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Lakhmani Mewal Das Vs. Income-tax Officer, 'i' Ward and Ors. (13.01.1972 - CALHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 326 of 1967
Judge
Reported in[1975]99ITR296(Cal)
ActsIncome Tax Act, 1961 - Sections 147, 148 and 151(2)
AppellantLakhmani Mewal Das
Respondentincome-tax Officer, 'i' Ward and Ors.
Appellant AdvocateD. Pal, ;R.N. Dutt, ;M. Seal, ;S. Bhattacharya, ;A.K. Roy Chowdhury and ;R. Murarka, Advs.
Respondent AdvocateB.L. Pal and ;Suhas Sen, Advs.
Cases ReferredSheo Nath Singk v. Appellate Assistant Commissioner of Income
Excerpt:
- arun k. mukherjea j. 1. in the present application which has been referred to us under chapter v, rule 2, of the original side rules of this high court the petitioner has challenged the validity of a notice issued under section 148 of the income-tax act, 1961, for the purpose of reopening an assessment of the income of the petitioner for the assessment year 1958-59.2. the petitioner was assessed for the assessment year 1958-59, under section 23(3) of the indian income-tax act, 1922, on 14th june, 1960, when his total income was computed by the respondent no. 1 at rs. 37,872. in the year of assessment the income-tax officer allowed the deduction of a sum of rs. 15,991 by way of expenses claimed by the assessee. the expenses that were allowed appear from page 13 of the paper book and.....
Judgment:

Arun K. Mukherjea J.

1. In the present application which has been referred to us under Chapter V, rule 2, of the Original side Rules of this High Court the petitioner has challenged the validity of a notice issued under Section 148 of the Income-tax Act, 1961, for the purpose of reopening an assessment of the income of the petitioner for the assessment year 1958-59.

2. The petitioner was assessed for the assessment year 1958-59, under Section 23(3) of the Indian Income-tax Act, 1922, on 14th June, 1960, when his total income was computed by the respondent No. 1 at Rs. 37,872. In the year of assessment the Income-tax Officer allowed the deduction of a sum of Rs. 15,991 by way of expenses claimed by the assessee. The expenses that were allowed appear from page 13 of the paper book and include one item of Rs. 10,494-4-3 by way of interest. A complete list of the creditors to whom interest had been paid on account of loans taken from them appears from pages 15 to 16 of the paper book. The petitioner states that at the time of the original asssessment proceedings he had produced through his authorised representative all books of account, bank statements and other necessary documents in connection with his returns and the assessment was made by respondent No. 1 after he had been satisfied 'on a due consideration of all the necessary materials produced by' the petitioner. Almost six years after the completion of the said assessment the petitioner was served with a notice dated 8th March, 1967, issued by respondent No. 2, Income-tax Officer, 'E' Ward, Hundi Circle, under Section 148 of the Income-tax Act, 1961. The petitioner has, by that notice, been called upon to submit within 30 days from the date of service of the notice a return in the prescribed form of the petitioner's income for the assessment year 1958-59. The notice states that the Income-tax Officer concerned had reason to believe that the petitioner's income which was chargeable to tax for the assessment year 1958-59, has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961, and that the notice was being issued 'after obtaining the necessary satisfaction of the Commissioner of Income-tax, West Bengal (I), Calcutta'. On 2nd May, 1967, the petitioner through his lawyer told the respondent No. 2 that according to him there is no material on which 'the said Income-tax Officer had reason to believe that the petitioner's income had escaped assessment and, therefore, 'the condition precedent for the assumption of jurisdiction' by the Income-tax Officer concerned had not been satisfied. The petitioner asserted that the Income-tax Officer was merely starting a fishing investigation and had no competence, jurisdiction and/or authority to reopen the assessment under Section 147 of the Income-tax Act, 1961, 'on a mere change of opinion'. The petitioner further asked the officer concerned to furnish all the materials on which he had reason to believe that income had escaped assessment. Apparently, the petitioner did not receive any satisfaction from the Income-tax Officer and made an application before this court and obtained a rule nisi on 30th May, 1967.

3. An affidavit-in-opposition was, in due course, filed on behalf of the respondents in answer to the aforesaid rule. Only two paragraphs, namely, paragraphs 5 and 6 of the affidavit, are important for the purposes of this application. In paragraph 5 it was denied that all materials relevant and necessary for the assessment of the petitioner's income for the assessment year 1958-59, had been produced before the Income-tax Officer at the time of the original assessment. In paragraph 6 the principal case of the respondents for reopening of the assessment was made out in the following language:

'Subsequent to the assessment for the assessment year 1958-59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. The Income-tax Officer had reason to believe and bona fide believed that the said alleged loans and the interest alleged to have bean paid thereon are not genuine. If necessary, I crave leave to produce before the hon'ble judge hearing the application, the relevant records on the basis of which the said Income-tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of this application.'

4. The contents of this paragraph were verified in paragraph 30 of the same affidavit: it is stated there that the last sentence of paragraph 6 was true to the knowledge of the deponent respondent No. 2 and that all the other statements of paragraph 6 were based on information derived by him from the records of the case. At the time of hearing of the arguments Dr. Pal pointed out that on the basis of this verification paragraph 6 would not warrant the action taken by the Income-tax Officer. Mr. Balai Pal, appearing for the revenue authorities, made an application for leave to amend the verification clause. According to the amendment which he sought for all the statements in paragraph 6 would be to the knowledge of the deponent. After hering counsel on both sides we allowed this amendment on 23rd August, 1971.

5. The petitioner's reply to the allegation in paragraph 6 of the affidavit-in-opposition is to be found in paragraph. 8 of his affidavit of 15th September, 1967. After general denial the petitioner avers as follows:

'In particular I deny that some of the loans shown to have been taken and interests paid thereon during the relevant assessment year were not genuine as alleged or at all. I say that at the time of the original assessment I not only produced the balance-sheet, profit and loss account of the relevant year but did also produce the loan account of each and every creditor from whom I obtained the loans. I also produced the confirmation letters of the said parties and gave to the Income-tax Officer the address of the different parties. I also produced the discharged hundies. Thus, the Income-tax Officer had full and ample opportunity of considering all the materials relating to the hundi loans. The Income-tax Officer in fact went into the question about the genuineness of the loans very throughly and on a due consideration of the materials held the loans to be genuine and allowed the interests as deductible one. Thus, all the primary facts which are relevant and/or material for the relevant assessment year were disclosed by me and as such there has been no omission or failure, to disclose the primary facts necessary for the relevant assessment year. The allegation that some of the loans are not genuine is an after-thought and in any event is a matter of inference from the primary facts disclosed. The said allegation that some of the loans are not genuine is baseless.'

6. The application was heard before T. K. Basu J. in June, 1970. His Lordships, after considering the materials placed before his Lordship in the petition and in the affidavits and after considering the effect of a large number of decisions including the decision of the Supreme Court in the case of Calcutta Discount Company Ltd., came to the finding that the petitioner had disclosed all the primary and relevant facts in connection with his assessment for the year 1958-59 at the time of the original assessment and that it was for the Income-tax Officer concerned to come to 'the correct inference as to the genuineness of the loan or otherwise' and that the Income-tax Officer cannot expect any assistance from the assessee in this behalf. On this view of the matter, Basu J. thought that the petitioner ought to succeed. But, when his Lordship was about to deliver judgment in this case his Lordship was informed that the late K. L. Roy J. had already delivered a judgment involving the same question of fact and law where his Lordship had accepted the contention of the revenue authorities and rejected the application of the assessee. His Lordship after considering the judgment of K. L. Roy J. made a reference under Chapter V, rule 2, of the Original Side Rules to a larger Bench.

7. Before we embark upon an examination of the questions involved in this case it is necessary to set out the provisions of Sections 147 and 148 of the Income-tax Act, 1961 :

'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, 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 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in Sections 148 to 153 referred to as the relevant assessment year).

Explanation 1.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:--

(a) where income chargeable to tax has been under-assessed ; or (b) where such income has been assessed at too low a rate ; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or

(d) where excessive loss or depreciation allowance has been computed.

Explanation 2.--Production before the Income-tax Officer of account books or other evidence from which material evidence could with due deligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.'

'148. Issue of notice where income has escaped assessment.--(1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-Section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

8. It remains for me to point out that under Section 149 of the Act a notice under Section 148 cannot be issued in cases falling under Clause (b) of Section 147 after the lapse of four years from the end of the relevant assessment year and in respect of cases falling under Clause (a) of Section 147 after the lapse of eight years except in very special circumstances. That is to say, it is only where the income has escaped assessment because of an omission or failure on the part of the assessee that the reopening of the assessment can be made after four years. If, however, there has been no omission or failure on the part of the assessee, the reopening of the assessment is possible only up to four years from the end of the relevant assessment year.

9. Dr. Pal, appearing for the petitioner, challenged the validity of the notice issued by the Income-tax Officer under Section 148 of the Act on two grounds. First, he contended that since the petitioner had made a full and complete disclosure of all material facts at the time of the first assessment he had discharged all his obligations and even if there was any escapement of any part of his income from assessment it cannot be said that such escapement happened because there was an omission or failure on the part of the assessee and consequently it was not permissible to reopen the assessment after four years from the end of the relevant assessment year. Secondly, Dr. Pal contended on the materials in the instant case it cannot be said that the Income-tax Officer had reason to believe that there was an escape of income from assessment by reason of an omission or failure on the part of the assessee. He argued that the conditions precedent to the issue of a notice under Section 148 which are contained in Sections 147 and 151 have not been complied with and the issue of the notice under Section 148 was, therefore, invalid.

10. Dr. Pal developed the first part of his argument in the following manner : Under Section 147(a) of the Act the Income-tax Officer can have jurisdiction to reopen an assessment that has been already completed if only two essential conditions are satisfied, viz., first, that there is an escape from assessment of some income of the assessee during the relevant assessment year and, secondly, that the escapement must have been caused by omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. According to Dr. Pal, the notices in this case which have been issued after the lapse of four years can be justified only if they are issued under the provisions of Section 147(a) as opposed to Section 147(b). Therefore, it is essential for the Income-tax Officer to show that he had reasons to believe not only that there has been some element of escapement of income from taxation but that the escapement was due to an omission or failure on the part of the assessee. Dr. Pal argued that in the facts and circumstances of the case it is not possible to say that the second condition precedent to the exercise of power under Section 147(a) has been fulfilled. According to him, the assessee in this case had done all that he could or need do in the matter. He had produced his own accounts relating to the hundi loans which are now sought to be treated as sham transactions by the Income-tax Officer. He had produced even letters of confirmation from each of the creditors individually and had given the addresses of all the creditors and all other particulars regarding the hundi loans which the Income-tax Officer might require before coming to a decision regarding the admissibility of interests on these hundi loans as deductible expenses. In other words, Dr. Pal argued, all material facts in connection with these loans had been fully disclosed by the assessee and it was for the Income-tax Officer to satisfy himself upon proper scrutiny of the materials supplied to him by the assessee as to whether the loans were genuine and whether the interests on those loans would be deductible expenses. In fact, in this case the Income-tax Officer had already done so. The question whether the loans are genuine and whether the interest could be allowed as deductible expenses are all, Dr. Pal says, matters of inference and it is no part of the assessee's duty to help the Income-tax Officer in deciding as to what the legal infer-rences should be. Relying on the decision of the Supreme Court in the case of Calcutta Discount Company Ltd. v. Income-tax Officer : [1961]41ITR191(SC) , Dr. Pal says that the assessee discharged his duty completely as soon as he disclosed all the material facts necessary for his assessment and he was under no obligation either to help the Income-tax Officer in making correct legal inferences from the facts supplied to him or in correcting any erroneous inferences that the Income-tax Officer may make in making the assessment. Dr. Pal argued that the Income-tax Officer cannot act perfunctorily at the time of original assessment and then seek to correct his error by reopening the assessment when that error was not caused by any failure on the part of the assessee in disclosing the material facts. Dr. Pal further argued that, if the Income tax Officer in making his original assessment has committed an error in coming to a decision regarding the genuineness of the loan, an error which could have been avoided by the exercise of due care and caution and by intelligent enquiries, he cannot on the discovery of subsequent information or on subsequent after-thought make use of the machinery under Section 147(a) for reopening the assessment. This part of Dr. Pal's case is sought to be based largely on the principles formulated by the Supreme Court in Calcutta Discount Company's case : and they do not, in our opinion, take us anywhere beyond the scope of that decision.

