SEN J. - In this reference under section 66(1) of the Income-tax Act, 1922, the following question has been raised for decision by this court :
'On the facts admitted or found, was the Income-tax Officer entitled to reopen the assessment of the assessee under section 34(1) (a) of the Income-tax Act ?'
The assessee, Anil Kumar Kundu of Midnapore, is one of the partners of the firm of Hrishikesh Madan Mohan Kundu, a firm registered under section 26A of the Income-tax Act, 1922. Few days after the commencement of the accounting year, each of the partners contributed some capital to the said firm. According to his share the assessee, Anil Kumar Kundu, contributed a sum of Rs. 3,500 towards capital of the firm.
In the assessment proceeding against the firm, it was called upon by the Income-tax Officer to explain the source and genuineness of this cash credit. The explanation was disbelieved by the department and the total sum of Rs. 32,000 contributed by the partners was included in the assessment of the firm, as income from other sources. When the matter went up to the Appellate Tribunal, it came to the conclusion that the amount of Rs. 32,000 was made up of several items of capital contributed by the individual partners in proportion to their shares and as it could not, on materials, be held as the income of the firm, the inquiry as to the source and genuineness of the cash credits should be pursued in the assessment of the individual partners. Accordingly, the Tribunal by its order dated November 4, 1953, deleted the total amount of Rs. 32,000 from the assessment of the firm.
In view of this decision by the Tribunal, the Income-tax Officer after obtaining due sanction of the Commissioner of Income-tax issued notice under section 34 on March 10, 1956, to the assessee on the ground that certain income, i.e., capital contributed by him to the firm has escaped assessment. The assessee was asked to explain the source and genuineness to the said sum of Rs. 3,500. As the explanation offered by the assessee was disbelieved by the Income-tax Officer the amount of cash credit was added to his income. An appeal was taken by the assessee to the Appellate Assistant Commissioner. Before the income-tax authorities the assessee contended in the first instant that there was no scope for reopening the assessment under section 34 by the Income-tax Officer, as the entire materials were laid before him at the time of the assessment of the firm. The second contention was that the second proviso to section 34(3) in so far as it affected persons other than the assessee not parties to the proceedings, was ultra virus as it contravened article 14 of the Constitution. In this reference we are not concerned with the second contention, as it is not been pressed. The details of the first contention, which has been pressed, are given below :
'In the course of the assessment proceeding of the firm or simultaneously of the partners, the account books of the firm showing the cash deposits were placed before the Income-tax Officer and the assessee having submitted himself to the original assessment, it cannot be said that he had failed to disclose any material particulars regarding the cash credit. Therefore the original assessment should not have been reopened under section 34(1) (a).'
The Income-tax Officer negatived this contention raised by the assessee and when the matter ultimately went up before the Appellate Tribunal, it affirmed the decision of the Appellate Assistant Commissioner, who did not interfere with the order of the Income-tax Officer. The Tribunal came to the conclusion that besides merely stating that the assessee was the partner of the firm and was sharing profits to an extent, neither the applicant made any declaration about the cash credits in the return nor did he declare at the time of the assessment of the firm that the cash credit in question was introduced by him from his income. On such a conclusion, it was found by the Tribunal that the Income-tax Officer had reason to believe that the assessee did not disclose fully and truly all the material facts that he introduced the amount of cash credit and about its source and, under such circumstances, the Income-tax Officer was entitled to reopen the case under section 34(1) (a).
It will appear from the order of the Appellate Tribunal dated November 4, 1953, in the firms Income-tax Appeal No. 6615 of 1952-53 that, on the facts of the case, the Tribunal did not see any reason to doubt that the amount of Rs. 32,000 was made up of several smaller sums actually contributed as capital by the individual partners. The addition of Rs. 32,000 to the firms income was, therefore, deleted. It also expressed an opinion that the partners are assessees in their individual capacities and if the explanation of their respective accretion of wealth was unsatisfactory, the inquiry should be pursued in the assessment of the individuals. From the order of the Appellate Assistant Commissioner, it will appear that the assessment was reopened under section 34 of the Income-tax Act. In response to notice under section 23(2), the assessees representative appeared. He was asked to explain the source and nature of deposit of Rs. 3,500 as shown by the assessee under section 'D' of the return, by producing documentary evidence or any other proof. He explained that the money was obtained from different sources, viz., from Bharat Luxmi Rice Mill, sale proceeds of agricultural produce and from home chest. The explanation offered was not accepted on the ground that, at the time of the assessment of the firm, a different stand was taken, viz., that the partners invested the money in the business from the sale proceeds.
