Govindan Nair, C.J. - Two question have been referred to us by the Income-tax Appellate Tribunal, Cochin Bench, in relation to initiate proceedings under Section 147 of the Income-tax Act, 1961, which read as follows :
'(i) Whether, on the facts and in the circumstances of the case, the Income Tax Officer had jurisdiction to initiate proceedings under Section 147 of the Income-tax Act, 1961
(ii) Whether there is any material for coming to the conclusion that the amount of Rs. 31,961 is the income the applicant in the accounting year in question ?'
The assessment year is 1962-63 and the relevant accounting period ended on 31-3-1962. The assessee was an individual. The income returned by him in the original assessment proceedings was not accepted by the Income Tax Officer. He found that the assessee had inflated the purchase price as seen from ledger folio 295 by Rs. 25,750/- and by Rs. 1,999.80 by virtue of ledger folio No. 333, totalling upto Rs. 27,749.88. A sum of Rs. 27,750/- was, therefore, added the business income of the assessee by the Income Officer. After having rejected the account books the Income Tax Officer applying the provisions of Section 2 of section 145, made a round sum addition of Rs. 5,000/- as profit. In the assessment order, Annexure-A, it was also observed that there was a credit balance of Rs. 12,755/-'in the name of M/s. Asok Umbrella Factory. while the actual position was that the assessee had invested large amount in the factory and as such it should have appeared in the debit side of the balance sheet as an item.'
2. The assessee appealed from the order of the Income-tax Officer to the Appellate Assistant Commissioner, and the appellate authority sustained the addition of Rs. 27,750/-but found that it could not sustain the addition of Rs. 5,000/- and a reduction to that extent from the income fixed was allowed. There was a further appeal before the Tribunal. The Tribunal dealt with the matter in paragraph 7 of its order. Annexure-C, thus -
'Now it is a fact that the purchase account had been increased by a sum of Rs. 27,750/-. If this sum was eliminated from the purchase account, the gross profit would correspondingly increase giving a rate of nearly 14.1%, on the disclosed turnover. This rate is evidently an abnormal rate would be evident by the fact that the Income Tax Officer added only Rs. 5,000/- towards the deficiency of profit. This would indicate that the closing stock figure did not also represent the correct amount and might have been inflated. In these circumstances it does not appeal to be reasonable and just to make the addition on the basis of the returned book profit. We consider that it would be more reasonable and to proceed on the basis of the sales figure. We are aware that in the absence of stock book and the lack of a correct purchase figure, the disclosed sales turnover could not be taken as correct but a comparison of the turnover figure with those of the earlier years would indicate that there was a progressive fall in the business. We consider that it would be reasonable to estimate the sales at Rs. 3,60,000/- and the gross profit rate at 7%.'
After the accounting period which ended on 31-3-1962, the individual business of the assessee was converted from 1-4-1962 into the business of firm called M/s. Aiyathura Pillai & Sons.' During the assessment proceedings of this firm for the assessment year 1962-63, a trial balance had been filed by the firm as on 1-4-1962, which showed a trial balance of Rs. 42,757/-. It was on the basis of this information that action under Section 147(a) of the Act was taken against the assessee. The assessee had all along been contending, as is evident from the order of the Tribunal at page 34 paragraph 5 that the entire materials relating to the assessment of the said Aiyathura Pillai for the year 1962-63 and the books of account were before the Income-tax Officer, who made the original assessment, and that a trial balance was filed before him at the time of that assessment and the difference in the trial balance was also known to him. It was, therefore, contended that the Income Tax Officer was not entitled to take action under section 147(a) on the ground of information which is said to have come into his possession as contemplated under that section. This contention was negatived. The Tribunal dealt with this matter in paragraphs 7 and 11 of its order, Annexure-G. We shall extract those paragraph :-
'It was only when a large difference in trial balance was noticed in the accounts of the firm and an explanation was offered that the difference related to the period when the business was carried on by the assessee, that the assessee was required to file a proper balance. It was the assessee himself who prepared this trial balance and it has also been signed and filed by the assessees representative. It is this trial balance which disclosed excess of assets over liabilities to the extent of Rs. 42,757/-. In the absence of evidence to the contrary, such excess of assets over liabilities has to be taken as the income of the assessee not accounted for and it is the discovery of this difference in the trial balance which constituted information in the possession of the Income Tax Officer for initiating action under section 147(a)).
Admittedly, the assessee had not disclosed such unexplained trial balance difference as his income at the time of the original assessment. The contention of the assessee that the Income Tax Officer did not have information in his possession is, therefore, without force and has to be rejected.
