G.K. Misra, C.J.
1. Messrs. Munilal Ramdayal is a firm registered under the Indian Partnership and Indian Income-Tax Act. It carries on business of grain procurement, rice milling, distillation of country liquor, sale of excise drugs, grocery articles and forest products, and contract business. Ramdayal Shah, Jogeshwar Shah and Raghunandan Shah are the three partners of this firm each having one-third share. For the assessment year 1952-53 (the relevant accounting year ending with 31-3-52) the firm was assessed on a total income of Rs. 1 lakh and odd, though the petitioner submitted a return showing a total income of Rs. 33,000/- and odd. It is unnecessary to give further details. In appeal before the Appellate Assistant Commissioner and the Income Tax Tribunal the original assessment was reduced.
On 26-7-68 the IncomeTax Officer, Bari-pada, issued a notice under Section 148 of the Indian Income Tax Act, 1961, (hereinafter referred to as the Act) which may be quoted:
'Whereas I have reason to believe that your income in respect of which you are chargeable to tax for the assessment year 1952-53 has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961,
I therefore propose to reassess the income for the said assessment year, and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income assessable for the said assessment year.
This notice is being issued after obtaining the necessary satisfaction of the Central Board of Revenue'.
On 28-8-68, the petitioner sent a reply asserting that there was no justification for reopening the assessment and that the conditions precedent for assumption of jurisdiction by the Income Tax Officer, under Section 147 were not present in the case. This writ application has been filed under Articles 226 and 227 of the Constitution challenging the jurisdiction of the Income-Tax Officer in issuing the impugned notice.
2. The facts relevant for the appreciation of the points in issue may be stated shortly. On 22-12-39 there was a partnership between Sri Ram Chandra Bhanj Deo and Ramdayal Shah whereby a rice mill known as 'Prabir Chandra Rice Mill' was started at Jugurpara. The share of Sriram Chandra Bhanj a Deo was 10 annas and that of Ramdayal Shah annas. Prabir Chandra Rice Mills was being regularly assessed under the Income Tax Act. On 25-3-1950, the share of Prafulla Chandra Bhanja Deo successor of Sriram Chandra Bhanja Deo which was fixed at 8 annas was purchased along with the entire book debts, plant machinery and land by Ramdayal Shah for Rs. 50051/- being the value of the stock in trade and for another Rs. 50,000/-towards outstanding dues of the mill. 'Prabir Chandra Rice Mill' was re-named as 'Munilal Rice Mill'. It is to be noted that the petitioner had 6 annas interest in the Prabir Chandra Rice Mill before the purchase in the name of Ramdayal Shah. On 23-12-52, the assessment of the petitioner firm was completed under Section 23 (3) of the Income Tax Act, 1922 (hereinafter to be referred to as the old Act). The case of the petitioner is that at the time of the assessment in 1952, Sri K.C. Mohanty the Accountant of the petitioner, appeared before the Income Tax Officer Sri A.K. Jana who enquired into the nature and source of the purchase of the mill and its good debts. Sri K.C. Mohanty explained at that time that the head office account was credited with the amount realised out of the book debts of Prabir Chandra Rice Mill and that the accounts of the parties were debited and closed. Accordingly, in the balance-sheet for the year 1950-51 closing on 29-10-51, Sri A.K. Jana made the following endorsement:
'Running account of the mill with main Baripada account. The two banking accounts won't tally because the accounting year differs. A few items compared and tallied'.
The petitioner thus asserts that it had fully and truly disclosed all material facts necessary for assessment for the year 1952-53 and that the income chargeable to tax has not escaped assessment for that year and that the present Income Tax Officer Sri S.D. Sahay could have no reason to believe that the petitioner did not make a full and true disclosure of all material facts before the then Income-tax Officer, Sri A.K. Jena,
3. On behalf of the opposite parties an affidavit was initially filed by Sr. S.D. Sahay the Income Tax Officer who issued the notice under Section 148 of the Act. In Paragraphs 15 to 17 of the affidavit the facts on the basis of which he had reason to believe that the petitioner did not disclose all material facts fully and trully have been averred. The sum and $ubstance of these averments may be indicated in brief.