11. We have very carefully considered the ratio as well as the facts and circumstances of the Calcutta Discount Company's case and we have no doubt in our minds that the present case is not one which comes strictly within the scope of that decision. Section 34(1)(a) of the Indian Income-tax Act, 1922, is, of course, more or less in the same terms as Section 147(a). Under both sections whenever an Income-tax Officer has reason to believe, first, that there is an escapement of tax and, secondly, that the escapement has been caused by an omission or failure on the part of the assessee to disclose fully and truly all material facts for the assessment of that relevant year, the Income-tax Officer has jurisdiction to reopen the assessment. It is to be noted that the sections postulate a duty on every assessee not only to disclose fully all the material facts necessary for his assessment but also to disclose them truly. The controversy that arose in the Calcutta Discount Company's case was as to whether all the material facts had been fully disclosed. Their Lordships of the Supreme Court found that all the primary facts in the possession of the assessee had been disclosed. After that, it was for the Income-tax Officer to draw inferences as regards certain other facts which have been described as inferential facts and then ultimately to draw the proper legal inference from the primary facts disclosed by the assessee as well as the further inferential facts deduced from the primary facts by the officer concerned and then to ascertain on a correct interpretation of the taxing enactment the proper tax to be levied. The following passage which occurred at page 201 and at pages 202 to 203 of the report are quoted very often in judgments while dealing with the Calcutta Discount Company's case and I think it will not be inappropriate if I quote in extenso those passages :

'Does the duty, however, extend beyond the full and truthfull disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences--whether of facts or law--he would draw from the primary facts.

If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?.........

We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.' (At page 201 of the report).

'It is the duty of the assessee to disclose all the facts which have a bearing on the question but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments is really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances. The law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. The question of the assessee's intention is an inferential fact and so the assessee's omission to state his 'true intention behind the sale of shares ' cannot by itself be considered to be a failure or omission to disclose any material facts within the meaning of Section 34. Indeed, an assessee whose contention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be.' (At pages 202 and 203 of the report).

12. Dr. Pal relied mainly on those observations of the Supreme Court which I have set out above. The following are the twin pillars of his argument before us: (i) first, there is no other fact regarding the hundi loans which the assessee was in a position to disclose, that is to say, all material facts about the hundi loans had been fully and completely disclosed, and (ii) secondly, the assessee has no obligation to help the Income-tax Officer in coming to correct inferences regarding any transaction from the material facts disclosed about those transactions. It think, however, that the instant case is not one which is covered by the observations quoted above or by the decision in Calcutta Discount Company's case. In the latter case the question arose as to what was the true intention behind the sale of certain shares by the assessee. Was the intention merely to change the form of the investment or was the intention to make a business profit All material facts concerning the sale of shares had been admittedly disclosed by the assessee. The Supreme Court held that it was entirely for the assessing authority to infer from the primary facts as well as the surrounding circumstances as to what could be the intention of the assessee and it was no part of the assessee's duty to help the officer to come to any particular inference. In the instant case, however, it is not a matter of inference which the Income-tax Officer had to do in determining the total income of the assessee. We are concerned in this case with the truth or falsity of a primary statement made by the assessee. Tbe assessee made a statement that he had taken certain loans. For the present we will assume that this statement was a false statement and that the assessee did not take any loan, that is to say, he did not receive any monetary advances from the persons who, he told the Income-tax Officer, were his creditors. Let us further assume that, though the assessee received no money as loans, all the formalities were observed and the hundis were executed and discharged. Since no money passed between the parties on any occasion, the discharged hundis represent certain sham transactions. In other words, 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 give 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 the 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 are 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. Therefore, if in any particular case the Income-tax Officer has reason to believe that there has been an escape from assessment of income caused by the fact that the assessee in that case did not disclose the material fact truly, that would certainly be a case where the Income-tax Officer would have jurisdiction to reopen the assessment under the provisions of those Sections. The point seems to me to be so fundamental that I find it difficult to understand how the principle enunciated by the Supreme Court in Calcutta Discount Company's case can at all be invoked in the instant case. It was argued before Basu J., as we find from the judgment which his Lordship delivered at the time of making the reference, that 'to demand from the assessee that he should disclose to the Income-tax Officer whether the loans were genuine or not, is to cast on the assessee an intolerable burden'. It was further argued that 'this is a matter of inference which the Income-tax Officer has to draw. It is no part of the duty of the assessee to assist the Income-tax Officer in this inferential process'. I find it difficult to see the logic of this argument. It is true that one cannot expect an assessee who has stated that he has made certain loans to make another statement to the effect that the loans were not genuine. Such conduct would not be intelligible in ordinary circumstances. But why should the, assessee make a false statement to start with If the loans are not genuine and if he had not actually received moneys as loans on which he had to pay interest, why should he say that he had taken those loans and had to pay those interests The question that Dr. Pal posed before Basu J. proceeds on the assumption that the assessee was within his rights to make a false statement and having once made a false statement it was unnatural and illegitimate on the part of the assessing officer to expect the assessee to confess that he had made a false statement. The real answer to that argument is that the assessee was under an obligation not to make a false statement of fact, I repeat: the duty of an assessee is not merely to make a full disclosure of all the material facts ; his duty is also to make a true disclosure of facts, that is to say, not to mislead the assessing officer by disclosing certain things which do not represent facts. Once an assessee infringes this rule, any subsequent discovery of fact by the assessing officer which would raise a reasonable belief in his mind that the assessee had not made a true and correct disclosure of the facts and has thereby been responsible for escape of some income from assessment, will at once attract Section 147 of the Income-tax Act, 1961.

13. Dr. Pal's 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 a 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 Company's case.

14. When Dr. Pal was confronted with this difficulty he fell back upon a recent decision of the Supreme Court where, he said, the principles enunciated in Calcutta Discount Company's case were applied in favour of the assessee in circumstances which are very similar to the circumstances of the instant case. I refer to the decision of Commissioner of Income-tax v. Burlap Dealers Ltd. : [1971]79ITR609(SC) . Dr. Pal argued that this decision of the Supreme Court clearly supports his contention that the instant case is one which comes within the scope of the principles laid down by the Supreme Court in Calcutta Discount Company's case. In order to understand Dr. Pal's argument it is necessary to refer to the facts of the case as well as to the ratio of the Supreme Court decision in some detail.

15. In the case of Burlop Dealers Ltd., the assessee, Burlop Dealers Ltd.(hereinafter referred to as 'the company'), disclosed for the assessmentyear 1949-50, a profit of Rs. 1,75,875 from a joint venture with H. M. Ltd.in plywood chests. The company claimed that the sum of Rs. 87,937, beinghalf the aforesaid profit, had been paid to Ratiram Tansukhrai under anagreement dated 7th October, 1948, under which Ratiram Tansukhrai hadagreed to finance the transactions in the joint venture. The Income-tax Officer accepted this claim and brought to 'tax only the sum of Rs. 87,937 as the profit earned by the company from the joint venture. For the assessment year 1950-51 also, the company claimed similarly that it had paid half its profits from the joint venture to Ratiram Tansukhrai. The Income-tax Officer, however, upon an examination of the transaction refused to accept this claim and held that the agreement of 7th October, 1948, was a got-up device to reduce the profits. The Income-tax Officer taxed the entire profit of the venture. This assessment was ultimately upheld. In the meantime, on 13th May, 1955, the Income-tax Officer issued a notice under Section 34(1)(a) of the Indian Income-tax Act, 1922, for reopening the company's assessment during the earlier year, i.e., 1949-50, and brought to tax the sum of Rs. 87,937 which had been originally left out on the ground that it had been paid to Ratiram Tansukhrai under the financing agreement. The assessee took the matter to the Tribunal which held that since the assessee had produced all the relevant facts, accounts and documents necessary for completing the assessment and was under no obligation to inform the officer about the true nature of the transaction, there is no justification for reopening the assessment under Section 34(l)(a). On this basis, the Tribunal directed that the amount of Rs. 87,937 which was sought to be brought to tax at the time of reassessment should be excluded. The revenue authorities made an application under Section 66(1) and under Section 66(2) before the Tribunal and the High Court respectively. They were both rejected. The revenue authorities went up on appeal to the Supreme Court. The Supreme Court also upheld the Tribunal's decision. Shah C.J., who delivered the judgment of the Supreme Court, after reciting the facts of the case, held that this case would appropriately fall under Section 34(l)(b) and observed as follows:

'The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under Section 34(1)(a).'

16. Shah C.J. further observed that :

'...whereon the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he had reached, a proceeding under Section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous.'

17. Dr. Pal strongly relied on this decision and developed his argument on the following lines. In Burlap Dealers Ltd. case, what weighed with the Supreme Court is the fact that the first Income-tax Officer who had made the original assessment for 1949-50 and the second Income-tax Officer who assessed for 1950-51 came to different views about the same financing agreement and there is no allegation that there was any lack of disclosure of evidence and materials at the time of the first assessment. Both assessments having been based on the same materials it was purely a matter of inference from the materials that had been furnished before the Income-tax Officers. The two officers made different inferences and the second officer thought that the first officer was erroneous in coming to the inference which he had made. In that situation the Supreme Court held that the assessee was under no obligation to help the assessing Income-tax Officer to make a correct inference from a set of facts. Dr. Pal contended that there is actually no distinction between the case of Burlop Dealers Ltd. and the present case. Here also the assessee had disclosed all the materials before the first Income-tax Officer. Even assuming that the first Income-tax Officer had come to a wrong inference on the materials disclosed by the assessee it is not permissible to reopen the assessment on the ground that the first officer's inference was wrong. Dr. Pal's argument, in substance, is this that both Burlop Dealers Ltd. case and the instant case are really cases where the second Income-tax Officer seeks to reopen an assessment and to make a fresh assessment on the basis of a fresh evaluation of identical facts and materials on which on an earlier occasion an assessment has already been made. Dr. Pal's argument in substance is, therefore, this that both cases are cases where reassessment is sought to be made on a mere change of opinion or after-thought and this cannot be done on the principles enunciated in the Calcutta Discount Company's case. In answer to this argument of Dr. Pal it was contended on behalf of the revenue authorities that there is a qualitative distinction between the present case and the Burlop Dealers Ltd, case, in so far as in the present case reassessment is sought to be made on the ground that the assessee had made certain untrue statements in his disclosure at the time of the first assessment while in the Burlop Dealers Ltd. case, there is no allegation that the assessee had made any statement which was false. Dr. Pal sought to meet this contention of Mr. Balai Pal by pointing out that even in the Burlop Dealers Ltd, case, the assessee had made certain false statements at the time of making the original assessment. In proof of this proposition Dr. Pal made use of certain documents which Mr. Balai Pal on behalf of the revenue authorities had made available to us in order that we could have all the facts of Burlop Dealers Ltd. case at our disposal. Following are some of the documents which Mr. Balai Pal produced before us in this connection:

(i) The judgment and order dated 15th, April, 1964, passed by the Income-tax Appellate Tribunal by which the Tribunal had set aside the reassessment made by the second Income-tax Officer for the assessment year 1949-50, (This incidentally is the order which ultimately came up before the Supreme Court and was finally disposed of by that court in the judgment we are just now discussing).

(ii) A paper book of Income-tax Reference No. 64 of 1957 before this High Court under Section 66(1) of the Indian Income-tax Act, 1922: This reference relates to the assessment of M/s. Burlop Dealers Limited for the assessment year 1950-51.

(iii) The judgment of this High Court in the aforesaid reference which has been reported in 48 I.T.R. 153 (Burlop Dealers Ltd. v. Commissioner of Income-tax, [1963] 48 ITR 153 (Cal)).

18. With the help of these documents Dr, Pal tried to show that the assessee had made certain statements which could be described as incorrect at the time of the original assessment for the year 1949-50. He argued that there had been some suppression of facts by the assessee during the assessment for 1949-50. He referred, in particular, to paragraph 4 of the order of the Income-tax Tribunal and relied on the following observation of the Tribunal:

'In the instant case, as we have stated above, the assessee at the original stage of the assessment, produced before the Income-tax Officer the relevant agreements between itself and M/s. Manory Ltd. as also with M/s. Ratiram Tansukhrai. It also did produce the relevant extracts from the accounts relating to these two parties. In fact, in the audited balance sheet as on the 31st December, 1948, which was also produced before the Income-tax Officer, a sum of Rs. 1,55,225 was shown as unsecured loan due to M/s. Ratiram Tansukhrai. Thus, the assessee produced all the relevant materials which were necessary for completing the assessment and also for determining the nature of the particular claim by the assessee. It is of course true that beyond producing those documents and extracts from the accounts, the assessee did not say to the Income-tax Officer that on those facts besides other conclusions, one of the conclusions that could possibly be drawn was that the said M/s. Ratiram Tansukhrai did not advance any finances and yet shared the profits earned by the assessee.