The circumstances of the present case would also clearly show that the excess of assets over liabilities disclosed by the trial balance, which has to be taken as the income of the assessee, in the balance of any evidence to the contrary, has not been disclosed by the assessee as his income in the return filed by him at the time original assessment. Consequently, the observations of the Supreme Court in the two cases referred to above would clearly apply to the circumstances of this case also. We have accordingly to hold that the Income Tax Officer has validly assumed jurisdiction under section 147(a) in this case'.
3. On behalf of the assessee, counsel contended that whatever might be failure on the part of the assessee to disclose truly all material facts necessary for his assessment for that year, the Income Tax Officer had full and complete information regarding all the primary and material facts. The submission was that the Appellate Assistant Commissioner had chosen to reduce the assessment made by the Income Tax Officer by Rs. 5,000/- and the Tribunal by a large sum of Rupees, viz., Rs. 27,000/-notwithstanding the knowledge they had that there was an inflation of the purchase price to the extent of Rs. 27,750/-. It was also submitted that the sum of Rs. 12,735/- shown as credit balance in the name of M/s. Ashok Umbrella Factory, has been found to be a sum which should have been shown as an amount due to the assessee from the said Factory, which in effect would make a difference of over Rs. 25,000/-, the two sums, thus, totalling to over Rs. 52,000/-, and this primary fact having been known, if by oversight, the Income Tax authorities and the Tribunal, in the first instance, failed to assess the income representing that amount, it cannot be said that income had escaped assessment so as to attract Section 147 of the Act. Counsel relied on a decision of the Supreme Court in Gemini Leather Stores vs. Income Tax Officer, B-Ward, Agra, and others (1975) 1000 I.T.R. 1). It is not disputed before us that apart from the assessee himself Officer as the material facts for the assessment, if the Officer had by his own diligence or investigation discovered the material facts, then it cannot be said that income had escaped assessment because of the failure to fully and truly disclose the income. This Officer, B-Ward, Agra, and others : 100ITR1(SC) ) and the decision is in favour of the assessee. Then the only question is whether the contention of the counsel for the assessee that the Income Tax Officer has information that the true income of the assessee was at least Rs. 50,000/- in excess of what he returned, was actually known to the Income Tax Officer at time of the previous assessment. Counsel on behalf of the Revenue urged that the Tribunal has found in paragraph 7 of its order that the sum of Rs. 42,757/- was in excess of what had been assessed during the previous assessment proceedings, and that much more had escaped assessment. It is not for this Court to consider the factual aspect of the matter, and find out what were the material facts that were with in the knowledge of the Income Tax authorities at the time when the original assessment was made, and the effect of the alleged new information, said to be conveyed by the trial balance filed by the firm as on 1-4-1962 and which had been relied on exclusively for the purpose of the subsequent assessment year. It is the case of the assessee that the Trading Account showed a profit of Rs. 18,565/- as noticed by the Income Tax Officer and which is mentioned in Annexure-f. The trial balance then filed was on the basis of the inflated purchase price (27,750/-) which had been shown in the Books of Account, as evidenced by ledger folios page Nos. 294 and 333. It was submitted by the assessees counsel that this fact having been known, straightaway an addition of Rs. 27,750/- should have been made to the business income of the assessee. It was also urged that in view of the manner in which the sum of Rs. 12,730/- was shown in the accounts, it was evident that the assessee had assets over liabilities to a further extent of over Rs. 25,000/-. Since those two sums, Rs. 27,750/- and Rs. 25,000/- together amounted to much more than Rs. 42,757/- it was argued by the assessees counsel that the primary facts were known even at the time of the original assessment and there was, therefore no justification for proceeding under section 147 of the Act. We do not find that the above features of the case were adverted to by the Tribunal and no finding could be entered on this aspect of the matter without a proper advertence to all the above relevant facts. In the absence of such a finding the questions referred to us cannot be answered. We have, therefore, to adopt the procedure followed by the Supreme Court in the decision in Commissioner of Income Tax, Bombay City I vs . Greeves Cotton & Ltd. : 68ITR200(SC) and in Commissioner of Income Tax, West Bengal 1 vs . Indian Molasses Co. P. Ltd. : 78ITR474(SC) . We do so. Accordingly, we refer the case back to the Appellate Tribunal under section 258 of the Income Tax Act, 1961, for the purpose of a re-hearing of the appeal. We may state that the Tribunal may, if found necessary, remit the case. The I.T.R. is disposed of on the above terms. No costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.