In course of examination of accounts for the assessment year 1963-64 the following entries in the account book of the branch business of Munilal Rice Mill were noticed.
Munilal Ramdayal BaripadaRs. 144,813.321.Achutananda Behera 21,790.25 2.Upendranath Gire 57,778.17 3.Udala Depot 18,703.59 4.Jaida Depot (Sheosai Genesh Lall) 2,743.82 5.Ranchandra Kahinath 1,276.56 6.Upendranath Sahu 10,475.88 7.Lalmohan Mahanty 1,405.81 8.Dukura Hammar 8,708.12 9.Badampur Hammar 7,987.60 10.Gordhanbhai Amabalal 11,382.67 11.Cultivation A/co. 7,566.95
While an amount of Rs. 1,44,813.32 P. was credited in the branch books in the name of the head office, there was no corresponding debit entry in the books of account of the head office. In other words, no cash amount passed out of the head office account corresponding to the credit in the account of the branch books. At the time of assessment for 1952-53, this fact escaped notice as the balance-sheet of the rice mill (branch) closed on Diwali day while that of the head office closed at the end of the financial year, that is, 31st March. The balance on these different dates naturally would not tally. This fact of difference in the two accounts was not noticed by the Income-Tax Officer in 1952 and was not apparent until examination of the accounts for the assessment year 1963-64. On 30-9-62 Ramdayal Shah, one of the partners, died. At that time the balance sheets of the accounts of the head office and branch were prepared. Those two accounts were tallied and the discrepancies came to light. Necessary entries were made in the accounts on 30-9-62 to reconcile the discrepancy.
In the counter-affidavit the Income Tax Officer thus asserts that though admittedly paddy worth Rs. 1,44,813 had been purchased, the accounts relevant to the year 1952-53 did not indicate that the amount had been advanced by the firm Prabir Chandra Rice Mill prior to its purchase. On an examination of the accounts Sri Sahay had reason to believe that the paddy purchases were made with cash outside the books of account, out of the secreted profits from undisclosed sources of income and this amount was introduced in the books of account for 1963-64 to cover up the concealment. Thus, in 1952-53 the assessee failed to disclose fully and truly this material fact which resulted in under-assessment.
4. It will be profitable at this stage to examine the law on the point. Section 147 of the Act, so far as is relevant, runs thus:
'147 Income escaping assessment. 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 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 re-assess such income or re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned.
Explanation 2. -- Production before the Income-tax Officer of account-books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section'.
5. The corresponding Section 34 of the old Act came up for consideration in a series of cases before the Supreme Court. The following propositions have been firmly established and are no longer in doubt.
(i) 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 before him for believing that there had been such non-disclosure.
(ii) Before issue of notice, two conditions precedent are to be fulfilled:
(a) The Income Tax Officer must have reason to believe that the income, profits or gains chargeable to income tax have been under-assessed;
(b) He must also have reason to believe that such under-assessment occurred by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year.
(iii) Material facts means primary facts. The duty of disclosing all primary facts relevant to the decision of the question before the assessing authority lies on the assessee. This duty, however, does not extend beyond such disclosure. Once all the primary facts are before the assessing authority, whether on disclosure by the assessee himself, or on scrutiny by the assessing authority, the assessee has no duty to disclose further facts. The rest is a question of inferences to be reasonably drawn from the primary facts. The inferences are to be drawn by the Income Tax Officer and for that no duty is cast on the assessee to render assistance as to in what manner the inferences are to be drawn.
(iv) The Explanation to the Section makes it abundantly clear that the duty of the assessee to disclose primary facts does not end merely with the production of Account books and documents. The assessee should not merely produce the account books but should specifically bring to the notice of the Income Tax Officer the particular entries and items which are primary facts having bearing on the question in issue.
