NARAYANA PILLAI J. - These are three appeals filed by an assessee under the Income-tax Act, 1961 (43 of 1961), from the decision of a learned single judge of this court reported as Sujir Ganesh Nayak & Co. v. Income-tax Officer 1 refusing to quash under article 226 of the Constitution three notices issued under section 148 of the Income-tax Act, by the Income-tax Officer, the respondent, to the appellant for reassessment under section 147 of the Act. The three notices relate to the assessment years 1961-62, 1962-63 and 1963-64. They were all issued more than four years but within eight years after the original assessments for those years. The reopening of the assessments was sought on the ground that subsequent information received by the respondent showed that certain loans disclosed by the assessee prior to the original assessments and which were treated at the time of the original assessments as true were bogus.
Section 147 of the Act so far as is relevant for the present purpose reads :
(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, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, 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,
he may, subject to the provisions of sections 148 - 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned......'
Both clauses (a) and (b) provide for reassessment of income. Section 149 prescribes the time limit for the issue of notice to reopen assessments under section 147(a) and (b). While the time limit in cases coming under clause (b) is fixed as four years that under clause (a) is fixed as eight years if the escaped income is less than rupees fifty thousand and sixteen years if it is more than that. As four years from the relevant assessment years had elapsed by the time notices under section 148 were issued in the present three cases the revenue can succeed only if these cases fall under section 147(a).
In interpreting section 34(1)(a) of the old Act corresponding to section 147(a) of the new Act the Supreme Court held in Calcutta Discount Co., Ltd. v. Income-tax Officer 1 that to confer jurisdiction to issue notice for reassessment under section 34(1)(a) two conditions had to be satisfied and they were that the Income-tax Officer had reason to believe that there was under-assessment and that the under-assessment had resulted from non-disclosure of material facts. It was observed there that while it was the duty of the assessee to disclose fully and truly all material facts his duty did not extend beyond that. It was further observed that from the primary facts brought to his knowledge by the assessee or otherwise the Income-tax Officer had to draw inferences as regards certain other facts and that thereafter from the primary facts the further facts he had to draw the proper legal inferences and ascertain and fix the proper tax leviable. It was made clear that the assessee had no duty to state the inferences or conclusions which the officer had to draw from the primary facts. In that case the question was whether sales of certain shares shown by a company in its return were only casual transactions or in the regular trade of the company. It was because the company had in its return failed to disclose the true intention behind the sales of shares that reopening of the assessment under section 34(1)(a) was attempted. The Supreme Court after observing that no duty lay on the company to admit that the sales of shares were by way of trade and that neither the omission of the assessee to state the true intention behind the sales of shares which was an inferential fact nor the fact that on behalf of the company it was stated before the original assessment that the company was not a dealer in shares could be considered as a failure or omission to disclose material facts within the meaning of section 34(1)(a) quashed the reassessment proceedings and the law laid down there has been restated in the subsequent decisions of the Supreme Court in Commissioner of Income-tax v. Hemchandra Kar, Commissioner of Income-tax v. Bhanji Lavji, Commissioner of Income-tax v. Burlop Dealers Ltd., Commissioner of Income-tax v. Onkarmal Meghraj, Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur and Gemini Leather Stores v. Income-tax Officer.
In Commissioner of Income-tax v. Hemchandra Kar a Hindu undivided family had been assessed for the year 1964-47. Following denomination of high denomination currency notices in 1946 the assessee encashed notes of the value of Rs. 19,000 and five members of the family encashed notes of the value of Rs. 1,10,000. The Income-tax Officer reopened assessments of the assessee and the five members of the family and by a reassessment order on January 31, 1955, included Rs. 19,000 in the reassessment of the family and the sum of Rs. 1,10,000 separately in the assessments of the five members of the family. Two days later he issued a notice section 34(1)(a) for including the sum of Rs. 1,10,000 also in the hands of the family. The Supreme Court held that as the Income-tax Officer was in possession of all the primary facts and he proceeded to make the first reassessment of the individual members by including the amounts in question in their individual accounts he could not a few days later merely change his opinion and issue notice under section 34(1)(a) to the Hindu undivided family.
