1. The following question has been referred to us under s. 256(1) of the I.T. Act, 1961, for the assessment year 1962-63 :
'Whether, on the facts and in the circumstances of the case, the conditions precedent to the initiation of proceedings under section 147(a) in respect of the cash credit were fulfillled ?'
2. The facts of this case may now be set out to the extent necessary at this stage. The assessed is a firm with four partners which was originally assessed on a total income of Rs. 3,082 for the assessment year in question. On 28th March, 1966, proceedings for reassessment were initiated by a notice under s. 148 read with s. 147. The order sheet entry, which is important in this case, read as follows :
'As per information received from ITO, B(xvi)(1), New Delhi, regarding hundi loan from Afgan Fruit Company, a ghost firm, as per declaration filed by Gulab Singh Jain, advocate. thereforee, Notice u/s. 147 issued.'
3. We are concerned, by the substance of the question referred to us, as to whether these facts the sufficient to justify the initiation of proceedings. However, the subsequent facts would also be relevant as they are now on record. The assessed was called upon to produce evidence in respect of the deposit in the name of M/s. Afgan Fruit Company, but was unable to produce the party. No oral or documentary evidence could be led to support the deposit and so, the assessment was completed by the ITO by adding a sum of Rs. 40,530 as income from undisclosed sources, the amount of Rs. 40,000, being the credit and Rs. 530, being the interest claimed to have been paid.
4. In appeal before the AAC, a reference was made to the fact that in the original assessment proceedings some copies of accounts and other statements were filed and also a certificate of one Shri Girdhari Lal, stated to be the sole proprietor of M/s. Afgan Fruit Company, to the effect that a sum of Rs. 40,000 had been advanced to the assessed on 8th February, 1962, and received back with interest on 22nd June, 1962. It was claimed that this material had been considered by the ITO who considered it unnecessary to make any addition to the income. On this ground it was claimed that s. 147(a) was not applicable; also it was claimed that the cash credit could not be treated as the assessed's undisclosed income. The AAC rejected the appeal.
5. A further appeal to the Tribunal ended in a remand to the AAC to reconsider the genuineness of the credit. However, the Tribunal upheld the act of reopening the assessment proceedings. This decision was given on 28th July, 1971. On the question whether the reassessment could be ordered, the Tribunal's view was that although the question whether it was one of the firms mentioned in the list of bogus firms given by Shri Gulab Singh Jain, advocate, might be a question which required investigation after an opportunity had been given to the assessed, the information received by the ITO was a sufficient ground for taking action under s. 147(a). We are really concerned with this limited question for the purpose of this reference.
6. On the merits before the Tribunal, it has been urged by the assessed that really there were no circumstances for reopening the assessment. For this purpose, reliance was placed on two earlier decisions of the Income-tax Appellate Tribunal in respect of two other assesseds, namely, Kapoor Trading Company, for the assessment year 1964-65, and M/s. Faqir Chand Suraj Prakash, for the assessment year 1965-66. In the case of Kapoor Trading Company, a sum of Rs. 10,000 had been added as a bogus cash credit appearing in the name of Afgan Fruit Company. The Tribunal set aside the addition and directed an investigation to be made as to whether the creditor was genuine or not. This was by an order dated 8th January, 1970. In the other case, an advance of Rs. 20,000 was shown to M/s. Faqir Chand Suraj Prakash. In that case, a letter had been filed from M/s. Afgan Fruit Company, sole proprietor, Girdhari Lal, which the ITO accepted as genuine. Action was then taken under s. 147(b) because the Special Investigation Branch of the Office of the Commissioner of Income-tax, Delhi, had found that M/s. Afgan Fruit Company were indulging in bogus financial transactions. The Tribunal found that there was no information that the transaction in the case of that assessed was a bogus one, and, hence, the addition was cancelled on the ground that there was no jurisdiction under s. 147(b) because there was no information which would allow the ITO to assume jurisdiction under that provision.
7. Reference to these two orders has become necessary as well as to the conclusions of the Tribunal that in this particular case the information is sufficient because of the cryptic nature of the order passed on the record of this case which we have already reproduced.
8. The question for consideration is whether there was material before the ITO to act under s. 147. There are two parts of s. 147, namely, sub-clause (a) and sub-clause (b) Under sub-clause (a), if the assessed fails to file a return or fails to fully and truly disclose all material facts, action can be taken. On the other hand, under sub-clause (b) even if the assessed gives all the necessary information, but the ITO receives further information, which leads him to the belief that there was escapement of tax, then action can be taken. In the case of M/s. Faqir Chand Suraj Prakash, apparently, the ITO took the point that although all material facts were fully disclosed, there was information that the firm was bogus. But the Tribunal held that there was no such information.
9. In the present case, the information is of a different type. It is to the effect that Shri Gulab singh Jain, advocate, has filed an affidavit or declaration that M/s. Afgan Fruit Company was a ghost firm. Now, will this information, if true, show that the assessed did not truly and fully disclose all material facts at the time he submitted his return ?
