1. M/s. D. L. F. Housing and Contraction Pvt. Ltd. (hereinafter referred to as 'the assessed') is challenging by this writ petition the validity of a notice dated January 22, 1969, issued by the second respondent under s. 147(a) read with s. 148 of the I.T. Act, 1961.
2. For the assessment year 1960-61 the assessment of the petitioner-company was completed by the ITO on March 30, 1965, on a total income of Rs. 5,04,449. Before completing the above assessment the ITO issued a letter to the assessed on March 6, 1965, inter alia, seeking certain clarifications in regard to the purchase of a large tract of land by the assessed-company from one Pt. Lila Ram. It is not necessary to refer to the details of this transaction. It is sufficient to say that according to the assessed it had originally entered into an agreement to purchase this land from Pt. Lila Ram at a rate of Rs. 1,025 per bigha. But this agreement of purchase had been entered into by the assessed jointly with a firm known as L. M. G. Colonisers and Traders of which the son of Pt. Lila Ram was one of the partners. Eventually, however, the assessed directly entered into an agreement with Pt. Lila Ram for purchasing the same land at Rs. 1,350 per bigha. It has been stated before us that eight sale deeds were entered into between the assessed-company and Pt. Lila Ram on March 31, 1959, and that the total purchase price according to the sale deeds was Rs. 21,93,058. A sum of Rs. 5,50,000 had been paid by way of earnest money. According to the petitioner a sum of Rs. 6,10,958 was paid in cash on March 31, 1959. For the balance of Rs. 10,30,000 negotiable hundis were given to Pt. Lila Ram but the transaction was shown in the books as if cash had been received from Pt. Lila Ram and had been repaid to him on the same date. The liability of Rs. 10,30,000 according to the assessed was duly discharged on various dates as and when the hundis were retired. The doubt that came to the mind of the ITO was as to why when the assessed had been able to have an agreement with Pt. Lila Ram for the purchase of the land at Rs. 1,025 per bigha it should go out of the way and purchase the land for a higher price of Rs. 1,350 per bigha. This was the query which he put to the assessed in his letter dated March 6, 1965. The assessed gave a reply explaining the circumstances in which the difference arose, and, apparently, the ITO was satisfied with the Explanationn given, because, while completing the assessment, he made no additions or observations in regard to this aspect of the matter.
3. In July, 1968, the assessed was called upon to produce its account books relevant for the assessment year 1960-61 and also its cash vouchers for the period February to April, 1959. According to the writ petition the information called for was furnished and annexed thereto were, inter alia, copies of the vouchers, receipts and details of payments made to Pt. Lila Ram in discharge of the liability for Rs. 10,30,000. On January 22, 1969, the ITO issued a notice under s. 147 read with s. 148 of the I.T. Act, 1961. Since he refused to comply with the request of the assessed for the supply of reasons on the basis of which the notice had been issued, the assessed filed this writ petition. However, subsequent to the filing of the writ petition, the ITO furnished to the assessed and has also supplied to this court the material on the basis of which he has taken the above action. In this letter dated July 10, 1969, the ITO has given the following material as having led to the notice under s. 148 :
'1. (a) On going through the books of Pt. Lila Ram it was observed that the total sale proceeds of Bahapur lands which were sold to your company, received by him amounted to Rs. 19,00,654 (as per details enclosed) and not Rs. 21,93,058 claimed by you as the purchase price.
(b) In support of the above-mentioned entries in the books of Pt. Lila Ram regarding sale of Bahapur lands, he has given an affidavit dated 21-8-1968 a copy of which is enclosed.
(c) Independent enquiries made regarding market rates of land in the area under consideration when the said transactions took place, also suggested that the market rates were much below the alleged purchase price of Rs. 1,350 per bigha. This further showed that the purchase of Bahapur lands had been inflated by your company to the extent of Rs. 2,92,404 and accordingly income to that extent has been concealed by you.
2. The examination of your books of account showed a cash loan of Rs. 10,30,000 from Pt. Lila Ram on 31-3-59, but such loan did not appear in the books of Pt. Lila Ram who denied to have advanced any such loan to your company, in his affidavit dated 21-8-68. This leads to the natural conclusion that this cash credit of Rs. 10,30,000 represented your company's income from undisclosed sources.'
4. In the affidavit of Pt. Lila Ram, which was enclosed, Pt. Lila Ram stated that he had sold the lands to the assessed for Rs. 19,00,654 and that he had received Rs. 8,70,654 in cash and the balance of Rs. 10,30,000 by way of hundis which were retired later. Full details of the various payments aggregating to Rs. 19,00,654 as per the account books of Pt. Lila Ram were also furnished as an annexure to the letter dated July 10, 1969.