In Commissioner of Income-tax v. Bhanji Lavji the assessee was a person who carried on business in ghee at Porbandar which was outside the taxable territories. But during the relevant period he had a current account with a bank in Bombay, a place within the taxable territories, and the sale proceeds in respect of large quantities of ghee supplied outside the taxable territories were credited in that account and then transferred to Porbandar. He had also a current account with a firm in Bombay and from the interest paid by the firm in that account, tax at the maximum rate was deducted under section 18(3B) of the Act. The assessee disclosed these facts to the Income-tax Officer produced the pass books of account with the bank and contended that he was not liable to be taxed. His contention was accepted and the Income-tax Officer dropped all proceedings. Later when proceedings were started under section 34(1)(a) of the Act the Supreme Court after saying that the assessee had disclosed that the sale proceeds of the ghee supplied were received in Bombay and subsequently transferred to Porbandar observed that no more detailed disclosure on his part was necessary and that it was not his duty to disclose to or instruct the Income-tax Officer that there were profits embedded in the receipts. The court also observed that it was not for the assessee to satisfy the Inc me-tax Officer that there was no concealment with regard to any question and that it was for the Income-tax Officer, if that issue was raised to establish that the assessee had failed to disclose materials facts. After saying that the Income-tax Officer in that case may have raised a wrong legal inference from the primary facts disclosed, the court held that on that account he was not competent to commence proceedings under section 34(1)(a).
Commissioner of Income-tax v. Burlop Dealers Ltd., was a case where for the relevant assessment year the assessee claimed that half the total profit had been paid to another under an agreement for financing the transactions in the joint venture and the Income-tax Officer accepting that claim made the assessment. Later when information the Income-tax agreement was a got-up device or a sham transaction the Income-tax Officer made a reassessment under section 34(1)(a) and that was confirmed in appeal by the Appellate Assistant Commissioner. But the Income-tax Appellate Tribunal set it aside finding that the assessee was under no obligation to inform the Income-tax Officer about the true nature of the transaction. When the High Court dismissed a petition by the Commissioner of Income-tax for directing the Tribunal to submit a statement of the case an appeal was filed in the Supreme Court from the decision of the High Court. The Supreme Court dismissed the appeal observing that the assessee had disclosed before the original assessment his books of account and evidence from which material facts could have been discovered, that the assessee was under no obligation to inform the Income-tax Officer about the possible inferences that might be raised against the assessee, that it was for the Income-tax Officer to raise such inferences, that if he had not done before the original assessment the income that escaped assessment could not be brought to tax under section 34(1)(a) merely on the ground that he had subsequent to the original assessment found that an inference he raised prior to the original assessment was erroneous and that it was really section 34(1)(b) that applied to such a case.
In Commissioner of Income-tax v. Onkarmal Meghraj three partners of a firm and their sons were on the basis of a settlement between them and the Income-tax Officer assessed as three Hindu undivided families. The cases of the individuals were recorded as cases of no assessment. On appeal the Appellate Assistant Commissioner set aside the assessment on the Hindu undivided families and gave directions to make assessment on each individual partner. Pursuant to that direction the Income-tax Officer issued notices to the partners for reassessment under section 34 and made fresh assessments also. As there was no question of failure or omission to make a return or to disclose fully and truly all material facts necessary for the assessment and the escapement of income was only due to the act of the Income-tax Officer assessing non-existent Hindu undivided families, the Supreme Court held that it was section 34 (1)(b) and not section 34(1)(a) that applied to the case.
In Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur 1 the assessee was the Nizam of Hyderabad. He had executed three trust deeds for the benefit of three ladies and some children describing the ladies as his wives and the children his children. In reply to certain queries he informed the Income-tax Officer that the three women were not reallly his wives as they had not been lawfully married by him and that the children were not his legitimate children. The Income-tax Officer accepted the statement and made the assessment without including income from the assets covered by the trust deeds. Later, two other trust deeds were executed by the assessee in favour of one of those ladies and the children of two of those ladies, again describing the ladies as his wives and the children as his children. Then the Income-tax Officer issued notice for reassessment under section 147(a). The Supreme Court said that the two later trust deeds did not furnish any fresh material as the same description of the ladies and their children was there even in the three earlier trust deeds and that the law had not changed after the original assessments were made and held that if at the time of the original assessment it was open to the Income-tax Officer to raise the presumption that the three ladies were the wives of the assessee and their children the assessees children and he did not do that, it was not open to the officer to correct that mistake later by resorting to section 147(a).
In Gemini Leather Stores v. Income-tax Officer 2, although the assessee did not disclose the transactions evidenced by certain drafts, they were discovered by the Income-tax Officer himself but by oversight he did not bring the amounts represented by the drafts to tax. Later, when he took recourse to section 147(a) to remedy the error resulting from oversight, the Supreme Court observed that although the assessee had not disclosed the transactions, the Income-tax Officer was in possession of all the primary facts before the original assessment that it was for him to make necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as the assessees income that as the Income-tax Officer did not do that it was a clear case of oversight on his part, and that it could not be said that income had escaped assessment on account of the omission or failure of the assessee to disclose fully and truly all material facts. Consequently, the impugned notice in that case for re-opening assessment was quashed.
In Poonjabhai Vanmalidas and Sons v. Commissioner of Income-tax, Rai Singh Deb Singh Bist v. Union of India 2, Seth Kirorimal Adwani v. Income-tax Officer and Karam Chand Kakkar v. Income-tax Officer are decisions of the Gujarat, Delhi, Assam and Nagaland, and Punjab and Haryana High Courts where the same view was adopted.
In Poonjabhai Vanmalidas and Sons v. Commissioner Income-tax 1 a particular transaction between the assessee and another the details of which had been disclosed by the assessee even before the original assessment, was treated by the Income-tax Officer as genuine and he made the assessment accordingly. Afterwards when he got information that the transaction was bogus he a reassessment under section 34(1)(a). As all the facts from which the necessary inference could be drawn were before the Income-tax Officer even before the original assessment was made and the assessee was under no obligation to instruct the Income-tax Officer that the transaction could possibly he held to be a bogus one, which in certain circumstances was only an inference to be drawn firm primary facts, a Full Bench of the Gujarat High Court held in that case that the issue of notice under section 34(1)(a) of the Act was not justified. It was stated there that merely because the Income-tax Officer after the original assessment regarded as erroneous an inference he raised at the time of the original assessment, proceedings under section 34(1)(a) could not lie.
Rai Singh Deb Singh Bist v. Union of India, Seth Kiroimal Adwani v. Income-tax Officer and Karam Chand Kakkar v. Income-tax Officer were all cases where certain loans treated as real, when the original assessment was made, were subsequently discovered to be bogus and reopening of assessment was attempted in the first case under section 34(1)(a) of the old Act and in the other cases under section 147(a) of the new Act. In those cases the Delhi, Assam and Nagaland, and Punjab and Haryana High Courts held that as all the primary facts had been disclosed by the assessee prior to the original assessment reassessment could not be made under section 34(1)(a) or section 147(a) merely because the Income-tax Officer had changed his opinion on account of subsequent information received by him.
N. Sundareswaran v. Commissioner of Income-tax is a Division Bench decision of this court where also it was held that subsequent discovery by the Income-tax Officer that an inference previously drawn was wrong is not sufficient for reopening an assessment under section 147(a).