Mr. Sukumar Mitra, the learned counsel appearing for the assessee, has urged the following points in support of his contention that the reopening of the assessment under section 34(1) (a) was wrong :
(1) An item of receipt can only be said to have escaped assessment within the meaning of section 34 is such item has not been taken into consideration in making the original assessment. That is the meaning of 'escaped assessment' in section 34.
(2) Even if it has escaped assessment it is not by reason of failure to disclose or to disclose material facts.
(3) There has, in fact, been no failure to disclose or to disclose fully.
The points raised by him need to considered together. Section 34(1) (a) before amendment in 1956, runs as follows :
'If 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 of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax has escaped assessment for that year, or has been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed.... he may in cases falling under clause (a) at any time within 8 years..... serve on the assessee, or, if the assessee is a company, on the principle officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provision of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section....'
Mr. Mitras contention is that the matter ought not to have been reopened at all as full disclosure was made at the time when the proceedings were taken up for assessment of the firm. In support of his contention he has referred us to a decision of the Bombay High Court, D. R. Dhanwate v. Commissioner of Income-tax. The head note runs as follows :
'No statutory obligation is cast on an assessee in filing a return of his total income to include therein the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner.
Even assuming that it is obligatory on the assessee in making a return for any year to include in his total income, the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner, failure on his part to do so does not amount to failure to disclose fully and truly all material facts necessary for his assessment for that year within the meaning of section 34(1) (a) of the Income-tax Act and does not enable the Income-tax Officer to issue a notice of reassessment under section 34(1) (a).
The assessment of a partner in a registered firm cannot be completely divorced from the assessment of the firm of which he is a partner. These two assessment are not in two different water-tight compartments. The two assessments are complementary to one another. The assessment of a registered firm is a preliminary step in the matter of the assessment of its partners and forms part of their assessment. The disclosures made by the partner of a registered firm in the assessment of the firm would, therefore, as well be disclosures made by him of all the material facts necessary for the purpose of his own assessment'.
Mr. Mitra relies upon the decision made by the Bombay High Court stated above and urges that the disclosures made by a partner of a registered firm in the assessment of the firm would, therefore, as well be disclosures made by him of all the material facts necessary for the purpose of his own assessment. Accordingly, as the assessee had already made his disclosures at the time of assessment of the firm, the provisions of section 34(1) (a) could not be invoked. Income is said to have escaped assessment within the meaning of section 34, when it has not been charged in the hands of the assessee in the proper assessment year; it is immaterial that the income was charged or included in some other assessment, or that the failure to charge the income was entirely due to oversight and inadvertence on the part of the income-tax authorities. In this particular case, it appears that the alleged contributions to the capital by each of the partners were knocked off by the Tribunal as referred to before in an appeal preferred by the firm. Accordingly, the point for decision would be whether the Income-tax Officer at the time of the assessment of the assessment of the assessee acted within his jurisdiction in believing that the material facts were not fully and truly disclosed after the said order of the Tribunal was passed. In this connection, it should be remembered that the partners of the firm are distinct assessable entities while the firm as such is a separate and distinct unit for the purpose of the assessment. The question whether the Income-tax Officer was justified in initiating the proceedings under section 34(1) (a) will be dealt with later. At the present moment, it is to be considered whether the decision on which reliance has been placed by Mr. Mitra will apply to the facts of the present case. In the said Bombay decision of D. R. Dhanwate v. Commissioner of Income-tax, the assessee was a partner in a firm styled as Shivraj Fine Arts Litho Works, Nagpur. The other partners were his wife, Bai Parvatibai, two major sons, Vasantrao and Marutirao, and four minor sons