5. It is on the basis of the above material that the question in this writ petition falls to be decided. Mr. Desai, learned counsel for the petitioner, contended that even at the time of original assessment the assessed had supplied fully and truly all the necessary facts in regard to this aspect of the matter, in the reply to the letter issued by the ITO, in July 1965. He further pointed out that in response to the ITO's notice in July, 1968, the assessed had produced the copies of all vouchers, receipts and payments. The ITO was fully aware that Pt. Lila Ram was also an assessed and it was open to the ITO to have verified the transaction by reference to the books of Pt. Lila Ram. Instead of doing so, he accepted the assessed's case. Subsequently, the learned counsel urged the mere fact that Pt. Lila Ram went back upon the transaction as evidenced by the sale deeds and put forward the allegation that he had received only a sum of Rs. 19,00,654 could not constitute material on the basis of which the assessment could be re-opened. So far as the sum of Rs. 10,30,000 is concerned, Mr. Desai pointed out that the ITO's apprehension that a sum of Rs. 10,30,000 had been paid by the assessed to Pt. Lila Ram on March 31, 1959, out of undisclosed sources was a totally untenable interpretation of the transaction as it took place, It was not the case of Pt. Lila Ram or the assessed-company that the sum of Rs. 10,30,000 had either been received from or paid to Pt. Lila Ram on that date. It was only a transaction of hundi which was later on retired and it was only by way of book entries that a loan of Rs. 10,30,000 and a payment by way of hundi were shown in the books. Having regard to all these circumstances Mr. Desai urged that this was a case in which the provisions of s. 147(a) were not attracted.
6. We are unable to agree with the contentions put forward by the learned counsel for the petitioner. In our opinion the material on record discloses sufficient grounds for action under s. 147(a). At the time of original assessment the only aspect of the transaction which was examined by the ITO was as to why the assessed had agreed to pay for the land at Rs. 1,350 per bigha even though there was an original agreement in its favor which would have enabled it to purchase the land for Rs. 1,025 per bigha. This aspect was apparently explained to the satisfaction of the ITO by the assessed. But at the time of original assessment there was no reason for the ITO to doubt that the assessed had paid Pt. Lila Ram the sum of Rs. 21,93,058 as stated in its books. That was the sale price disclosed in the transaction as well as in the account books of the assessed. It is no doubt true that the ITO could have verified the transaction by reference to the books of Pt. Lila Ram but it is not the allegation of the assessed that he did so at the time of original assessment. Subsequently the ITO had before him the account books of Pt. Lila Ram as well as this affidavit. Leaving out all the other aspects, there was material before the ITO which clearly showed that according to Pt. Lila Ram he had received only Rs. 19,00,054 towards the purchase price of land and not Rs. 21,93,058. It is difficult to agree with the learned counsel for the petitioner that the ITO could not have initiated action under s. 147(a) on the basis of this information supported by the affidavit of Pt. Lila Ram as well as his account books.
7. It was suggested by the learned counsel for the petitioner that Pt. Lila Ram could have had his own reasons for understating the sale price as he was also a dealer in lands. It was also suggested that perhaps he had maintained more than one set of account books and that he was putting before the ITO the account books which suited his purpose. But these are arguments and matters which have to be gone into in the course of the reassessment proceedings. There is no justification of holding that even at the stage when the ITO received the information from Pt. Lila Ram he should have gone into the truth or otherwise of the statements made by Pt. Lila Ram. On the other hand the only method by which the ITO could satisfy himself as to the correctness or otherwise would be by initiating reassessment proceedings and having Pt. Lila Ram and the assessed examined and cross-examined in the course of the assessment proceedings so initiated. In our opinion it is clearly a case which falls within the terms of s. 147(a). The facts in the present case are also to a large extent analogous to those considered by the Supreme Court in the case of CIT v. T. S. Pl. P. Chidambaram Chettiar : 80ITR467(SC) . In that case also the original assessment had been completed by the ITO accepting the statement of the assessed, though there was some information before him (which the assessed denied) that he had received a sum of Rs. 1,50,000 secretly. But subsequently he made further enquiries and learnt that the assessed had received a certain sum of Rs. 1,50,000. The Supreme Court held that the action under s. 147(a) was fully justified. It was pointed out that the fact that there was some vague information before the ITO at the time of original assessment, that the assessed's father had secretly received Rs. 1,50,000 from the mortgagor, was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessed had denied that fact. The fact that the officer could have made further enquiries in the matter but did not do so, did not take the case out of s. 34(1)(a) as the assessed had failed to place truly and fully all the material facts before him. In the present case, the ITO had, at the time of the original assessment, no reason to doubt the purchase price as stated by the assessed. When he came across the statement and accounts of Pt. Lila Ram, he had reason to believe that the assessed's income had escaped assessment by reason of his having wrongly stated the material fact as to purchase price. It cannot be said that merely because even at the time of the original assessment the ITO did not compare the account of the assessed with that maintained by Pt. Lila Ram, it would vitiate the proceedings under s. 147(a).
8. We, are thereforee, satisfied that this cannot be said to be a case in which the ITO had no material on the basis of which he could have entertained the reason to believe that income had escaped assessment by reason of the omission or failure to disclose fully and truly all material facts at the time of original assessment. The writ petition is, thereforee, dismissed. The petitioner will pay the costs of the respondent. Counsel's fee Rs. 250.