A different note was struck by the High Courts of Andhra Pradesh, Madras, Bombay, Calcutta and Gauhati in Anne Nagendram and Bomma Reddi Venkayya and Co. v. Commissioner of Income-tax, K. P. Arthanariswamy Chettiar v. First Income-tax Officer, Lakhmini Mewal Das v. Income-tax Officer, M. Varadarajulu v. Income-tax Officer, Lakhmani Mewal Das v. Income-tax Officer, Girindranath Paul v. Income-tax Officer, Shriyans prasad Jain v. R. K. Bhalla, Agarwal and Agarwal P., Ltd. v. K. J. Mukherjee, Bhadarmal Hazarimal v. Income-tax Officer and Commissioner of Income-tax v. Mahalakshmi Textiles Mills Ltd. In Agarwal and Agarwal (P.) Ltd. v. K. J. Mukherjee original assessment was made on the bassis of particulars furnished by the assessee that certain goods were purchased from two firms. Later on when it was found that the firms did not exist at all reopening of the assessment was sought under section 147(a). In Shriyans Prasad Jain v. R. K. Bhalla, the assessee had received Rs. 7,00,000 and the original assessment was made on his submission that it was compensation received by him on the termination of his employment in a company. Later on when it was found that the order appointing him was ante-dated and forged, reassessment was attempted under section 147(a). The remaining namely, Anne Nagendram and Bomma Reddi Venkayya and Co. v. Commissioner of Income-tax, K. P. Arthanariswamy Chettiar v. First Income-tax Officer, Lakhmini Mewal Das v. Income-tax Officer, M. Varadarajulu v. Income-tax Officer, Lakhami Mewal Das v. Income-tax Officer, Girindranath paul v. Income-tax Officer, Bhadarmal Hazarimal v. Income-tax Officer, and Commissioner of Income-tax v. Mahalakshmi Textiles Mills Ltd., were cases where reopening of the assessment was attempted either under section 34(1)(a) of the old Act or section 147(a) of the new Act on the ground that certain cash credits or loans which were treated as real at the time of the original assessment were subsequently found to be not real. In all those cases reopening of assessment was held to be justified. In Lakhmini Mewal Das v. Income-tax Officer, the learned single judge of the Calcutta High Court who disposed of that case observed that the recent trend of decisions on the subject seemed to have veered from the view previously held that once the Income-tax Officer had decided an issue in the course of the assessees assessment he could not on a subsequent change of opinion repen the assessment to the view that if later on the Income-tax Officer had reason to believe that income had escaped assessment due to some representation made by the assessee which was later found to be false or incorrect, that would give the Income-tax Officer jurisdiction to reopen assessment and cited in support the decision of the Andhra Pradesh High Court in Anne Nagendram and Bomma Reddi Venkayya and Co. v. Commissioner of Income-tax. With great respect these decisions of the Andhra Pradesh, Calcutta, Madras, Bombay and Gauhati High Courts do not appear to be in accord with the decisions of the Supreme Court already referred to.
Of these decisions which strike a different note Lakhmani Mewal Das v. Income-tax Officer is the only Fully Bench decision. The decision of the Supreme Court in Calcutta Discount Co., Ltd. v. Income-tax Officer was distinguished in that case by Arun K. Mukherjea J., who spoke for the majority in the Full Bench, on the ground that while in the case before the Supreme Court disclosure had been made of all material facts concerning the sale of shares to ascertain whether the intention of the assessee was really to change the form of investment or to make a business profit, in the case before the High Court the truth or falsity of a primary statement made by the assessee itself had to be determined and that was not a matter for inference. With great respect, the truth or falsity of the statement made by the assessee of a material fact, namely, that the assessee was not a trader in shares or an investor of shares, itself was in dispute in Calcutta Discount Co., Ltd. v. Income-tax Officer, and it was about that the Supreme Court said that it was a matter which it was the Income-tax Officers task to decide and not for the assessee to disclose. Whether it is a case of sales of shares or whether it is a case of taking loans, when the amounts covered by the sales or loans are shown in the return or are otherwise brought to the knowledge of the assessing authority the question as to whether the transactions are really trade in shares or whether they are loans as alleged by the assessee is matter on which the assessing authority along has to reach a conclusion after verification. When the assessing authority is informed of all the details connected with those transactions, in the case of loans even the names and addresses of creditors, the confirmation letters of creditors and the discharged hundies, the assessee cannot be considered to have failed to disclose those transactions. The Supreme Court remarked in Calcutta Discount Co., Ltd. v. Income-tax Officer, that no duty lay on the assessee in that case to admit that the sales of shares were by way of trade. Similarly, if it is a case of loans after disclosing their details to the assessing authority the assessee is not expected to inform him further that they are bogus also. The character of the transactions, whether it is in the nature of trade or whether it is in the nature of loans or cash credits, is a matter for inference and inferences and inferences can be either legal inference can be either legal inferences or inferences of fact.