It appears from the paper book of the Income-tax Reference No. 64 of 1957 and the judgment of the High Court in that case, Burlap Dealers Ltd. v. Commissioner of Income-tax, that no part of the money which had been advanced by the assessee-company to H. M. Company Ltd. really came from Ratiram Tansukhrai and that three loans alleged to have been given by Ratiram Tansukhrai of Rs. 50,000 on May 24, 1948, Rs. 17,500, on July 7, 1948, and Rs. 1,00,000 on June 23, 1948, were really payments from others. It also appears that all the moneys came in before 7th October, 1948, which was the date of the alleged financing agreement between the assessee-company and Ratiram Tansukhrai. Dr. Pal contended that the statement in the audited balance-sheet produced by the assessee-company during the assessment of 1949-50, which showed a sum of Rs. 1,55,225 as unsecured loan due to Ratiram Tansukhrai, was a false statement. Dr. Pal further argued that the assessee must have suppressed that part of his accounts which would have shown the loans that he had taken from Kothari and Omkarmal Jagdish Prasad, for, the assessee had produced only the relevant extracts from the accounts relating to M/s. H. M. Ltd. and M/s. Ratiram Tansukhrai. These accounts could not possibly have shown the loans received from Kothari and Omkarmal. Dr. Pal, therefore, said that even though the assessee had produced materials containing a false statement before the Income-tax Officer at the time of the original assessment and had suppressed certain facts the Supreme Court did not permit a reopening of the assessment on the ground that the Income-tax Officer who had made the original assessment could have reached a correct conclusion regarding the story of the financing agreement put up by the assessee.

We have carefully considered; Dr. Pal's argument but we cannot persuade ourselves to accept his contention that the Supreme Court in Burlap Dealers Ltd. 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 assessee's 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 Burlap Dealers Ltd. case is that since the Income-tax Officer who had made the original 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 Dealers 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. We cannot, therefore, accept the Burlop Dealers Ltd. case as an authority to induce us to treat the present case as one coming within the scope, of the principles enunciated in the Calcutta Discount Company's case.

We now come to the second ground of challenge which Dr. Pal made out against the notice under Section 148. For this part of his argument Dr. Pal relied on the Supreme Court decision in Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) , the facts of which very closely resemble the facts of the instant case. The assessee which was a partnership firm executed contracts under the Railways. While submitting its return of income for the accounting year 1959-60 corresponding to the assessment year 1960-61, the assessee produced a statement showing that it had various creditors from whom it had borrowed on hundis during, the accounting year. The full names and addresses of the alleged creditors were produced before the Income-tax Officer. The assessee also produced its books of accounts. The Income-tax Officer, after enquiry, accepted the story of the assessee about the alleged loans and assessed its total income for that year at Rs. 69,886. Subsequently, on 3rd June, 1966, a notice was issued by the Income-tax Officer under Section 148 of the Income-tax Act, 1961, telling the assessee that the Income-tax Officer had reason to believe that the assessee's income for the year 1960-61 had escaped assessment within the meaning of Section 147 of the, Income-tax Act, 1961. The assessee was asked to deliver another return for the assessment year 1960-61. The notice mentioned that it was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Bihar and Orissa, Patna. We might as well say here that this notice is almost verbatim the same as was served on the assessee in the instant case before us. Upon receipt of that notice, Chhugamal Rajpal challenged on various grounds the validity of the notice as well as the proceeding commenced on the strength of that notice in a writ petition before the High Court of Patna. One of the grounds of challenge was that the notice did not comply with the requirement of section 151(2) of the Income-tax Act. This ground of challenge was not accepted by the Patna High Court which dismissed the petition. The matter then went up on appeal to the Supreme Court which directed the revenue authorities to produce before them the records connected with the notice to show that the Income-tax Officer had in fact complied with Sections 147 and 151(2) of the Act of 1961. The revenue authorities produced before the Supreme Court the report that had been submitted by the Income-tax Officer to the Commissioner and the Commissioner's order on that report. After considering these materials the Supreme Court held that the Income-tax Officer had not come to a prima facie conclusion that the loan transactions to which he made a reference in his report were not genuine transactions and that he had merely a vague suspicion that they might be bogus transactions. According to the Supreme Court such suspicions did not fulfil the requirements of Section 151(2) in so far as the reasons given by the Income-tax Officer for issuing a notice under Section 148 do not disclose prima facie grounds before him for taking action under Section 148. The Supreme Court came to the further finding that the Commissioner in giving his permission had acted mechanically.

Dr. Pal argued with reference to this decision that there is practically no distinction between the facts and circumstances of this case and those of the case before us. He pointed out that the Income-tax Officer's report to the Commissioner in the Supreme Court case is almost identical with the report that the Income-tax Officer gave in the instant case. The Commissioner's orders are also exactly the same. Therefore, it was argued, on the strength of this Supreme Court decision, we must declare that in the instant case before us also, the notice under Section 148 did not satisfy the requirements of Section 151(2) and that this was not a fit case for issuing a notice under Section 148.

We have already stated that so far as the notice is concerned there is practically no distinction between what was issued in the Supreme Court case and what has been issued in the case before us. This similarity is explained by the fact that both the two notices are in the same form which apparently is a standard form used by all Income-tax Officers in connection with these proceedings. Let us, however, compare the two reports of the respective Income-tax Officers in some detail. The report in either case commences with certain particulars given in a tabular form. The particulars include, for instance, (1) the name and address of the assessee, (2) status, (3) assessment year for which notice under Section 148 is proposed to be issued, (4) whether it is a new case or one in which reassessment has to be made, (5) in the case of reassessment the income which was originally assessed or determined, (6) whether the case falls under Clause (a) or Clause (b) of Section 147, (7) brief reasons for starting the proceedings under Section 147 (including the items which are believed to have escaped assessment), (8) whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148, (9) whether the assessing officer is satisfied that it is a fit case for issue of notice under Section 148.

All the particulars are given in a tabular form except with regard to item No. 7 for which the reasons are given separately. The reasons in both cases are recorded on the back of the tabular form used by the Income-tax Officer for the report. Both the reports confirm that the Commissioner was satisfied. So far as the tabular form is concerned there is no manner of doubt that there is no material difference between the two reports : the factual details, e.g., the names of the assessee or the amounts assessed must, of course, be necessarily different. The most vital item of the report is, of course, the reasons recorded by the Income-tax Officer in regard to item No. 7 of the tabular statement indicating the grounds for initiating the proceedings. It is convenient if the two reasons are set out side by side for the purpose of comparison. Here are the two sets of reasons.

In the Supreme Court caseIn the instant case

During the year the assesseehad shown tohave taken loans from various parties of Calcutta. From D.I.'sInv. No. A/P/Misc. (5) D.I./ 63-64/5623 dated August 13, 1965, forwarded to this office under C.I.T., Biharand Orissa, Patna's letter No. Inv.-(Inv) 15/65-66/H.C./ M/-709E/1953-2017 dated PatnaSeptember 24, 1965, it appears that these persons are name-lenders and thetransactions are bogus. Hence, proper investigation regarding these loans isnecessary. The names of some of the persons from whom money is alleged tohave been taken on loan on hundis are:

1. Seth Bhagwan Singh Sri-charan.

2. Radhakissen Shyam Sunder.

3. Lakha Singh Lal Singh.

There are hundi loan credits inthe names of Narain Singh Nanda-lal, D. K. Naraindas, Bagwandas Srichand, etc.,who are known name-lenders, and also hundi loan credit in the name ofMohansingh Kanayalal who has since confessed he was doing only name-lending.In the original assessment these creditors were not investigated in detail. Asthe information regarding the bogus nature of these credits is since known, actionunder section 147(a) is called for to reopen the assessment and assessthese credits as the undisclosed income of the assessee. The assessee isstill claiming that the credits are genuine in the assessment proceedings for1962-63. Commissioner'ssanction is solicited to reopen the assessment for 1958-59 undersection 147(a).

Sd/- S. P. Chaliha N.S. Raghuthaman.30-4-66 I.T.O., 'E' Ward, H.C. Cal.Income-tax Officer,13-2-67.A-Ward, Mazaffarpur.

In each of these cases the Income-tax Officer refers to certain loans which the assessee had claimed to have taken during the relevant accounting year. In each case there is an allegation that the alleged lenders are name-lenders and the names of some of these name-lenders have been mentioned in each. In the Supreme Court case there is a statement that 'it appears...... that the transactions are bogus'; in the instant case before us the same statement is made in an oblique manner by the phrase 'information regarding the bogus nature of these things'. In the instant case there is, however, a reference to one lender who is supposed to have confessed that he was doing only name-lending. In the Supreme Court case there is a statement of the Income-tax Officer 'hence, proper investigation regarding these loans is necessary'. Such a statement is, however missing in the case before us. In neither of the two cases does the Income-tax Officer state clearly that he had reason to believe that, (a) part of the income of the assessee had escaped assessment, and (b) that such an escapement was caused by an omission or failure on the part of the assessee. There is a statement in the present case that 'the assessee is still claiming that the credits are genuine' in the assessment proceedings of 1962-63. There is no such statement in the Supreme Court case. The Supreme Court case has specified the amount of escapement involved as Rs. 1,00,000. There is no such specification in the present case though the form requires that the items which are believed to have escaped assessment should be specified by the Income-tax Officer. In the case before us, the Income-tax Officer says that information regarding the bogus nature of the credits is since known. In the Supreme Court case there is no reference to the information but the same statement is made in a more categorical form, namely, 'it appears that these persons are name-lenders and the transactions are bogus'.

19. Hegde J., who delivered the judgment of the Supreme Court, condemned the Income-tax Officer's report as one which does not satisfy the requirements of Section 151(2). Let us see what are the reasons for which he condemned the report in the Supreme Court case and we can then ascertain whether the corresponding report in our case also suffers from the same infirmities. Here are the defects which Hegde J. points out:

(a) The Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue a notice under Section 148.

(b) The material that the Income-tax Officer had before him for issuing a notice under Section 148 is not mentioned in the report. He vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa.

(c) The Income-tax Officer does not mention the facts contained in those communications. All that he says is that from those communications it appears that the persons are name-lenders and the transactions are bogus.

(d) He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they are perhaps bogus transactions. Such a conclusion does not fulfil the requirements of Section 151(2). The Income-tax Officer must have prima facie grounds before him for taking action under Section 148.

(e) The Income-tax Officer mentioned that proper investigation is necessary. This is not the same thing as saying that there are reasons to issue a notice under Section 148.

(f) Before issuing a notice under Section 148 the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment for any assessment year and that it was due to omission or failure on the part of the assessee. These requirements have not been satisfied. From the report of the Income-tax Officer it is clear that he could not have had such reasons.

(g) Hegde J. was not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either Clause (a) or Clause (b) of Section 147. Therefore, he could not have issued a notice under Section 148.

20. The Supreme Court also observes that the Commissioner has accorded his permission mechanically. This was not enough. He should have recorded that he was himself satisfied that this was a fit case for the issue of a notice under Section 148. The report of the Income-tax Officer as well as the circular of the Commissioner indicate, according to the Supreme Court, that the officers gave no importance to the provisions of Section 147 and Section 151 and that they have substituted the form for the substance.

21. We shall now discuss, with reference to these criticisms made by Hegde J., of the Income-tax Officer's report in the Supreme Court case, the corresponding report in the case before us and try to ascertain if there is any qualitative distinction between the two reports.

Deject (a).

There is nothing in the Income-tax Officer's report in either case regarding the reason for concluding that the case concerned was a fit case to issue a notice under Section 148. This defect, therefore, is common to both reports.

Defect (b).

