Sabyasachi Mukharji, J.
1. The assessment year involved in this application is 1963-64. The assessment for the aforesaid year was completed on 30th March, 1972(?). By a notice dated 30th March, 1972, the said assessment is sought to be reopened under Section 148 of the Income-tax Act, 1961. The said attempt is under challenge in this application under Article 226 of the Constitution.
2. The petitioner which is a partnership firm states that the firm received a letter dated 21st June, 1971, on the 28th June, 1971, from the Income-tax Officer, 'J' Ward, Dist. IV(I), Calcutta, whereby the petitioner was informed that there was information in the possession of the said Income-tax Officer on the basis of which the Income-tax Officer held that M/s. Atlas Agencies of 51/59, Dariastan Street, Bombay-3, was a concern of the petitioner. Accordingly, the Income-tax Officer wrote that the income of that concern should have been assessed in the hands of the petitioner. The petitioner was, therefore, asked to show cause why action should not be taken against him to reassess the alleged income of the petitioner for the assessment years 1963-1964, 1964-65 and 1965-66 for including the alleged income of M/s. Atlas Agencies in the hands of the petitioner. The petitioner states that the petitioner duly replied to the said show-cause notice stating that the said M/s. Atlas Agencies was not the concern of the petitioner. It is the further case of the petitioner in paragraph 9 of the petition that at the time of the original assessment, the petitioner's representatives, Mr. A.K. Sen and Mr. H.M. Mehta, had full discussion with the assessing Income-tax Officer with regard to the existence, the validity and the genuineness of all the parties with whom the petitioner had transactions including the said M/s. Atlas Agencies of Bombay. In the balance-sheet the name of the said M/s. Atlas Agencies along with others was disclosed and also a statement showing the details of sales and purchases with various parties including M/s. Atlas Agencies was filed before the Income-tax Officer. The petition has been verified by an affidavit of the said Hasmukhlal Mehta.
3. The assessment order indicates that Mr. Sen and Mr. Mehta attended on behalf of the petitioner. Further, the assessment order also indicates that in respect of transactions with some other parties, the Income-tax Officer was not satisfied and had disallowed the transactions of those parties. There was a rectification of the said assessment and after that the rectification order also indicates that the Income-tax Officer, when he was notsatisfied about the genuineness of the loan transaction, disallowed the interest thereon.
4. All these were stressed, in my opinion, rightly by the counsel for the petitioner, to indicate that the Income-tax Officer examined in detail the transactions with various parties to find out the genuineness of those transactions. It is also apparent that the transactions with Atlas Agencies were disclosed. It is the case of the petitioner in paragraph 9 of the petition that the question of genuineness, existence and validity of all the parties including M/s. Atlas Agencies were scrutinised by the Income-tax Officer at the time of the above assessment.
5. The petition under Article 226 of the Constitution was filed on the ground that there was no material for the Income-tax Officer to form the belief for reassessing the income of the petitioner under Section 148 of the Income-tax Act as mentioned hereinbefore. The reopening, in view of the time lag, must have been under Clause (a) of Section 147 of the Income-tax Act, 1961. There must be materials from which the Income-tax Officer could form the belief that there was omission or failure on the part of the assessee to disclose truly or fully material facts, as a result of which failure and omission the income of the assessee has escaped assessment or has been under-assessed. There must be further evidence on which the Income-tax Officer has formed such belief. A rule nisi was issued but no affidavit was filed by the revenue ; the Income-tax Officer who made the original assessment or the Income-tax Officer who issued the impugned notice has not chosen to file any affidavit-in-opposition to this petition. At the hearing of this application, however, on behalf of the revenue the records were produced and the reasons for reopening the assessment were placed before me. The said reasons are to the following effect:
'M/s. Narayandas Paramananddas has been assessed in the status (sic) total income of Rs. 1,65,289. The following facts have now come to my notice :
'M/s. Atlas Agencies of 51/59, Dariaston Street, Bombay-3, has been assessed separately by 8th Income-tax Officer, Hundi Circle, Bombay. I hold that that firm is a benamidar of my assessee, M/s. Narayandas Paramananddas for the following reasons :
The entire financing of the above firm was done by my assessee. There was no capital contribution by the so-called two persons of the first constitution of the firm. The huge hundi loans were borrowed by M/s. Atlas Agencies but not independently and not of their own; the alleged loans were shown to have been guaranteed by my assessee. In the first constitution of M/s. Atlas Agencies two persons were shown as parties, one Shri C. P. Jhaveri and another, Shri L. C. Jhaveri. The former was an employee of M/s. Narayandas Paramananddas over 16 years. He was alleged to have been made active partner. Both of the gentlemen were not of such worthiness in financial resources as to start business on a large scale as in M/s. Atlas Agencies. Subsequently, in relation to assessment year 1961-62, there was so-called reconstitution of the firm in terms of a deed by which 5 minors and one trust styled 'M/s. Narayandas Paramananddas Trust' were alleged to have been made additional parties. These minors were sons and daughters of the partners in the firm styled M/s. Narayandas Paramananddas assessed in my charge. There was no capital contribution by the minors or the trust. It is very clear that the idea of the alleged reconstitution was to create on legal footing a machinery through which the benefits of the income of M/s. Atlas Agencies should go to the partners of M/s. Narayandas Paramananddas. Further, the line of business of my assessee and M/s. Atlas Agencies was the same, i.e., business in dyes and chemicals.