When the decision of the Supreme Court in Commissioner of Income-tax v. Burlop Dealers Ltd., was brought to the notice of the learned judges to show that in similar circumstances the Supreme Court had held that the truth of falsity of a matter was also a matter for inference. Arun K Muhkerjea J. distinguished that case on the ground that certain additional documents in that case which were produced before their Lordships showed that the assessee in the Supreme Court case had before the original assessment disclosed some statements which were false and that there was nothing to show that the Supreme Court was aware of it. This was what his Lordship said :
'We have carefully considered Dr. Pals argument but we cannot persuade ourselves to accept his contention that the Supreme Court in Burlop Dealers Ltds. case disallowed a reopening of the assessment even with the knowledge that the disclosure made by the assessee at the time of assessment contained false statements. We are really concerned with the principles that are enunciated by the Supreme Court and the ratio of its judgment. There is nothing in the judgment of the Supreme Court which shows that the additional documents which were presented before us and which seem to indicate that the assessees disclosures before the original assessing authority contained false statements were also present before the Supreme Court and that the Supreme Court dealt with that case with full knowledge that the assessee had made such false statements. Each court acts on the materials before it and until and unless there is conclusive evidence to show that certain documents or certain facts were present before a court giving a judgment it is not permissible to assume that in delivering a judgment the court concerned must have taken note of those facts and circumstances. All that we can derive from the Supreme Court judgment of Burlop Dealers Ltd.s case is that since the Income-tax Officer who had made the orioginal assessment could have reached a correct conclusion regarding the financing agreement on which the assessee sought to rely, the second officer who sought to reassess and, in fact, did the reassessment on identical facts and materials must be regarded as having acted on the basis of a changed opinion. It was on this ground that the Supreme Court held that it was not open to the Income-tax Officer who subsequently disbelieved the story of the financing agreement to reopen the assessment under section 34(1)(a). We have not found anything in the judgment of the Supreme Court in Burlop Delers Ltd.s case to suggest that their Lordships would disallow a reopening of the assessment even where the assessing officer who seeks to reopen has reason to believe that at the time of the original assessment the assessee had made false statements and had failed or omitted to give true particulars regarding his income.'
The facts mentioned in the first two paragraphs of the judgment in Commissioner of Income-tax v. Burlop Dealers Ltd. show that the Supreme court was fully aware that the agreement disclosed by the assessee inits return filed prior to the original assessment was accepted by the Income-tax Officer as true in the original assessment and that it was because the Income-tax Officer found later that the agreement pleaded was false that he reopened the assessment under section 34(1)(a). It was after mentioning all these facts that in the concluding portion the Supreme Court said that where on the evidence and the materials produced the Income-tax Officer could have concluded prior to the original assessment that the agreement was not true he could not be allowed to resort to the provisions of section 34(1)(a) merely on the ground that the conclusion he reached earlier was erroneous.