This defect is also present in the Income-tax Officer's report in the instant case. In fact, the defect is more serious in the case before us, for, in the Supreme Court case there was at least a reference to 'certain communications' received by the Income-tax Officer from the Commissioner of Income-tax, Bihar and Orissa. In the instant case there is merely a reference to 'certain information'. There is no doubt a reference to a confession of one of the alleged creditors, namely, Mohan Singh Kanayalal that he was acting only as a name-lender. But there is no indication that the name-lending was in connection with the loans involved in the assessment under consideration.

Defect (c).

This defect is also common to both cases. In the Supreme Court case, the report states:' it appears that the creditors are name-lenders and the transactions are bogus'. In the instant case the report states: 'information regarding bogus nature of these credits is since known'.

Defect (d).

This defect about the lack of a tentative conclusion on the part of the Income-tax Officer is common to both reports. In the Supreme Court case the Income-tax Officer says: 'It appears that these persons are name-lenders and the transactions are bogus'. In the instant case the Income-tax Officer does not even say that. He says that in the original assessment the credits were not investigated in detail and that since 'information regarding the bogus nature of the credit is since known, action under Section 147(a) is called for'. The Income-tax Officer in the instant case merely sets out the content of the information received by him and does not state what is his own belief or tentative conclusion about it.

Defect (e).

This defect is also common to both cases. In the Supreme Court case the Income-tax Officer merely records his feeling that a proper investigation was necessary to find out whether the information about the bogus nature of the transactions was correct. In the instant case also the Income-tax Officer merely states that the information is known and, therefore, action under Section 147(a) is called for. The Income-tax Officer in this case does not even give any hint about his own feeling regarding the prima facie credibility of the information. It is clear that the Income-tax Officer in the instant case is far less specific and far less definite in the matter of recording his belief as to the alleged bogus nature of the transactions.

Defect (f).

This defect is also common to both cases. In neither report is there any reference to the omission or failure on the part of the assessee or to any reason to believe that the income has escaped assessment. In the instant case, of course, there is a statement that action under Section 147(a) is called for to reopen the assessment and assess the credits as the undisclosed income of the assessee. This may perhaps be taken as an oblique reference to escapement of income from assessment.

Defect (g).

In view of the earlier defects, it is obvious that defect (g) is also common to both reports.

22. I have read both the reports and compared them repeatedly to find out if there is any real and qualitative distinction between the two reports. I confess I have found none. There is, of course, some difference in the language of the two reports. But the essential characteristics of both the reports are exactly the same. In the Supreme Court case I have found at least some vague hint about an undefined doubt in the mind of the Income-tax Officer regarding the genuineness of the credit transactions disclosed by the assessee in his earlier report. In the instant case, however, I have missed even that vague hint. In fact, the whole report discloses nothing about the belief or disbelief or about the mental state of the Income-tax Officer. After merely stating that the creditors in whose names the hundi loans have been disclosed are known as name-lenders and that one of them had confessed that he was doing only name-lending, the Income-tax Officer passes immediately to the next statement that action under Section 147(a) is called for. In the Supreme Court case the Income-tax Officer refers to the source of information and then states that from the materials disclosed in the information it appeared to him that the creditors were name-lenders and the transactions were bogus. He gives his own subjective conclusion, however prima facie and tentative it may be, and says : 'hence, proper investigation regarding his loans is necessary'. The use of the word 'hence' is significant. It is to be read with reference to the earlier words 'it appears'. First, there is a prima facie belief in the mind of the Income-tax Officer and then, as a consequential step, the decision to investigate into the transactions. This is certainly a far more logical approach to an action under Section 148 than what we find in the action of the Income-tax Officer who dealt with the case before us. But even so, because other details, particulars and statements are lacking in the report of the Income-tax Officer in the Supreme Court case, that report has been condemned as bad and insufficient to sustain an action under Section 148. I have no doubt that the report of the Income-tax Officer in the case before us must be condemned as still more insufficient and inadequate to justify an action under Section 148.

23. So far as the Supreme Court's criticism regarding the Commissioner's action is concerned it is clear that the order recorded by the Commissioner in the instant case is open to the same criticism. Here also the Commissioner while he accorded his permission acted mechanically, for the Commissioner did not record that he was satisfied that this was a fit case for the issue of notice under Section 148. In both cases what the Commissioner has done is just to note the word 'Yes' and affixed his signature thereunder against the question in column 8 of the report of the Income-tax Officer which reads : 'Whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148.' In the Supreme Court case Hegde J. observed that if the Commissioner had read the report carefully he could never have come to the conclusion on the material before him that it was a fit case to issue a notice under Section 148. Hegde J. further observes.

'The important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance.'

24. These observations apply with equal force and vigour to the action of the Income-tax Officer and the Commissioner of Income-tax in the instant case.

25. This branch of Dr. Pal's argument suffers from one infirmity. The contention that the notice under Section 148 was issued without a proper satisfaction of the Commissioner on the reasons recorded by the Income-tax Officer to the effect that it was a fit case for the issue of such a notice had not been made out specifically in the original petition. We are not, however, inclined to ignore this serious defect in the proceedings on this technical ground alone. In any event, the petitioner had specifically made out a case that the condition for the exercise of the jurisdiction by the Income-tax Officer under Section 147 read with Section 158 had not been satisfied. In the Supreme Court decision in Chhugamal Rajpal v. S. P. Chalia the notices were condemned as bad and invalid not merely because of the defective order by the Commissioner of Idcome-tax but also because of the inherent defects in the report of the Income-tax Officer, which, according to Hegde J., betrayed non-compliance with the conditions laid down in Section 147 of the Act. Besides, in our opinion, ground 'd' (in paragraph 9 of the petition) is wide enough to bring within its ambit an objection that the conditions precedent as are formulated in Section 151(2) for the assumption of jurisdiction under Section 147 read with Section 148 of the new Act have not been complied with.

26. After the conclusion of the hearing of this application another decisionof the Supreme Court which involves a similar question about the fulfilment of the conditions precedent to a reassessment proceeding has becomeavailable to us, viz., the case of Sheo Nath Singh v. Appellate AssistantCommissioner of Income-tax : [1971]82ITR147(SC) . In that case the assessee had been served with a notice under Section 34(1A) of the Indian Income-tax Act of 1922, which was in similar terms as the present Section 147 of the Income-tax Act, 1961. The assessee challenged the notice and the proceedings under Section 34(1A) in a writ application before this High Court. The matter was decided by a Full Bench of this High Court and it was held that since the assessee had filed appeals to the Appellate Assistant Commissioner he could not pursue the writ petition. However, the Full Bench also decided on merits the question that was raised on behalf of the assessee relating to the satisfaction of the preconditions under Section 34(1A). The Full Bench upon examination of the materials held that the petitioner-assessee had failed to establish his contention that there was an initial lack of jurisdiction on the part of the Income-tax Officer on the ground that the preconditions in Section 34(1A) had not been fulfilled. The matter went up to the Supreme Court on appeal. It appears that the department produced before the Supreme Court the report of the Income-tax Officer in Form B to the Central Board of Revenue. This report contained the following reasons for starting the proceedings under Section 34(1A):

'For the reasons hereinafter recorded I believe that income, profits and gains earned by the assessee in his personal capacity and in conjunction with others and chargeable to income-tax have escaped assessment and that the amount of such concealed income relating to the accounting years covering the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1949, amount to or is likely to amount to Rs. 1,00,000. The reasons for such belief, inter alia, is as follows :

(1) The assessee who is or was at the relevant time a managing director in about a dozen limited companies along with 'Oberois' is believed to have made some secret profits which were not offered for assessment.

(2) The assessee is believed to have received a sum of Rs. 22 lakhs from 'Oberois' and this sum or at least part of which represents income which has escaped assessment.

(Sd.) A. K. Bhowmik,

Income-tax Officer,

Dist. II(2), Calcutta.'

27. The Supreme Court held that these reasons 'hopelessly' failed to satisfy the requirements of the statute. The Supreme Court referred to its earlier decision in Chhugamal Rajpal v. 5. P. Chaliha, which we have dealt with elaborately just now, and following that decision held that in this case also the requisite reasons to believe were lacking. The Supreme Court observed : [1971]82ITR147(SC) :

'There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.'

28. After making these observations the Supreme Court holds that there was in this case no material or fact on which any belief could be founded of the nature contemplated by Section 34(1A). 'The so-called reasons are stated to be beliefs, thus leading to an obvious self contradiction'. On this ground the Supreme Court was satisfied' that the requirements of Section 34(1A) were not satisfied and, therefore, the notices which had been issued were wholly illegal and invalid'. The Supreme Court upheld the assessee's appeal and quashed the proceedings.

29. It is abundantly clear that, according to the (Supreme Court, if the Income-tax Officer in stating his reasons to believe refers to certain other beliefs it amounts to 'an obvious self-contradiction'. By this standard the report of the Income-tax Officer in the instant case is much worse because it not only does not include an interim conclusion on the part of the Income-tax Officer as was present for instance in the case of Chhugamal Rajpal but it does not even say that by reason of the information mentioned in the report the Income-tax Officer had any belief at all. It merely states that action under Section 147(a) is called for. To my mind this latest decision of the Supreme Court in the case of Sheo Nath Singh fortifies our conclusion that the preconditions for the exercise of jurisdiction by the Income-tax Officer under Section 147 read with Section 148 have not been fulfilled in the instant case.

30. Various cases were cited before us on behalf of the revenue authorities at the time of hearing. For the sake of completeness I shall very briefly refer to some of the more important cases on which the counsel relied strongly. Thus, great reliance was placed on the decision of the Supreme Court in S. Narayanappa v. Commissioner of Income-tax : [1967]63ITR219(SC) . In this judgment the Supreme Court has indicated why the reasons for issuing a notice under Section 34 of the old Income-tax Act are not open to investigation by the court. Mr. Balai Pal argued that in the light of this particular judgment of the Supreme Court, as soon as there are some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact which could have a material bearing on the question of under-assessment, that would be sufficient to give' jurisdiction to the Income-tax Officer to issue a notice under Section 34 of the old Act. Relying on the principle that adequacy of the grounds is not a justiciable issue, Mr. Balai Pal argued, that it is not open to us to scan the grounds adduced by the Income-tax Officer as reasons to believe that there has been a non-disclosure. We do not think, however, that Mr. Pal is quite correct in his contention. The Supreme Court in the same judgment in Narayanappa's case has also clearly stated that it is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. The Supreme Court held further that, in any event, it must be established on behalf of the revenue authorities in such cases that there was the belief and that the belief was held in good faith and was not a mere pretence. Presumably, it is this enquiry which the Supreme Court made in Chhugamal Rajpdl's case. By proceeding on exactly similar lines we have found that the preconditions laid down in Section 147 have not been satisfied in the present case. Therefore, we are not infringing the limits of justiciability laid down by the Supreme Court in Narayanappa's case and in many other subsequent decisions.

31. Mr. Balai Pal then relied on the Supreme Court decision in Income-tax Officer v. Bachu Ltd Kapoor : [1966]60ITR74(SC) . Mr. Pal contended that this decision of the Supreme Court was a clear authority for the proposition that even a full disclosure by an assessee cannot operate as a bar to a reopening under Section 34(1A) of the old Act when the document disclosed showed an apparent condition and not the real condition. It may be mentioned here in this connection that the late K. L. Roy J, had strongly relied on this case in his judgment in the matter of Lakhmani Mewal Das v. Income-tax Officer : [1972]84ITR649(Cal) which incidentally is the judgment which induced T. K. Basu J. to make the present reference under Chapter V, rule 2 of the Rules of this court. I have carefully considered the Supreme Court decision in Bachu Lal Kapoor's case and I have no doubt at all that this decision of the Supreme Court cannot be of any assistance to us in the instant case. In Bachu Lal Kapoor's case certain individuals had been assessed to income-tax in their individual capacity for the assessment years 1953-54 to 1955-56. Later on, the Income-tax Officer issued a notice under' Section 34 to Bachu Lal Kapoor and sought to assess Bachu Lal Kapoor as the karta of the Hindu undivided family in regard to the assessment year 1955-56. This notice was challenged under article 226 of the Constitution on two grounds. First, it was argued, since the income for the assessment year 1955-56 had already been assessed in the hands of the individual members of the joint Hindu family it could not be assessed again as the income of the family. This contention was, of course, based on the principle of 'avoidance of double taxation'. The second contention was that the Hindu undivided family did not legally exist until the order under Section 25(a) of the Indian Income-tax Act, 1922, had been set aside. The Allahabad High Court accepted the first contention of the assessee and quashed the notice. The Allahabad High Court did not, however, decide the second contention. On appeal, the Supreme Court rejected the first contention and remanded the case to the Allahabad High Court for decision on the second contention of the assessee. In that case there was no ground made out by the assessee before the Allahabad High Court on the basis of Section 34 of the old Act. In fact, the question of impropriety of reopening of an assessment under Section 34 on the ground that there was no reason to believe that some income had escaped assessment was not argued before the Allahabad High Court at all. Therefore, the decision of the Supreme Court in Bachu Lal Kapoor's case is not relevant for our purposes at all.