10. Learned counsel for the assessed referred to numerous judgments to show when s. 147(a) was attracted and when it was not. It is not necessary to elaborately set out all the judgments because admittedly the strongest case in favor of the assessed is the case of Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) . In that case proceedings had been initiated for reassessment and the assessed filed a writ petition in the Patna High Court which was dismissed in liming. On special leave, the writ was granted by the Supreme Court. The facts of that case were that the order on the file of the assessment proceedings was not produced before the Supreme Court, but the report of the ITO made to the Commissioner of Income-tax was taken into consideration. Certain loans had been shown to have been taken from parties in Calcutta. It was stated in the report as follows (p. 607) :
''During the year the assessed has shown to have taken loans from various parties of Calcutta. From D. I's Inv. No. A/P/Misc. (5) D.I/63-64/5623 dated August 13, 1965, forwarded to this office under C.I.T., Bihar and Orissa, Patna's Letter No. Inr. (Inv) 15/65-66/1953/2017 dated, Patna, September 24, 1965, it appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are :
1. Seth Bhagwan Singh Sricharan.
2. Lakha Singh Lal Singh.
3. Radhakissen Shyam Sunder.
The amount of escapement involved amounts to Rs. 1,00,000.
Sd. S. P. Chaliha,
30-4-66, Income-tax Officer,
The circumstances are somewhat analogous to what has happened in the present case. The conclusion of the Supreme Court was as follows (p. 607) :
'In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications 'it appears that these persons (alleged creditors) are name-lenders and the transactions are bogus'. He has not even come to a prima face conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfill the requirements of section 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words, he must have some prima facie grounds before him for taking action under section 148. Further, his report mentions : 'Hence proper investigation regarding these loans is necessary'. In other words, his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148. Before issuing notice under section 148, the Income-tax Officer must have either reason to believe that by reason of the omission or failure on the part of the assessed 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 or, alternatively, notwithstanding that there has been no omission or failure as mentioned above on the part of the assessed, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148.'
11. What we have to consider is whether these observations also operate in this case. There are similarities with the Supreme Court judgment and also some differences. In that case a letter was received from some other party to the effect that the persons were name-lenders and the transactions were bogus and, hence, investigation was necessary. In the present case also, a letter or other document had been received from another ITO saying that M/s. Afgan Fruit Company is a bogus firm. In the sense that the information is from another ITO, there is no doubt the cases are similar. The dissimilarity arises because the material which forms the basis is also disclosed in the present case. It is a declaration made by Shri Gulab Singh Jain that the firm in question is a ghost firm. If this is a correct information then the transaction is also bogus because the firm is bogus. No doubt, two different conclusions are possible. It might be concluded that the firm was a ghost firm, i.e., a name-lender, and the actual lender of the money was different. In that case, it would merely be a loan made by some unknown person under a pseudonymous name or it might be that there was no loan and the assessed merely introduced this part in order to bring income from undisclosed sources into its own account. In either case, it would mean that there was material to reopen the assessment, but the result of the reassessment proceedings might be different according to the circumstances established.
12. We think, thereforee, that the Supreme Court judgment does not apply so as to bar the present reopening. We were referred to another judgment of this court in Dwarka Dass and Brothers v. ITO : 118ITR958(Delhi) , were Prakash Narain J. (as he then was), held that if facts are accepted as true, then the assessed cannot be said to have defaulted in truly and fully disclosing all material facts. The bogus nature of the transaction has to be found out during the first assessment and not by a change of opinion on the same facts. We think that this judgment cannot apply to the present case because, although the facts are apparently the same, they are really not the same. In the first instance, the assessed could not have been called upon to show the material existence of M/s. Afgan Fruit Company or to show that the transaction in question was genuine. However, when it is found out in some other proceedings that this firm does not have any real existence, then the facts are different, hence, there can be reopening.
13. In the case of Rai Singh Deb Singh Bist v. Union of India : 77ITR802(Delhi) , it was that if all material facts are disclosed in the first instance then, if new facts come to light at a later stage, it cannot be said to be a case when all material facts had not been disclosed. Undoubtedly, that was a strange case because some subsequent changes had taken place and there had been a change in the facts. What had happened in that case was that certain deposits stood in the names of certain Ranas from Nepal which fact was accepted by the ITO. Later, by applying s. 34(1) of the Indian I.T. Act, 1922, it was sought to establish that the deposits appearing in the names of the Ranas were not genuine and some of the payments were also not genuine, and amounts shown as expenses were bogus; also profits had been secreted. The court's decision was apparently based on the principle that if a wrong statement is made which is accepted, then it cannot be reopened by a subsequent discovery of the true facts. A distinction has to be drawn between primary facts and secondary facts. If an assessed, 'A,' discloses that he has got a loan from 'B' and the ITO accepts this fact, then it is not open to to the successor ITO to reopen the proceedings and to say that there was no such loan and that really this was the undisclosed profit of 'A'. This would not be a new fact, but merely forming a new opinion regarding the same facts. If, however, the ITO accepts the loan as being from 'B' and later it is brought to his notice that there is no 'B' and 'B' is merely a figment of imagination, then it means that the primary facts are altered.
14. We are, thereforee, of the view that the present case is one which would involve the application of s. 147(a) on the assumption that M/s. Afgan Fruit Company is a ghost firm. If it is not a ghost firm, then of course, the assumption of jurisdiction would be wrong and so no further additional income can be added in reassessment proceedings. Inasmuch as the Income-tax Appellate Tribunal has remanded the case for fully ascertaining the genuineness of M/s. Afgan Fruit Company and also the question as to what Shri Gulab Singh Jain said about the said firm and the correctness of that assertion, we think that the Tribunal has acted rightly. The jurisdiction question and the merits of making an addition to the income-tax liability are inter-connected in this case. The basic jurisdictional fact has in a sense yet to be established. We, thereforee, endorse the Tribunal's view.
15. We hold, on the facts of the present case, that the assessment could be reopened and answer the question referred to us in the affirmative, in favor of the department and against the assessed. As the eventual correctness of the stand of either party is still to be ascertained in the remanded proceedings, we would leave the parties to bear their own costs.