In justification of the position taken up in Lakhmani Mewal Das v. Income-tax Officer that section 147(a) applied to the case, Arun K. Mukherjea J. said :
'.....the hundis could tend to show as if certain transactions had taken place but in reality, the transactions never took place. In such a case, the discharged hundis are not evidence of facts. They are mere papers fabricated to given the false appearance of certain monetary transactions which never took place. As mere formal evidence, the discharged hundis are genuine; but they are genuine in the sense that they are genuine documents and the tenor of their contents is such as if there had been real transactions. Even so it cannot be said that they represent true facts. In such a case, though the assessee discloses the discharged hundis before the Income-tax Officer or gives the list of the addresses of the spurious creditors and though he discovers books of accounts falsely showing as if actual transactions had taken place between the spurious creditors and himself, one can hardly say that the assessee has made a full and true disclosure of the material facts. The volume of disclosure cannot lend facthood to transactions which did not in fact take place. In such circumstances, how can it be said that the assessee has disclosed all the primary material facts What he has done is to disclose certain spurious papers and particulars regarding certain transactions which were themselves not facts. It is, in my opinion, a mockery to hold that assessee has in such a case made a full and true disclosure of facts. By this logic, the disclosures made by the assessee in the instant case formal evidence of fictitious transactions which never took place; they are a mere cloak to cover up the facts. The fullness and completeness of such disclosures is immaterial. Indeed the more copious the materials disclosed in a case like this, the more solid is the crust covering up the real facts. It is futile to argue that this kind of disclosure will protect the assessee from subsequent reopening of his assessment under the provisions of section 34 of the old Act or section 147 of the new Act. Such an argument overlooks, in my opinion, the fundamental point that the duty that is imposed upon the assessee either under section 34(1)(a) of the Indian Income-tax Act, 1922, or under section 147(a) of the Income-tax Act, 1961, is a duty not merely of disclosing fully all material facts but also of disclosing them truly......
Dr. Pals attempt to sidetrack the difficulty by trying to argue that the truth or falsity of a statement is a matter of inference is totally without substance. A simple proposition which states a primary fact is more often than not incapable of yielding any inference. When a man says : A gave me Rs. 1,000 or A lives in say, Calcutta or, I paid A Rs. 10 by way of interest, these are all statements of primary facts. Whether they are true or false cannot possibly be inferentially deduced from these statements themselves. In case the statements are false, they cease to be statements of facts. In the language of logic, they will each be false propositions and it will be incorrect to describe them as disclosure of facts. If the loan is not a fact any amount of false evidence to create an appearance as if the loan is true will not amount to disclosure of material facts regarding such loan. They will merely amount to disclosure of materials relating to something which is not a fact. The truth or falsity of bare proposition can never be the subject-matter of an inference from the proposition itself or from false materials created to justify that proposition. I have no doubt in my mind that no amount of logical refinement will bring the instant case within the ambit of the principle laid down by the Supreme Court in Calcutta Discount Companys case.'
Two important principles, that a simple proposition which states a primary fact is more often than not incapable of yielding any inference and that the truth or falsity of a proposition cannot be the subject-matter of an inference, are mentioned there. The principle that more than one proposition is necessary to draw an inference applies only to syllogistic inference. Thus you deduce, what you never suspected before, that Socrates is mortal from the two propositions you are supposed to know already, that all men are mortal and Socrates is a man. But this sort of syllogistic inference taken as the type from Aristotle onwards is just the sort of thing that a calculating machine could do better than a scientist or person trained in law. The treatment of inference in traditional logic is so lacking in sensibility that it throws doubt on the claim that inference is supposed to be a mark of intelligence and to show the superiority of men to machines. On the other hand the treatment of inference in science and law is different. In science the practice of inference is much wider than the theories of any logician would justify, and it is nothing other than the law of association or of 'learned reactions.' In law inferences are drawn using common sense and experience in judging of the effect of particular facts. And it is possible to draw an inference even from a single proposition. Thus,from the simple proposition 'A gave me Rs. 1,000', given as an example of a statement of a primary fact in the passage quoted above it can legitimately be inferred that A had at that time Rs. 1,000 in his possession. From the statement 'A is the dear son of his father' inference can be made that As death would bring grief to his father. From the statement of the primary fact 'there is a black ink-spot' it can be inferred that it is a spot, that it is at a certain place, that it is black and that it is caused by ink. They are all inferential facts. If somebody proves that it is not a spot the whole assertion that 'there is a black ink-spot' is rendered false. Hence, its falsehood can be inferentially deduced. Inferences can be made from a simple proposition either after verification or sometimes even before by 'intuitive induction'. Supposing years ago somebody said that the moon had a side other than the one we see from earth it is a factual statement that is inferentially deduced; for, the moon always presents the same side to us. That it has another side can only be a matter of inference. Every inference worthy of the name is inductive. At the very best induction and analogy only give probability. Therefore all inferred knowledge is at best only probable as distinguished from certain and absolute. And many things one feels probable may fail to happen and improbable things may happen. As principles of logic have not been adopted wholesale in law, with great respect, it may not always be right to test the correctness of principles of law with principles of logic especially when logicians themselves differ on the validity and usefulness of important principles.