32. Mr. Balai Pal made a very brief reference to the case of Kantamani Venkata Narayana & Sons v. First Additional Income-tax Officer, Rajahmundry : [1967]63ITR638(SC) . This decision also is not of any assistance to Mr. Pal, so far as that decision reaffirms the principles of the earlier Supreme Court decision in Namyanappa v. Commissioner of Income-tax. I have already discussed how the limits of justiciability indicated in that decision are not infringed by an examination of the grounds adduced by the Income-tax Officer in order to ascertain whether he had a genuine belief about some income having escaped assessment. In fact, in this case I have done no more than follow exactly the lines of enquiry which the Supreme Court has followed in Chhugamal Rajpal's case.

33. Mr. Balai Pal also relied on the judgment of the Supreme Court in the case of Sowdagar Ahmed Khan v. Income-tax Officer, Nellore : [1968]70ITR79(SC) . In that case the Income-tax Officer found that the assessee had failed to disclose a current account in a bank in the name of his father-in-law until the father-in-law had died and that the assessee had failed to disclose the advance of a sum of Rs. 70,000 and certain other items of income from property in the names of his sons, wife and daughter though such property had been purchased by him in their names. The Income-tax Officer also suspected in the light of materials that were newly gathered that certain cash credit in the assessee's books of account to the extent of Rs. 5 lakhs were not genuine. The Income-tax Officer then issued a notice under section 34(1A) of the Indian Income-tax Act, 1922, to reopen the assessments for the years 1943-44 to 1949-50. The assessee filed a petition under article 226 of the Constitution in the High Court challenging the legality of the notice. The petition was dismissed by the Andhra Pradesh High Court and the assessee came on appeal to the Supreme Court. On the facts of that case the Supreme Court held that there were enough materials before the Income-tax Officer on which he could form a prima facie belief that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure some income had escaped assessment. The assessee's contention that notices for reassessment were invalid on the ground that the original assessment orders showed that the cash credits in question had already been considered and accepted by the Income-tax Officer was rejected by the Supreme Court by pointing out that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence and that he has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of document which are relevant. This is a decision in an entirely different context of facts and does not, in our opinion, help, Mr. Pal. At best, this is a case which supports Mr. Balai Pal in meeting the first contention of Dr. Pal in which he tried to make out a case on the authority of the Calcutta Discount Company's case that the assessee having disclosed all particulars about the hundis the Income-tax Officer had no jurisdiction to commence reassessment proceedings. I have already rejected that contention of Dr. Pal and, therefore, it is not necessary for Mr. Balai Pal to rely on this decision to counter Dr. Pal's argument on this aspect of the matter. Mr. Balai Pal relied on a judgment of S. P. Mitra J. in Madnani Engineering Works (P.) Ltd. (judgment dated June 17 and 18, 1970, in Matter No. 523 of 1968). In that case the Income-tax Officer had issued a notice under Section 148 of the Income-tax Act, 1961, on the ground that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 1959-60 had escaped assessment. The income which was alleged to have escaped assessment was the total of various sums of money which, according to the petitioner, he had obtained as loans from different persons. The assessee contended that since the assessee had given a full list of the persons from whom the loans had been obtained with their names and addresses and had further produced confirmation of all loans in writing by the various lenders and since all these materials had been considered by the Income-tax Officer at the time of the first assessment, the Income-tax Officer had no jurisdiction to reopen the assessment. Reliance was again placed on behalf of the petitioner on the Supreme Court judgment in the case of Calcutta Discount Company Ltd. S. P. Mitra J. rejected the contention of the assessee. In so far as his Lordship refused to apply the Calcutta Discount Company's case we are in complete agreement with his Lordship. But we do not think that his Lordship's decision can be supported any longer in view of the recent decision of the Supreme Court in Chhugamal Rajpal's case.

34. There are various other decisions which were referred to both on behalf of the assessee and on behalf of the revenue authorities at the time of argument. It is not, in our opinion, necessary to refer to them all. Most of them were cited to vindicate the application of the principles in Calcutta Discount Company's case. I have already discussed fully the reasons why in our opinion, the instant case cannot at all come within the ambit of the principle enunciated by the Supreme Court in the Calcutta Discount Company's case. Indeed, in view of the fact that we have very closely followed the Supreme Court decisions in Chhugamal Rajpal's case, it is not necessary for us to refer to the other decisions.

35. I repeat that, in view of the latest Supreme Court decisions in Chhugamal Rajpal's case and Sheo Nath Singh's case, there is no doubt that the notice that was issued under Section 148 in the instant case was issued without jurisdiction. In the result, this application succeeds. The rule is made absolute and the impugned notice quashed. In the facts and circumstances of the case, I make no order, as to costs.

Sabyasacht Mukharji, J.

36. I had the advantage of reading the judgment delivered by my Lord. With great respect, I am, however, unable to agree with the conclusions arrived at by my Lords.

37. This application under article 226 of the Constitution has been referred to this Bench as a result of the report made by T. K. Basu J., under Chapter V, rule 2, of the Rules of the Original Side of this court. The question with which we are concerned in this application is whether the Income-tax Officer had jurisdiction to initiate proceedings against the petitioner for the assessment year 1958-59. Before, however, that question is considered, it would be necessary to refer to certain facts. The petitioner carries on business of manufacturing bricks and construction works. For the assessments year 1958-59, the petitioner was assessed under Section 23(3) of the Indian Income-tax Act, 1922, and the total income was computed at Rs. 37,872. According to the petitioner, at the time of the original assessment, the petitioner's authorised representative appeared before the Income-tax Officer, 'I' Ward, and produced all the relevant books of accounts, statements of the Bank of India, Barabazar Branch, Calcutta, and other documents. The assessment was thereafter completed. On the 14th of March, 1967, the petitioner received a notice dated 8th of March, 1967, issued under Section 148 of the Income-tax Act by the Income-tax Officer, 'E' Ward, Hundi Circle, for the assessment year 1958-59, whereby the petitioner was called upon to submit a return of income for the aforesaid year inasmuch as it was stated that the said Income-tax Officer, 'E' Ward, Hundi Circle, had reason to believe that the income of the petitioner has escaped assessment within the meaning of Section 147 of the said Act. The said notice was issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, West Bengal-I. The petitioner, by his letter dated 2nd of May, 1967, contended that, as all the materials had been fully and truly disclosed, there could not be any reason to believe that the petitioner's income had escaped assessment and as such the Income-tax Officer could not have any reason to issue the notice. According to the petitioner, the condition precedent for the issuance of the notice had not been fulfilled. Upon this a rule nisi was issued by this court under article 226 of the Constitution on the 13th of May, 1967. An affidavit-in-opposition on behalf of the respondents in answer to this rule nisi was field by one Nanjaitha-layur Sethumadhova Raghuthaman, affirmed on 23rd August, 1967. The notice under Section 148 of the Income-tax Act, 1961, had been issued by this person. Apart from raising certain legal contentions and denying the allegations that all the material and relevant facts had been disclosed by the petitioner at the time of the original assessment and that the Income-tax Officer did not have and/or could not have any reason to form the belief, the relevant paragraph of the said affidavit states as follows:

'Save what appears from the assessment order for the assessment year 1958-59 allegations made in paragraphs 2 and 3 of the petition are denied. It is denied particularly that all materials relevant and necessary to the assessment were produced before the Income-tax Officer as alleged or at all.

Save what appears from the notice dated March 8, 1967, and save what are matters of records, allegations made in paragraph 4 of the petition are denied. Subsequent to the assessment for the assessment year 1958-59, it was discovered, inter alia, that some of the loans shown to have been taken and interests alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. The Income-tax Officer had reason to believe and bona fide believed that the said alleged loans and the interests alleged to have been paid thereon are not genuine. If necessary I crave leave to produce before the hon'ble judge hearing the application, the relevant records on the basis of which the said Income-tax Officer had reason to believe that the income of the petitioner escaped assessment as aforesaid at the hearing of this application.'

38. In the original verification of the said affidavit it was stated that the last sentence of paragraph 6 was true to the knowledge of the deponent and the other part of paragraph 5 was based on information derived from the records of the case and believed to be true by the deponent. At the time of the hearing of this matter before us, counsel for the revenue contended that the verification of paragraph 6 was defective and might obviously have been made through inadvertence, because, according to counsel for the revenue, the deponent in paragraph 6 had stated facts relating to his own knowledge. Counsel for the assessee on the other hand contended that we should not allow the revenue to contend that the verification was defective through inadvertence. Counsel for the assessee contended that in the verification there was a deliberate omission to state that the facts stated in paragraph 6 were true to the knowledge of the deponent. In view of the conflicting contentions, we asked both the revenue and the assessee to put their respective cases upon affidavit and that was done during the course of the hearing before us. Upon this we gave leave to the dependent to reverify paragraph 6 and since then the facts stated in paragraph 6 of the said affidavit have been re-verified as being true to the knowledge of the deponent. There was an affidavit in reply on behalf of the petitioner affirmed on the 15th of September, 1967, wherein the petitioner had stated that at the time of the original assessment the petitioner not only produced the balance-sheet and profit and loss account of the relevant year but also produced the loan account of each and every creditor from whom the petitioner had obtained loans. The petitioner had also stated that the petitioner had produced the confirmation letters of the said creditors and gave to the Income-tax Officer the addresses of the said different parties. It was also stated that the petitioner produced discharged hundies at the time of the original assessment. It is not disputed that at the time of the original assessment, these materials mentioned in the affidavit-in-reply were produced by the petitioner before the Income-tax Officer concerned. As a matter of fact, the certified copies of these documents, namely, the loan accounts of the different creditors, the copies of the discharged hundies, the confirmation letters by the different creditors and lists and addresses of different creditors as well as the accounts of the different cteditors were produced before T. K. Basu J. It has to be further noticed that at the time of the hearing of this application we asked counsel for the revenue if he wanted to produce or rely on any document or materials and counsel for the revenue produced before us the report in connection with the starting of proceedings under Section 147 of the Income-tax Act, 1961. We directed a copy of the said report to be filed as an exhibit to this proceeding and a supplementary paper book should be filed containing the aforesaid document. The reasons that have been recorded in the report are as follows:

'There are hundi loan credits in the name of Narayansingh Nandalal, D. K, Naraindas, Bagwandas Srichand, etc., who are known name-lenders, and also hundi loan credit in the name, Mohansingh Kanayalal, who has since confessed he was doing only name-lending. In the original assessment these credits were not investigated in detail. As the information regarding the bogus nature of these credits is since known, action under Section 147(a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee. The assessee is still claiming that the credits are genuine in the assessment proceedings for 1962-63. Commissioner's sanction is solicited to reopen the assessment for 1958-59, under Section 147(a).'

