-62 for Rs. 10,559 from Krishnarao Palsikar. The amount invested in the purchase of the plot was withdrawn from the firm, M/s. Arya Confectionery Works, in which the assessee was a partner. The ITO was also informed that the construction of the house was commenced in the year 1964 and that the house consisted of two storeys each measuring 2,500 sq. ft. The ITO was also informed that columns and beams of the house were of R.C.C. type, roof, of R.B.C. type, and walls, of T.M. bricks, and that the house was constructed with cement mixed with lime. The ITO was also informed that the flooring of the house was of neemuch stone, of polished stone and of tiles of all kinds. Lastly, the ITO was also informed how the investment was made year-wise by withdrawing the funds from different firms. For the assessment year 1966-67, the house was shown as S.O.P. and the income declared from the said S.O.P. was included in the total income of the year. All this information was more than sufficient for the ITO to conclude whether or not the investment disclosed by the assessee was acceptable. None of the material facts or primary facts disclosed by the assessee has been found to be false by the ITO.'
6. In view of the aforesaid facts disclosed by the assessee, it is difficult to appreciate what further obligation was cast by law on the assessee in the matter of disclosure of material facts necessary for his assessment. It is well settled that one of the conditions, which must be satisfied before invoking the provisions of Section 147(a), is that the income of the assessee has escaped assessment by reason of omission or failure on the part of the assessee to make a return under Section 139 of the Act for the assessment year or to disclose fully and truly the material facts necessary for assessment of the year. This condition was not fulfilled in the present case and hence the AAC was right in holding that the orders of reassessment were liable to be quashed. The Tribunal, in our opinion, was not justified in its view that the ITO had jurisdiction to reopen the assessment under the provisions of Clause (a) of Section 147 of the Act.
7. Our answer to the question referred to us is, therefore, in the negative and against the department. In the circumstances of the case, parties shall bear their own costs of this reference.