A conclusion about the truth or falsity of a particular matter can be reached by the Income-tax Officer who has no personal knowledge about it only by the process of reasoning called inference and, consequently, truth or falsity of statement is an inferential fact as distinguished from a basic fact. He has to be guided in drawing inferences by the system of relations in the universe of his discourse, which in the context of the present case is none other than the legal system and the logic of its working.
The Act provides for enquiry by the assessing authority. It does not expect him to act like a conduit pipe receiving at one end the facts mentioned in the return and automatically issuing forth at the other end the assessment orders. He is expected to use his thinking faculties also before he makes the assessment. Sections 147(a) contemplate in appropriate cases enquiry by him about the truth of the facts mentioned in the return. He has unfettered discretion to issue notice requiring production of such accounts and documents as he may require or presence of the assessee or production of evidence to verify the correctness and completeness of the return and he is the sole judge to decide what is relevant. Under section 131 he has the same powers as vested in a civil court as regards discovery and inspection of documents and enforcing the attendance of persons. The assessee also is allowed to produce evidence. After all that, the Income-tax Officer has to draw inferences, consider the evidence and come to a conclusion upon properly ascertained facts.
Assuming that the logical propositions that a primary fact is incapable of yielding an inference and that the truth or falsity of a proposition is not a matter for inference, can be applied to a case of this kind, even then they do not even to the least extent take us away from the Supreme Court decisions already referred to.
It is for the Income-tax Officer to establish that there was non-disclosure by the assessee of material facts. As the section says by should have reason to believe about the non-disclosure of facts he should before proceeding under section 147(a) at least take up a definite stand whether the matter he relies upon as not having been disclosed by the assessee is real or not and so whether it is a fact or not and if it is a fact whether it is a primary fact or an inferential fact.
It is not the case here that the assessee did not file a return. The case here is that the assessee did not fully and truly disclose all material facts.
The controversy here centres round the truth or falsity of certain loans. In other words, the facts in dispute here are the loans. They are either facts or not facts. If the loans are real transactions and so are facts then irrespective of the question whether they are primary facts or inferential facts, as they have been mentioned in the return, there is no non-disclosure for section 147(a) to apply. On the other hand, if they are bogus and consequently not facts, then also section 147(a) has no application because mention of them in the return is only a positive or affirmative statement of false transactions which are not in the region of facts and by no stretch of imagination can it be said to be a negative act of non-disclosure of facts. In either case section 147(a) has no application. If the Income-tax Officer has reason to believe that the assessee had made in his return incorrect or false statements not amounting to facts he has to look to other provisions in the Act for proceeding against the assessee and not section 147(a). Righteous indignation may be felt if assessment was made accepting the case of the assessee that he had taken loans and subsequently the loans are found to be bogus but that is not a justification for invoking section 147(a) unless the case falls within it.