(v) If the assessee fails to bring to the notice of the Income Tax Officer the primary facts, as revealed from the account books, his defence that the Income Tax Officer with due diligence might have discovered the primary facts, is not acceptable.
(vi) Whether the Income Tax Officer had sufficient grounds for entertaining a reason to believe is not justiciable. The assessee can, however, contend that the Income Tax Officer did not hold the belief at all. The belief must be held in good faith and it cannot be a mere pretence. In other words, it is open to the Court to examine the question whether the reasons for the belief have a rational nexus to the formation of the belief and are not irrelevent or extraneous to the purpose of the section.
(vii) Before issue of notice the reasons are not to be disclosed by the Income Tax Officer. The earlier stages of the proceeding for recording the reasons by the Income Tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi judicial. The reason why a proceeding is initiated by issuing a notice under Section 148 of the Act need not be communicated to the assessee.
(See AIR 1961 SC 372 Calcutta Discount Co. Ltd. v. Income Tax Officer; AIR 1967 SC 523, S. Narayanappa v. Income Tax Commissioner; and AIR 1967 SC 587 Kantamani and Sons v. Income Tax Officer Rajahmundry).
6. The sole question for consideration is whether the case of the Department that an amount of Rs. 1,44,813.32 which was credited in the branch office books of Munilal Ramdayal in the name of the head office, was kept concealed before the Income Tax Officer at the time when the original assessment for the year 1952-53 was made. It has already been stated that two conditions precedent are to be fulfilled before assumption of jurisdiction under Section 148 of the Act. Dr. Pal does not question the first condition, namely that the Income Tax Officer had reason to believe that the income chargeable to income tax had been underassessed. This aspect need not, therefore be discussed.
7. The real question for examination is whether the Income Tax Officer had reason to believe that such under-assessment occurred by reason of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the year 1952-53.
8. On behalf of the petitioner, reliance is placed on the following pieces of materials in support of the contention that all primary facts in respect of the impugned item had been brought to the notice of the then Income Tax Officer, Sri A.K. Jena.
(i) The supplementary affidavit filed by Sri K.C. Mohanty who appeared before the Income Tax Officer on behalf of the petitioner avers that he showed complete extracts from the books of account and specifically brought this particular item to the notice of the Income Tax Officer.
(ii) On examination of the books of account, along with the balance-sheet and profit and loss account produced before him, Sri A.K. Jena was satisfied regarding this item and made the following entry:
'Running account of the mill with main Baripada account; the two banking accounts won't tally, because the accounting years differ. A few items compared and they tally'. (iii) In paragraph 16 of the first affidavit filed by Sri Sahay there is a statement that
'The party's accounts were debited on 29-10-51 giving corresponding credit in the head office account' (iv) In the balance-sheet, for the year 1951-52, Munilal Rice Mill is credited with the sum of Rs. 1,62,112 and in the balance-sheet for the year 1950-51 item 37 Munilal Ramdayal is credited with the sum of Rs. 77,015/-.
(v) Sri A.K. Jena in his affidavit states that he does not remember as to who appeared before him at the time of the original assessment and whatever statement he made was true to his knowledge based on official records. His affidavit does not thus challenge the truth of the affidavit made by Sri K.C. Mohanty who swears that the facts are true to his knowledge.
9. In our view, none of the aforesaid features, either individually or (collectively?) establish that the present Income Tax Officer who issued the notice under Section 148 had no reason to believe that such under-assessment occurred by reason of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for 1952-53.
It has already been stated that mere production of the books of account, balance-sheet and profit and loss account would not be enough. It is the duty of the assessee to specifically bring to the notice of the assessing officer all primary facts relating to the impugned item. In this regard due weight must be given to the intrinsic evidence in the case based on records. There is absolutely no intrinsic evidence to show that the impugned primary fact was brought to the notice of Sri A.K. Jena either suo motu or at the instance of the petitioner. The item relates to a heavy amount of about 1.1/2 lakhs of rupees. If the attention of the Income Tax Officer had been rivetted on this transaction, surely the same must have been embodied in the original assessment order; and some discussion, however perfunctory, must have been made in the assessment order relating to this impugned item. That is the strongest circumstance against the petitioner's case that Sri K.C. Mohanty specifically brought it to the notice of Sri A.K. Jana.