The matter was discussed by me with Shri Poratlal Narayandas, one of the partners of M/s. Narayandas Paramananddas. I asked him as to why on the basis of the above facts M/s. Atlas Agencies should not be treated as benamidar of M/s. Narayandas Paramananddas. He stated that M/s. Atlas Agencies was a separate entity with which they had no connection whatsoever save and except as required in the course of their business and standing guarantee for hundi loans as per normal business practice by which a new firm takes the help of the other in starting the new business.
On the facts and circumstances stated above, I hold that M/s. Atlas Agencies is a benamidar of my assessee. Hence, I have reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for assessment year 1963-64, the income chargeable to tax escaped assessment. Hence, proposal is put up under Section 147(a) for approval of the Commissioner to issue notice under Section 148.
As per return filed in the name of M/s. Atlas Agencies, income was Rs. 72,481, but as per facts available on the file relating to M/s. Atlas Agencies, the income is likely to be assessed at Rs. 1,68,041.
Sd/- Manohar Lal 23/3/72
I.T.O. 'J' Ward, Dist. IV(I)
6. The question is whether in these circumstances the revenue has really established its case from the materials from which necessary belief could be formed. In this connection, the principles are well-settled. But counsel for the petitioner drew my attention to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Burlvp Dealers Ltd. : 79ITR609(SC) . Reliance is also placed on the observations in the case of Bengal Luxmi Cotton Mitts Ltd. v. Income-tax Officer : 87ITR618(Cal) and Income-tax Officer v. Calcutta Chromotype Pvt. Ltd. : 97ITR55(Cal) . Reliance is also placed on the case of Commissioner of Income-tax v. Panama Private Ltd. : 97ITR210(Cal) . In the case of Gemini Leather Stores v. Income-tax Officer : 100ITR1(SC) , what happened was that in the proceeding for the original assessment of the appellant-firm, though the appellant did not disclose certain transactions evidenced by certain drafts, the officer himself, however, discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant. Subsequently, the Income-tax Officer issued a notice under Clause (a) of Section 147 of the Income-tax Act, 1961, with a view to assess the amounts as the appellant's income from undisclosed sources. On a writ petition filed by the appellant, the Allahabad High Court held that the Income-tax Officer had not applied his mind to the question whether the amounts could be treated as part of the total income of the appellant and as the appellant had not disclosed the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction under Clause (a) of Section 147 were present. Thereafter, there was a further appeal to the Supreme Court and it was held by the Supreme Court that after discovery of the primary facts relating to the transactions evidenced by the drafts it was for the officer to make necessary enquiries and to draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. The officer had not done so. Therefore, it was plainly a case of oversight and it could not be said that the income chargeable to tax escaped assessment by reason of omission or failure on the part of the appellant to disclose truly and fully all material facts.
7. In the instant case, it is evident that the transaction with M/s. Atlas Agencies was disclosed. It is also evident from the original assessment order and the rectification order that the transactions with various parties were scrutinised by the Income-tax Officer. In view of the statement made in paragraph 9 of the petition which remained uncontradicted by any affidavit or counter-affidavit, the assessee had full discussions regarding the existence, validity and genuineness of all the parties including the said M/s. Atlas Agencies. It is in this background that the reasons produced by the revenue will have to be examined.
8. The first ground stated by the Income-tax Officer is that he has gathered certain facts. It is not apparent whether he has gathered those facts from the assessment order of M/s. Atlas Agencies. It is not also apparent whether the said assessment of M/s. Atlas Agencies was made prior to or subsequent to the assessment of the present assessee. Furthermore, the Income-tax Officer has not stated that the facts gathered from the said assessment order of M/s. Atlas Agencies could not have been gathered from the material facts at the time of the original assessment.
9. In the aforesaid view of the matter, in my opinion, it cannot be said that the revenue has discharged the onus which was on them to establish their case that the facts have come to the knowledge of the revenue subsequent to the original assessment order from which it can be said that there was omission or failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment as a result of which income chargeable to tax escaped assessment. In that view of the matter, the impugned notice must be quashed and the rule must be made absolute.
10. In the premises, the impugned notice issued on 30th March, 1972, under Section 148 of the Income-tax Act, 1961, is hereby quashed and the respondents are restrained from taking any proceeding in respect thereof. If any assessment has already been made pursuant to the impugned notice, the same is also quashed and set aside.
11. The rule is made absolute to the extent indicated above. There will be no order as to costs.
12. Operation of this order shall stand stayed for six weeks from today.