39. The question with which we are concerned in this application is whether the Income-tax Officer had properly initiated proceedings under Section 148 of the Income-tax Act, 1961. T. K. Basu J. was of the opinion that the Income-tax Officer had no jurisdiction to initiate the proceedings under Section 148 of the Income-tax Act, 1961. According to the learned judge all the material and relevant facts about the genuineness of the loans taken by the petitioner had been disclosed. Therefore, if upon those facts the Income-tax Officer concerned had taken the view that these loans were genuine, then subsequently it could not be questioned by another Income-tax Officer on the ground that these were not genuine, and the completed assessment could not be reopened under Section 147(a) of the Act. The learned judge was of the view that all primary facts necessary for the assessment had been disclosed as would be apparent from the facts stated hereinbefore and the Income-tax Officer was subsequently trying to act on a mere change of opinion. In the aforesaid view of the matter, the learned judge was inclined to hold that the condition precedent for the initiation of the proceedings under Section 148 of the Income-tax Act had not been fulfilled. In respect of another assessment year, namely, assessment year 1960-61, proceedings under Section 148 of the Act had also been taken against the petitioner for the reopening of the said assessment. The facts were more or less almost identical with the facts of the assessment year 1958-59. In respect of the said reopening for the assessment year 1960-61, the petitioner had also moved this court under article 226 of the Constitution and obtained a rule nisi. The said matter being Matter No. 234 of 1969 (Lakhmani Mewal Das v. Income-tax Officer), in the meantime came up for hearing before K. L. Roy J. and by a judgment delivered on the 20th of February, 1970, K. L. Roy J. has discharged the rule nisi and has held that the Income-tax Officer had jurisdiction to initiate proceedings under Section 148 of the Income-tax Act, 1961, for the assessment year 1960-61. The aforesaid judgment of K. L. Roy J. was placed before T.K. Basu J. and as T. K. Basu J. was unable to agree with the conclusions reached by K. L. Roy J., T. K. Basu J. made a report to the learned Chief Justice under Chapter V, rule 2, of the Rules of the Original Side of this court. We have carefully considered the judgments of T. K. Basu J. as well as of K. L. Roy J., as mentioned hereinbefore. Our attention was also drawn to a judgment by Sankar Prasad Mitra J., dated 17th and 18th of June, 1970, in matter No. 523 of 1968 in the case of Madnani Engineering Works (P.) Ltd. v. Income-tax Officer. I will deal with the aforesaid judgments later. Before the question is considered further, however, it is necessary to consider the relevant statutory provision. Relevant portion of Section 147 of the Income-tax Act, 1961, provides as follows : '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, 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 Section 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year) ....

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.'

40. Section 148 provides for the issue of notice. Section 149 prescribes the time limit for issue of such notice. It provides that in cases falling under Clause (b) of Section 147, such notice could not be issued after the expiry of four years from the end of the relevant assessment year. In cases falling in Clause (a) of Section 147 it provides that such notice could be issued within eight years except where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year, such notice could be issued within a period of sixteen years. Section 150 makes provision for cases where assessment is in pursuance of an order on appeal, etc. Section 151 provides for sanction for issue of notice, in some cases by the Board and in other cases by the Commissioner.

41. The provisions of the said Sections 147 and 148 of the Act and in the corresponding section in the Indian Income-tax Act, 1922, namely, Section 34, have come up for consideration by the Supreme Court on more than one occasion. In the case of Calcutta Discount Company Ltd. v. Income-tax Officer, the Supreme Court had occasion to consider exhaustively the provisions of Section 34 of the Indian Income-tax Act, 1922. That was a case where proceedings were sought to be reopened under Section 34(1)(a) of the 1922 Act, corresponding to Section 147(1)(a) of the Income-tax Act, 1961, on the ground that the assessee had failed to disclose the true intention behind the sale of certain shares. The question was whether the assessee was a trader in shares or an investor in shares. At the time of the original assessment, the Income-tax Officer accepted the company's version that the sales of the shares were casual transactions and were in the nature of mere change of investment. Subsequently, the results of the company's trading from year to year showed that the company had really been carrying on trade in the sale of shares. It was, however, found by the Supreme Court that there was no non-disclosure of any primary fact regarding the sales of these shares. The Supreme Court held that in order to confer jurisdiction under Section 34(1)(a) of the Indian Income-tax Act, 1922, two conditions had to be satisfied. The first was that the Income-tax Officer must have reason to believe that income, profits or gains, chargeable to income-tax had been under assessed. The second was that he must also have reason to believe that such under-assessment had occurred by reason of either, (i) omission or failure on the part of the assessee to make the return of his income under Section 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts for his assessment for that year. Both these conditions, the Supreme Court held, were conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment under Section 34(1)(a). The Supreme Court further observed that 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' used in the section postulated a duty on every assessee to disclose fully and truly all material facts for his assessment. What facts were material and necessary for assessment differ from case to case. From the primary facts in his possession, whether on the disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise, the assessing authority had to draw inferences as regards certain other facts, and ultimately from the primary facts and further facts inferred from them, the authority had to draw the proper legal inference and ascertain on a correct interpretation of the taxing enactment the proper tax leviable. The duty, however, of the assessee did not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts were before the assessing authority it was for him to decide what inferences of fact could reasonably be drawn and what legal inference ultimately had to be drawn. It was not the duty of the assessee to tell the assessing authority what inference either of facts or law should be drawn. The Supreme Court further observed that if there were in fact some reasonable grounds for the Income-tax Officer to think that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue notice under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there had been non-disclosure of material facts was not open for the court's investigation. All that was necessary to give the Income-tax Officer this jurisdiction was that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts. This position was again examined by the Supreme Court in the case of 5, Narayanappa v. Commissioner of Income-tax. There the Supreme Court observed that two conditions must be satisfied in order to confer the jurisdiction on the Income-tax Officer to issue notice under Section 34(l)(a) of the Indian Income-tax Act, 1922, namely, (i) the Income-tax Officer must have reason to believe that income, profits or gains, chargeable to income-tax had been under-assessed ; and (ii) he must have reason to believe that such .'under assessment' had occurred by reason of either, (a) omission or failure on the part of the assessee to make a return of his income under Section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions were conditions precedent to be satisfied. The Supreme Court further observed that the expression 'reason to believe' under Section 34 did not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith ; it could not be a pretence. It was open to the court to examine whether the reasons for the belief had a rational connection or a relevant bearing to the formation of the belief and were not extraneous or irrelevant to the purpose of the section. To that limited extent the action of the Income-tax Officer instituting proceedings under Section 34 of the Act was open to challenge in a court of law. At page 221 of the report the Supreme Court observed :

'But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any nondisclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34.'

42. The position has been further examined by the Supreme Court in several other decisions, some of which were placed before us. It is, however, not necessary to refer to them all except two of them on which great reliance was placed by counsel for the petitioner. I would at the relevant time examine the said two decisions in detail. Before, however, the position is further considered, it would be relevant to refer to a decision of the Supreme Court on the question of what are the inferential facts. In the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax : [1957]31ITR28(SC) , the Supreme Court observed that even in a case where the finding was one of fact, which itself was an inference from other basic facts, that would not alter its character as a finding of fact. The relevancy of this decision for the present purpose is to consider the argument of counsel for the assessee that inferences can be drawn from facts which might be either legal inference or an inference of fact. When an inference is drawn from certain basic and primary facts, if the inference be an inference of fact, then it is an inferential fact. Counsel for the assessee stressed that the distinction between the primary facts and the inferential facts should be borne in mind in examining the question of non-disclosure by the assessee under Section 147(a) of the Act. Counsel for the assessee was right in stressing the distinction between a basic fact and an inferential fact. In this connection reference may be made to the observation of Denning L.J. in the case of British Launderer's Research Association v. Central Middlesex Assessment Committee and Hendon Ration Authority [1949] 1 All ER 21 (CA). The obligation under Section 147(a) is not to disclose inferential facts but primary facts. Analysing the section in the light of the Supreme Court decisions, it appears to me that Section 147(a) of the Income-tax Act, 1961, with which we are concerned in this application, enjoins that before a notice is issued the Income-tax Officer must-

(i) form a belief,

(ii) that belief must not be a pretence, but must be held in good faith,

(iii) that belief must be formed on some reasons or materials, and (iv) the materials must be such as would have a rational connection to the formation of the belief that income had escaped assessment or had been under-assessed as a result of either--(a) omission or failure on the part of the assessee to make a return, or (b) to disclose truly and fully all material facts necessary for assessment at the time of the original assessment, and

(v) such facts must be basic primary facts and not inferential facts.The above conditions, in my opinion, are the true effect of Section 147(a) of the Income-tax Act, 1961, as explained by the Supreme Court. It has also been further held that when a challenge is thrown by the assessee, the revenue must satisfy the court that the conditions precedent for the issuance of the notice have been fulfilled.

43. In the aforesaid background, it would be necessary to examine the facts of this case to consider whether the aforesaid conditions have been fulfilled. It is not the case here that the assessee did not file any return. The case here is that the assessee did not fully and truly disclose all material facts. The contention on behalf of the assessee has been that all material facts relevant for the assessment existing at the time of the original assessment had been disclosed, namely, the existence of the alleged creditors, their names and addresses, accounts of those creditors, confirmation letters of those creditors, as well as the discharged hundis, It was contended on behalf of the assessee that, upon these facts, it was open to the Income-tax Officer at the time of the original assessment to draw the inference that these loans were either genuine or not genuine. It was no part of the duty of the assessee to tell the taxing authority what inference he should draw. It was contended that if the Income-tax Officer had drawn the inference that these loans were genuine upon those facts, then a completed assessment could not be reopened under Section 147(a) of the Act because the Income-tax Officer now wanted to draw a different inference on the plea that the assessee did not disclose fully and truly all facts at the time of the original assessment as the assessee did not tell the officer that these loans were not genuine. It was contended further that the alleged information about some of these hundi loans and the alleged confession of one of the alleged creditors were subsequent informations which might justify action under Clause (b) of Section 147 of the Income-tax Act, 1961. But the receipt of these subsequent informations did not indicate that at the time of the original assessment the assessee did not fully and truly disclose all primary facts. The assessee was contending that these loans were genuine. It was contended further on behalf of the assessee that whether a loan was a genuine one or not was always an inference to be drawn either from certain basic and primary facts or a legal inference. In respect of these loans it was contended that all primary and basic facts had been disclosed at the time of the original assessment and the inference whether these were genuine or not genuine was a matter upon which the assessee could not be charged with omission. It was further contended that the reasons recorded indicated that the Income-tax Officer did not form the belief that the income had escaped assessment because of such omission or failure and further there could not be any belief formed upon the materials disclosed. In this connection reliance was placed on the decision of the Supreme Court in the case Commissioner of Income-lax v. Burlop Dealers Ltd. and it was contended that the facts of that case were identical with the facts of the instant case. Reliance was also placed on the decision in the case of Chhugamal Rajpal v, S. P. Chaliha. It was contended that upon facts more or less similar the Supreme Court had held that the Income-tax Officer did not form the belief and could not have formed the belief. It was contended that in the instant case as in the last mentioned case that the Income-tax Officer was using the machinery under Section 147 for the purpose of investigation in the instant case to find out whether these loans were genuine or not. It was urged that this could not give the Income-tax Officer jurisdiction to reopen a completed assessment. Explanation (2) of Section 147 provides that mere production before the Income-tax Officer of account books and other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of the section. In this case, counsel for the assessee contended that it was not a case of mere production of the evidence of the books of account. Attention had been drawn to the particular entries in the accounts and evidence in support of the entries and the claim of the petitioner in respect of these loans were produced and considered. Therefore, it was urged that the assessee in this case would not come within the mischief of the Explanation for the purpose of reopening.

44. It is, therefore, necessary to examine first whether the Income-tax Officer had formed the belief. I have set out before the grounds and the relevant paragraphs of the affidavits. It appears to me, reading the affidavits along with the grounds, that the Income-tax Officer had formed the belief that the loans were not genuine and as such the income had escaped assessment. The reason for my coming to that conclusion is that in the report the Income-tax Officer had observed :

'As the information regarding the bogus nature of these credits is since known, action under Section 147(a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee.'