10. The endorsement of Sri A.K. Jana in relevant account book to the effect:
'Running account of the mill with the main Baripada account. The two banking accounts won't tally because the two accounting years differ. A few items compared and they tally'
also leads us nowhere. It is too vague and does not indicate what items were compared and tallied. If this endorsement would have made some reference to the impugned item, then alone it could serve as a piece of intrinsic evidence. In the absence of any reference to the impugned item, the endorsement does not advance the petitioner's case. The fact that the Income-Tax Officer examined the books would not be enough; in order that the condition precedent must be fulfilled, it must be established that the impugned primary fact was specifically brought to his notice either at the instance of the assessee or otherwise. The endorsement furnishes no clue as a piece of intrinsic evidence.
11. The entries in the balance-sheet showing that Munilal Rice Mill was credited with the sum of Rs. 1,62,112/- for the year 1951-52 and with the sum of Rs. 77,015/- for the year 1950-51 also throw no light as to whether the attention of Mr. A.K. Jana had been focuss-ed on the impugned item. Merely because these two items, containing heavy amounts, were shown in the balance-sheets, no reasonable inference can be drawn that the impugned entry was explained away with reference to these two entries in the balance-sheets. The bearing which these two entries have on the impugned entry has not even been satisfactorily explained to us.
12. The contention that the affidavit of Sri A.K. Jana. stating that he did not remember anything except the material based on official records, cannot whittle down the effect of the affidavit of Sri K.C. Mohanty, has not much-force. Sri A.K. Jana passed the assessment order in 1952. His affidavit has been filed in 1969. It will be difficult to expect him to make any statement directly from his knowledge after the lapse of 17 years. Sri K.C. Mohanty's affidavit that the impugned item was brought to the notice of Mr. Jana is a self-serving statement; unless it is corroborated by intrinsic or extrinsic evidence, it cannot be accepted merely because Sri Jana does not remember what happened 17 years ago. In course of discharge of his duties, Sri Jana had to pass orders of assessment in innumerable cases. In the absence of intrinsic evidence and corroborating materials we cannot place any reliance on the affidavit of Sri K.C. Mohanty that the impugned item was brought to the notice of Sri A.K. Jana.
13. Reliance is placed on the statement of Sri Sahay in paragraph 16 of his affidavit to the effect that
'The party's accounts were debited on 29-10-51 giving corresponding credit in the head office account.'
But this does not in any way support the case of the petitioner that in the branch office account the impugned amount was noted for the year 1951 and a corresponding credit was given in the head office account. There was in fact no corresponding entry in the Head Office account. This is exactly what is stated by Mr. Sahay and it is for this reason that the amount escaped the notice of Sri A.K. Jana in 1932.
14. On a scrutiny of the aforesaid features, we are unable to accept the contention urged on behalf of the petitioner that there was a full and true disclosure of all the primary facts.
The Income Tax Officer was, therefore, justified in issuing notice under Section 148 of the Act. He had reason to believe that paddy was purchased to the tune of Rs. 1,41,813.32 P on payment of cash from secreted income and not by adjustment of advances made by Prabir Chandra Rice Mill and that all material facts had not been fully and truly disclosed by the assessee to Sri A.K. Jena.
15. On the aforesaid analysis, we are clearly of opinion that both the conditions precedent are fulfilled in this case and the notice under Section 148 of the Act is not without jurisdiction.
In the result, the writ application fails and is dismissed with costs. Hearing fee of Rs. 250/ (rupees two hundred & fifty only).
R.N. Misra, J.
16. I agree.