If an Income-tax Officer who has power to conduct an enquiry to ascertain the truth or falsity of a statement either blindly accepts that statement or conducts an inquiry, whether in a casual or careful manner, and then accepts that statement as true and thereafter makes the assessment can he later on change his opinion and avail of the provisions of section 147(a) saying that what he considered and treated previously as a fact was really not a fact Section 147(a) does not provide for reopening of assessment on such change of opinion by him and that is exactly what the Supreme Court decisions have said.
There are adequate provisions in the Act to safeguard the interests of the revenue against inaccurate or false or incomplete particulars furnished by the assessee. If the assessee has furnished inaccurate particulars the Income-tax Officer can impose on him penalty under section 271(1)(a). If he makes a false statement he is liable to punishment with imprisonment under section 277 of the Act. The Act also provides for rectification of mistake committed by the income-tax authorities in assessment orders. Under section 154 the Income-tax Officer as well as his superior officers can amend the assessment orders to rectify mistakes. If any order passed is prejudicial to the revenue the Commissioner can suo motu revise the assessment order under section 263. But it has to be within two years of the assessment order. Even after two years the income-tax authorities are given power under section 147 to reopen assessment if income has escaped assessment, if it falls within clause (b) within four years and if it falls within clause (a) even after four years.
The facts here are also revealing. Even before the original assessment was made the Income-tax Officer suspected the genuineness of the alleged loan transactions and by exhibit P-I letter he called for details regarding them. All those details were furnished by the assessee in his statements sent along with exhibit P-2 letter. After that the Income-tax Officer sent exhibit P-3 letter to the assessee stating that he had reason to doubt the bona fides of the loans as the alleged creditors from whom a good portion of the loans were taken were persons who issued bogus hundis. To that exhibit P-4 reply was sent by the assessee stating that in getting the loans it was dealing only with brokers, that it had already furnished their names and that they were all assessees in Bombay. It was thereafter that the assessment was made. The later correspondence, exhibit P-7, shows that before the assessment the Income-tax Officer had really examined the discharged hundis which had been produced before him by assessee. These facts show that the assessee had prior to the original assessment disclosed the amounts alleged to be covered by the loans that the Income-tax Officer had really made some enquiry regarding the genuineness of the loans before making the assessment and that the original assessment was made finding them to be true. Later on if he changed his opinion on second thoughts about the genuineness of the loan transactions, section 147(a) cannot be used for the purpose of reopening the assessment.
The learned single judge refused to quash the notice because he thought that it could not be said at this stage that the Income-tax Officer did not even have a prima facie case. He directed the assessee to urge all his objections to the proposed action before the Income-tax Officer. In support of the position he took, the learned judge relied upon the decision in S. Naryanappa v. Commissioner of Income-tax, Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Sowdagar Ahmed Khan v. Income-tax Officer and Malegaon Electricity Co., (P.) Ltd. v. Commissioner of Income-tax. They were all cases where the assessee had either not filed a return or where they had failed to disclose material facts. On the other hand, in Income-tax Officer v. Nawab Mir Barkat Ali Khan Bahadur and Gemini Leather Stores v. Income-tax Officer, both decisions of the Supreme Court even at the stage of issue of notice the proceedings were quashed. In Calcutta Discount Co., Ltd. v. Income-tax Officer the Supreme Court said that where the action of an executive authority acting without jurisdiction subjected or was likely to subject a person to lengthy proceedings and unnecessary harassment the High Court would issue appropriate orders or directions to prevent such consequences, that the existence of an alternative remedy was not always a sufficient reason for refusing a party relief by a writ and that the proceedings could be quashed even at the stage of issue of notice. But, in the case as by the time the case came up for disposal before the Supreme Court the reassessment order had been passed, that order itself was quashed.
In the result the judgment appealed from is set aside the notices issued by the Income-tax Officer under section 148 in the three cases are quashed and these appeals are allowed, each with costs.