45. Reading this sentence fairly and reasonably, it appears to me that what the Income-tax Officer had tried to say therein was that the bogus nature of these credits was now known to the officer, that is to say, he had formed a belief upon certain information that these loans were not genuine and as such he had reason to believe that the income of the assessee had escaped or had been under-assessed in respect of these loans. Paragraph 6 of the affidavit-in-opposition filed by the said Income-tax Officer also, in my opinion, says the same thing. As mentioned hereinbefore, there were some arguments about the verification of the said paragraph. Reading the statement in the said paragraph along with the statement contained in the report and knowing through the experience of this court, how carelessly verifications of the affidavits are often made (which is no doubt unfortunate) it appears to me that the original verification was defective and we are justified in allowing reverification in the facts and circumstances mentioned hereinbefore. The next question that falls for consideration, therefore, is whether there were materials which have been disclosed from which the Income-tax Officer could have formed the belief that the assessee did not truly and fully disclose all facts necessary for the assessment. The materials indicated are--(a) that some of the alleged creditors of the petitioner in respect of whose loans interest had been allowed in the original assessment were known name-lenders, and (b) that one of the creditors, namely, Mohansingh Kanayalal, had since confessed that he was doing 'only name-lending'. Mohansingh Kanayalal is one of the creditors of the petitioner in respect of whose loans interest had been alleged to have been paid. So far as the first material is concerned, namely, that some of the creditors were known name-lenders, no basis have been indicated as to how it became known that they were known name-lenders and when it was known. Therefore, in my opinion, counsel for the assessee can legitimately contend, specially in view of the decision of the Supreme Court which I shall notice later, that this could not be a material upon which a belief could have been formed that the assessee did not truly or fully disclose material facts at the time of the original assessment. But there is also this information and material that Mohansingh Kanayalal had confessed that he was doing 'only name-lending' meaning thereby that he did not lend any money to any one and did not necessarily lend any money to the petitioner and necessarily meaning thereby that no interest could have been paid in respect of the alleged loan to him. This, in my opinion, can certainly be a material upon which a belief could reasonably be formed that the disclosure made by the assessee of the basic facts at the time of the original assessment was not true. Counsel for the assessee contended that there was nothing to indicate that Mohansingh Kanayalal was examined in connection with this particular assessment, and he had not stated that he did not lend any money in the transaction relating to the petitioner. I am, however, unable to accept this contention. Because, the meaning of the expression 'only name-lending' can only be that Mohansingh Kanayalal had stated that he did nothing else but name-lending. If Mohansingh did nothing else but name-lending, then he could not have lent any money to the petitioner and did lend any money to the petitioner. If the statements contained in the confessions are true, about which it is not necessary to express any opinion at this stage, can it be said that at the time of the original assessment the assessee had truly and fully disclosed all basic and primary facts It is true that the assessee had disclosed certain evidence and facts from which it was possible to draw certain inferences about the genuineness of these loans. But it is also true that the petitioner did not, if the information mentioned in the report of the Income-tax Officer be correct, disclose the facts truly. It was contended by counsel for the assessee that under the section it was not obligatory for the assessee to disclose the true intention of the assessee behind a particular transaction. It was urged that when an assessee was contending that certain loans were genuine he could not in the natural course of events be expected to inform the Income-tax Officer further that these loans were not genuine. The question, however, in my opinion, cannot and should not be looked at from that point of view. It is undoubtedly true that, if an assessee was contending that there were certain loans from creditors, it could not be expected that the assessee would further inform the assessing authority that these loans were bogus, but the section enjoins the assessee not only to disclose facts fully but to disclose them truly. Whether a fact is true or false, whether a transaction is genuine or not genuine, sham or real, may often depend upon the inference to be drawn from certain basic and primary facts but all the necessary primary facts for drawing a proper inference or conclusion must be truly and fully disclosed. If an assessee did not receive any sum of money from a particular creditor and did not pay to that person any sum as interest, then if that assessee had said or suggested that he had paid any sum as interest to that person, at the time of the original assessment, then it can certainly be said that the assessee did not at the time of the original assessment disclose all facts truly. It may be that, in some cases, the question whether a transaction is money-lending or not or whether an assessee received any sum as income or not may depend upon inferences to be drawn from certain facts and may also depend in certain cases upon certain legal inferences. But that does not absolve, in my opinion, the assessee of the obligation to disclose truly and fully all primary facts. Otherwise, without receiving a sum of money or without making any payment, it can be contended that money was paid or interest was paid. This fact of making payment of interest to the alleged creditors, which was the disclosure made at the time of the original assessment, and which information now received by the Income-tax Officer, if true, appears to be false would make the disclosure made by the assessee at the time of the original assessment false as regards the primary and basic facts. By disclosing the primary and basic facts falsely the assessee does not discharge his obligation. It is true also that in this case, the assessee disclosed receipts, but the assessee disclosed receipts from a particular source, that is, the receipts from the alleged creditors, when in fact the assessee, it appears from the information, did not receive those sums from the said alleged creditors. Therefore, in disclosing that these alleged sums of money were received by the assessee from the alleged creditors, the assessee was not making a true disclosure if the information recorded in 'the reasons of the Income-tax Officer, be true. Again, if the assessee had stated that the assessee had paid certain interests to certain creditors when in fact, such payment had not been made, then it cannot be contended that the assessee had truly disclosed the primary facts. Whether a particular payment would be allowed or not, as an interest or as a deduction, may be a question of inference, but whether a payment at all was made to an alleged creditor is certainly a primary fact. The materials on the records disclosed by the Income-tax Officer, in my opinion, were such from which a belief could be formed prima facie that the assessee did not disclose truly the primary facts about the receipt of loans from the alleged creditors and the payments of interest to the alleged creditors. After all, as I have noted hereinbefore, the jurisdiction of the court is very limited ; can it be contended that there were no reasonable grounds for the Income-tax Officer to believe there had been any non-disclosure as regards any fact which could have a material bearing on the question of under-assessment or escapement (See the observations of the Supreme Court in the case of S. Narayanappa v. Commissioner of Income-tax). Judged by the above test in the facts and circumstances of this case, in my opinion, it could not be said that there were no reasonable grounds to form the belief.

46. As mentioned hereinbefore, counsel for the assessee placed strong reliance on the case of Chhugamal Rajpal v. S. P. Chaliha. It is, therefore,necessary to examine the said decision in detail. In proceedings for assessment for the assessment years 1960-61, the assessee-firm had produced itsbooks of accounts and also a statement giving the full names and addressesof the various creditors from whom it had claimed to have borrowed onhundies during the accounting year in question. Assessment was completedafter enquiry. Thereafter, on June 3, 1966, the Income-tax Officer issueda notice under Section 148 of the Income-tax Act, 1961, initiatingreassessment proceedings for that year. The assessee-firm filed a writ petition in the High Court at Patna, challenging the validity of that notice,inter alia, on the ground that the requirements of Section 151(2) of the Acthad not been complied with. But the writ petition was dismissed by theHigh Court. The Supreme Court has noted that, at the time of the originalassessment, the assessee produced before the Income-tax Officer a statementshowing the various creditors from whom it had borrowed on hundis duringthe accounting year in question. In that statement it had given full namesand addresses of the alleged creditors. When the appeal came up for hearingbefore the Supreme Court, the Supreme Court found that the affidavit filedby the Income-tax Officer was vague and indefinite. The Supreme Court accordingly directed counsel for the department to produce before the Supreme Court records of the Income-tax Officer to show that the Income-tax Officer had complied with the requirements of Section 148 and Section 151(2) of the Act. When the appeal finally came up for hearing before the Supreme Court, the report submitted by the Income-tax Officer to the Commissioner and the order of the Commissioner were produced. The order sheet recording the reasons of the Income-tax Officer as required by Section 148(2) were not produced. From the report of the Income-tax Officer the Supreme Court found that it was stated that during the year the assessee had shown certain loans from various parties of Calcutta. From a communication received from the office of the Commissioner of Income-tax, Bihar and Orissa, the Income-tax Officer had stated that it appeared to him that these persons were name-lenders and the transactions were bogus. Under these circumstances, the Income-tax Officer had stated proper investigation regarding these loans was necessary. The Supreme Court was of the opinion that the Income-tax Officer did not set out any reason for coming to the conclusion that that was a fit case for issue of notice under Section 148 of the Act. The material that the Income-tax Officer had before him had not been mentioned. In his report, the Supreme Court found, the Income-tax Officer had vaguely referred to certain communications received from the Commissioner of Income-tax, Bihar and Orissa. The Supreme Court noted that the Income-tax Officer did not mention the facts mentioned in those communications. The Supreme Court also noted that it appeared to the Income-tax Officer that those persons were name-lenders and the transactions were bogus. The Supreme Court was of the opinion that the Income-tax Officer had not even come to a prima facie conclusion that the transactions referred to were not genuine transactions. The Income-tax Officer appeared to have only a vague feeling that these might be bogus transactions. Such, a conclusion, according to the Supreme Court, did not fulfil the requirements of Section 151(2) of the Act. The Supreme Court then noted that the Income-tax Officer had stated that investigation was necessary. From the aforesaid statement of the Income-tax Officer, the Supreme Court concluded that the Income-tax Officer thought that that was a case for investigation, which according to the Supreme Court could not be the reason for issue of notice under Section 148 of the Act. Upon those facts, the Supreme Court came to the conclusion that the Income-tax Officer had no material before him which would satisfy the requirements of either Clause (a) or (b) of Section 147 and the Supreme Court held that the notices were without jurisdiction. As mentioned hereinbefore, counsel for the assessee contended that the facts of the instant case were similar to the facts before the Supreme Court. It is undoubtedly true that there are various features of the instant case which are similar to the case before the Supreme Court. But, on a closer examination of the decision of the Supreme Court it will be clear what the Supreme Court was deciding in the aforesaid decision. In my opinion, the Supreme Court was deciding that Section 148 could not be utilised as a machinery for investigation. Investigation must be carried out before and a prima facie belief should be formed that there had been omission or failure on the part of the assessee to disclose fully and truly all relevant facts, before a notice under Section 147(a) could be issued. Unless such a prima facie belief was formed, there would be no jurisdiction for the Income-tax Officer to issue a notice under Section 148 of the Act. The Supreme Court was also deciding that in that case the materials were such which could not lead to the formation of such a belief. The Income-tax Officer had only a vague feeling based upon facts not disclosed before the Supreme Court. The said decision is not a decision dealing with the question as to what are the primary facts in respect of these hundi loans which should have been disclosed at the time of the original assessment. In the instant case before us the facts are significantly and materially different. Firstly, there is a positive fact which the Income-tax Officer had recorded in his reason, namely, the confession of Mohansingh Kanyalal. The confession of Mohansingh Kanayalal read properly and fairly can mean only one thing, that is to say, that the alleged loan shown in the accounts of the petitioner was not true and Mohansingh Kanayalal did not lend any money to the petitioner and did not receive any interest in respect thereof, if the fact stated in the confession be true. This positive information, in my opinion, is certainly a very relevant factor which entitles the Income-tax Officer to form the belief that the facts were not truly and fully disclosed at the time of the original assessment. Secondly, in the instant case before us, the Income-tax Officer has not stated that investigation was necessary to find out whether these loans were genuine or not. He has made a categorical statement, in my opinion, that the bogus nature Of these credits had since been known. Therefore, he had recommended action under Section 147(a) of the Indian Income-tax Act for the purpose of taxing these credits as undisclosed income of the assessee. This statement read with the averments made in paragraph 6 of the affidavit-in-opposition by the Income-tax Officer, who had issued the notice, in my opinion, makes it abundantly clear that in the instant case the Income-tax Officer had formed a prima facie belief which was the condition precedent necessary for the issue of the notice. Furthermore, in the instant case, unlike the case before the Supreme Court, there were materials upon which such a belief as aforesaid could reasonably be formed. In the aforesaid view of the matter, it appears to me that the said decision of the Supreme Court cannot be of assistance to the assessee in the instant case.

47. Reliance was placed by counsel for the assessee on the decision in the case of Commissioner of Income-tax v. Burlop Dealers Ltd., where on the evidence and the materials produced during the original assessment for the assessment year 1949-50, the assessee disclosed a profit of Rs. 1,75,875 from a joint venture in plywood chests and claimed the sum of Rs. 87,937 being half the profit which was paid to one Ratiram Tansukhrai under an agreement dated October 7, 1948, for financing the transactions in the joint venture. The Income-tax Officer brought to tax only Rs. 87,937 as the profit earned from the joint venture. For the assessment year 1950-51, the respondent had similarly claimed that it had paid half of the profits from the joint venture to Ratiram Tansukhrai, but on examination of the transaction the officer held that the agreement of October 7, 1948, was a got-up device to reduce profits and taxed the entire profit from the venture ; and this was ultimately upheld by this court in a reference which is reported in [1963] 48 I.T.R. 153 (Burlop Dealers Ltd. v. Commissioner of Income-tax). Meanwhile on May 13, 1955, the officer issued a notice under Section 34(l)(a) for reopening the assessment for the year 1949-50 and brought to tax the sum of Rs. 87,937, allowed as having been paid to Ratiram Tansukhrai. The Tribunal found that the respondent had produced all the relevant accounts and documents necessary for completing the assessment and it was under no obligation to inform the officer about the true nature of the transactions, and directed that the amount of Rs. 87,937 be excluded. The Tribunal and the High Court respectively rejected the appellant's application under Section 66(1) and Section 66(2) of the Indian Income-tax Act, 1922. The revenue preferred an appeal to the Supreme Court. The Supreme Court dismissed the appeal and held that the respondent had disclosed its books of account and evidence from which material facts could have been discovered ; it was under no obligation to inform the Income-tax Officer about the possible inferences that might be raised against it. It was for the officer to raise such an inference and if he had not done so in the original assessment, the income that escaped assessment could not be brought to tax under Section 34(1)(a) of the 1922 Act. Counsel for the assessee contended that the facts in this case were similar to the facts before the Supreme Court. He placed reliance on the observation of the Supreme Court at page 612 of the said report wherein the Supreme Court observed:

'The Income-tax Officer had, in consequence of information in his possession that the agreement with Ratiram Tansukhrai was a sham transaction, reason to believe that income chargeable to tax had escaped assessment. Such a case would appropriately fall under Section 34(lXb) of the Act.'

48. Counsel for the assessee contended that in the instant case also the information of the Income-tax Officer was that the loans were sham and not genuine. In the circumstances, it was urged, action could not be taken under Section 147(a) of the Income-tax Act, 1961. I have examined the facts of that case very carefully. Counsel for the revenue placed before us the decision of the Tribunal out of which the said application to the Supreme Court arose. Counsel for the revenue also drew our attention to the decision relating to the subsequent year for the same assessee, namely, the assessment year 1950-51, which is reported at [1963] 48 ITR 153 (Burlop Dealers Ltd. v. Commissioner of Income-tax). It appears to me that the information that the agreement between the assessee and Ratiram Tansukhrai in that case was a sham transaction was the information derived from closer examination or revaluation of all the material facts which had been disclosed at the time of the original assessment. That was not a case of any objective information coming into the possession of the Income-tax Officer subsequent to the assessment indicating that the statement made in the original assessment was untrue. This position is made clear if one carefully reads the decision. At the penultimate paragraph of the judgment, the Supreme Court has observed:

'Mere production of the books of account or other evidence from which material facts could with diligence have been discovered does not necessarily amount to disclosure within the meaning of Section 34(1), but where on the evidence and the materials produced, the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under Section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous. The assessee had disclosed his books of account and evidence from which material facts could be discovered.'

49. In the aforesaid observation the Supreme Court was noticing that whether the transaction with Ratiram Tansukhrai and the assessee in that case was a genuine or a sham transaction could have been found out from the examination of the materials disclosed at the time of the original assessment. Indeed, the Income-tax Officer for the subsequent year on a closer examination discovered that position and drew a different inference about the transaction. There was no information emanating from any outside source indicating that the facts stated in the evidence or books of account by the assessee at the time of the original assessment were not true or correct. In the instant case, however, there is the positive information which makes the statement of the basic facts about the payment of interest and receipt of money from Mohansingh Kanayalal untrue. Therefore, in my opinion, because of the facts of that case, the said decision also does not help the assessee in the instant case before us.

50. In the aforesaid view of the matter, in my opinion, it is not necessary to examine in detail the several decisions where on facts of each particular case learned judges have come to different conclusions. Counsel for the assessee drew our attention to the observations of the Supreme Court in the case of Commissioner of Income-tax v. Bhanji Lavji : [1971]79ITR582(SC) , on the question of onus. In the instant case inasmuch as I have decided the facts on the basis of the materials produced, it is not necessary for me to discuss the question of onus. Counsel for the assessee also drew our attention to the decision of the Andhra Pradesh High Court in the case of Commissioner of Income-tax v. Jes Karan Bhuvalka : [1970]76ITR128(AP) , and relied on the observation at page 139 of the report, the decision of the Assam High Court in the case of Seth Kirorimal Adwani v. Income-tax Officer , the decision of the Delhi High Court in the case of Rai Singh Deb Singh Bist v. Union of India : [1970]77ITR802(Delhi) and the decision of K.L. Roy J. of this court in the case of Calcutta Credit Corporation Ltd. v. Income-tax Officer : [1971]79ITR483(Cal) . In view of the fact, however, whether in a particular case there had been any omission or failure of material facts, would essentially depend on the facts of each case, it is not necessary, in my opinion, to discuss the aforesaid decisions.

51. Counsel for the revenue drew our attention to the decision of the Supreme Court in the case of Income-tax Officer v. Bachu Lal Kapur. Counsel for the revenue contended that the facts of that case were identical with the facts of the instant case. It is true that there the Supreme Court had observed that, if a Hindu undivided family had been assessed after partition as a result of the compromise decree, and the information regarding the continued existence of the joint family had been withheld, the compromise was a make believe and if that information was true, then that would be a case for reopening under Section 34(1). The Supreme Court in that case, in my opinion, had no occasion to decide whether it would be a case of an omission to file return or a case of failure to disclose facts fully and truly or whether that was a case under Section 34(1)(a) or Section 34(1)(b), nor was it urged before the Supreme Court that there were no grounds to fulfil the conditions precedent for the issuance of the notice. In view of the aforesaid features with the said case before the Supreme Court, I am of the opinion that in deciding the present controversy, the said decision could not be availed of by the revenue. Counsel for the revenue also drew our attention to the decision in the case of Sowdagar Ahmed Khan v. Income-tax Officer, Nellore : [1968]70ITR79(SC) . There the Supreme Court on examining all the facts upheld the reopening of the assessment made. It appears to me that the facts of that case were significantly different and as such it is not necessary for us to discuss the aforesaid decision in detail. Reliance was also placed by counsel for the revenue on the decision in the case of Commissioner of Income-tax v. T.S. Pl. P, Chidambaram Chettiar : [1971]80ITR467(SC) . There also, in my opinion, the facts were significantly different. There the question was whether, in the absence of a definite information, even though the Income-tax Officer had some doubt at the time of the original assessment, later, on receipt of definite information, the Income-tax Officer could take action for reopening the assessment. That controversy, in my opinion, does not arise in the instant case before us.

52. As mentioned hereinbefore, T.K. Basu J. has held that the conditions precedent had not been fulfilled. It must be noted that the grounds for the initiation of proceedings were not produced before T.K. Basu J. which were produced before us. It has also to be noted that the revenue did not seek to re-verify paragraph 6 of the affidavit before T.K. Basu J. as they have done before us. Furthermore, it was contended before T.K. Basu J. that non-genuineness of the loan was an additional fact of which there was no full or true disclosure by the assessee. (Paper book--page 61, lines 20 to 22). It was not disputed on behalf of the revenue before T.K. Basu J. that ' all the facts ' relating to the loan transactions were disclosed by the assessee at the time of the original assessment. These contentions on behalf of the revenue, in my opinion, were unfortunate. What had been disclosed by the assessee at the time of the original assessment were not facts but fictions, if the informations now received be true. Furthermore, all facts were not disclosed. The assessee was not being charged with omission to disclose truly all facts not because the assessee did not inform that these loans were not genuine when it was contending that these were genuine, the assessee was being charged for having made an untrue disclosure because the assessee had stated that it had received certain sums of moneys from certain persons as loans when in fact the assessee did not receive any money at all from these persons, because the assessee stated at the time of the original assessment that it had paid interest to certain persons when in fact it did not, if the information now received be true. As I have viewed the facts of this case in the aforesaid light, I am unable with respect to agree with the conclusions reached by T.K. Basu J.

53. Our attention was drawn to the judgment of K.L. Roy J. in MatterNo. 234 of 1969 (Lakhmini Mewal Das v. Income-tax Officer ) between thesame parties as mentioned hereinbefore. I am in respectful agreementwith the conclusion reached by his Lordship. In view of the severaldecisions mentioned hereinbefore, it is not, however, necessary to refer tohis Lordship's judgment in greater detail. Counsel for the assessee criticised the observation of the learned judge about the change in the judicial trend. Without, however, going into the question whether there has in fact been any change in the judicial trend or not, in my opinion, in view of the several decisions of the Supreme Court noted above, the principles applicable to this case are clear. Our attention was also drawn to the judgment of Sankar Prasad Mitra J. in the case of Madnani Engineering Works Private Ltd. v. Income-tax Officer (Matter No. 523 of 1968). I respectfully agree with the conclusions reached by Sankar Prasad Mitra J. in the aforesaid judgment. Counsel for the assessee, however, contended that the ratio of the said decision was that the assessee would be guilty of omission if he tried to conceal a part of his income by showing that it was a loan. Counsel for the assessee contended that the learned judge was holding that the income character of the receipts should be disclosed by the assessee at the time of the original assessment. This, according to counsel for the assessee, was not the correct position in law, because whether a particular receipt would be income or not would be an inference both of law as well as of fact, as was noted by the Supreme Court in the case of Calcutta Discount Company Ltd. v. Income-tax Officer. As I have understood the learned judge's observations, what was meant was that all the primary facts relating to the receipts which would have a material bearing on the character of the receipts should be truly and fully disclosed. If, however, by the aforesaid observation, it was meant that even when an assessee had truly and fully disclosed all basic and primary facts about a receipt, failure to indicate the income character of the receipt would make the assessee guilty of omission under the section, then I respectfully cannot agree. But, as mentioned hereinbefore, in my opinion, the judgment read in its proper perspective does not mean what was contended above by counsel for the assessee. Our attention was also drawn to the decision in the case of Income-tax Officer v. Sudhir Kumar Bhose : [1972]84ITR60(Cal) (the decision of D. Basu and A.K. Basu JJ.). The facts of that case were entirely different and it is not necessary for us to discuss the aforesaid decision in detail. Before I conclude it is necessary to refer to certain aspects of the matter. It was contended by counsel for the assessee during the course of the argument that in the instant case provisions of Section 151(2) of the Act had not been complied with. In my opinion we should not entertain this point as such point was not taken in the petition. It is true that in the petition it was stated that the conditions precedent for the issue of the notice had not been fulfilled but that was stated only in the context of the assertion that the Income-tax Officer did not have materials to form the belief and he did not in fact form the belief. There is no indication in the petition about the ground of non-compliance with the provisions of Section 151(2) of the Act by the Commissioner. This point was also not urged before T.K. Basu J. Had this point been taken the Commissioner might have filed an affidavit explaining the position. In the premises we should not entertain this ground about the non-compliance with the provisions of Section 151(2) of the Act. It is for the assessee to establish what are the conditions precedent for the issue of the notice that have not been fulfilled. Furthermore, I am of the opinion, that in the facts of this case it cannot be said that there has been non-compliance with the provisions of Section 151(2) of the Act. In the case of Chhugamal Rajpal v. S.P. Chaliha, the Supreme Court has held that the sanction had not been properly given in that case in terms of Section 151(2) of the Act. But from the observations of the Supreme Court at page 608 of the report it is clear that as the Supreme Court found that the Income-tax Officer had no material to form the belief and did not form the belief to satisfy the requirements of either Clause (a) or Clause (b) of Section 147 of the Act and further as the Income-tax Officer in his report to the Commissioner had not mentioned any reason for coming to the conclusion that it was a fit case for the issue of notice under Section 148, the Commissioner could not have accorded sanction and had acted mechanically in giving sanction. But, in a case as in this case, in the view I have taken, when the Income-tax Officer has formed the belief and there were materials to form the belief it cannot be said that the Commissioner has acted improperly in giving sanction. I should note a recent decision of the Supreme Court in the case of Sheo Nath Singk v. Appellate Assistant Commissioner of Income-tax. The Supreme Court found in that case that only two grounds had been mentioned for initiating proceedings under Section 34(1A) of the 1922 Act. One was that the assessee was believed to have made some profits which had not been offered for original assessment, and the other was that the assessee was believed to have received a sum of Rs. 22 lakhs from a named associate which represented income which had escaped assessment. But no material or fact had been stated on which the belief was founded. In those circumstances, the Supreme Court struck down the proceedings for reassessment. But the Supreme Court observed that the words ' reason to believe ' in Section 34(1A) of the said Act suggested that the belief should be of an honest and reasonable person based upon reasonable grounds and the Income-tax Officer might act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. But the facts of the instant case before us, in my view, are entirely different. In this case there is the positive evidence of one of the alleged creditors which makes the disclosure made by the assessee at the time of the original assessment untrue. If on that evidence the Income-tax Officer acts and forms the belief it cannot be said that the Income-tax Officer is acting unreasonably or on mere suspicion, gossip or rumour.

54. In the aforesaid view of the matter I would hold that the conditionsprecedent for the issue of the notice under Section 148 of the Act havebeen made out and would dismiss/this application without any order as tocosts.


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