were admitted to the benefits of the partnership. The assessment year was 1947-48, the accounting year ending with March 31, 1947. This firm was being treated as registered for the purpose of income-tax since 1939. In the return, with regard to the firms income, the assessee disclosed the names of all the partners and also disclosed the minor, Yeshwantrao Dhanwate, was admitted to the benefit of the partnership. In the assessment made by the Income-tax Officer the shares of income of Parvatibai and Yeshwatrao were not included in the income of the assessee. Some time in the year 1955, taking advantage of the voluntary disclosure scheme of the Government, the partners of the firm made some disclosures under this scheme. This gave rise to a proceeding under section 34 and the firms income was enhanced. The Income-tax Officer also took action under section 34 against the assessee and other partners for the purpose of revising the assessment. In this proceeding the amount apportioned to the share of D. R. Dhanwate came to Rs. 47,472 and the amount apportioned to the share of Parvati and Yeshwantrao came to Rs. 37,672 each and in that assessment the Income-tax Officer added a sum of Rs. 79,344 representing the amount that has been apportioned to the share of Parvatibai and Yeshwantrao to the income of the assessee, and thereby the assessees income was computed at Rs. 1,26,276. The assessees case was that the Income-tax Officer was not justified in doing so, as previously the shares of the minor and the wife were fully disclosed. On these facts, the decision already quoted above was made by the Bombay High Court. It will appear from this decision that the material facts for disclosure were whether the wife and children were the partners and the decision was made in the context of section 16(3) (a) and (b), as urged by Mr. Pal, the learned counsel appearing for the department. It has also been pointed out that the assessee had shown in the appropriate place what his income was and as per the firms case the assessee disclosed everything. Accordingly, the decision which has been made by the Bombay High Court on the background of the facts as stated before cannot prima facie be held to apply to the facts of this particular case.
In this case it has got to be considered whether there was any material before the income-tax authorities to start the proceeding under section 34. It appears from the order of the Appellate Income-tax Assistant Commissioner that as soon as the amount of Rs. 32,000 was knocked off, it was deemed necessary that the assessee should be called upon to make true and full disclosure of the amount of Rs. 3,500. After a notice was served upon the assessee, he responded and credits were shown in section 'D' of the return. A glaring inconsistency was found in the explanation offered, as originally the entire amount was attempted to be passed off as sale proceed of the ornaments even by means of vouchers produced before the Appellate Assistant Commissioner whereas in the subsequent disclosure made, an attempt was made to relate them to sale of the agricultural products and savings. This discrepancy, in the opinion of the tax authorities, was inexplicable and was a pointer to the fact that the assessee was not making a true and full disclosure. Accordingly, such income, namely, Rs. 3,500, was treated as assessees income from undisclosed sources. The Tribunal came to the conclusion on the facts placed before it that, besides merely stating that the assessee, Anil Kumar Kundu, was a partner of the firm and was sharing profits to an extent, he did not make any declaration about the cash credits in the return and refrained from declaring at the time of the assessment of the firm that the cash credit in question was introduced by him from his income. The Tribunal also came to its conclusion that the Income-tax Officer had reason to believe that the assessee did not disclose fully and truly all material facts about the introduction of the amount of cash credits and its source and, under such circumstances, the Income-tax Officer was entitled to reopen the case under section 34(1) (a). The entire matter as appearing in the paper-book was placed before us and on an examination of the same it appears to us that no proper disclosure in section 'D' of the return was made. Accordingly, it will not be unreasonable to hold that there was no full and true disclosure and this state of affairs did not give any satisfaction to the Income-tax Officer about the same. In support of this contention reference may be made to the case of Narayan Das Kedarnath v. Commissioner of Income-tax. The Bombay High Court held in this case that if the department was not satisfied with the explanation given by the partners, then it was legitimate for the department to draw an inference that the amounts represented undisclosed profits of the partners and to assess them in their individual assessment. It was held by the Supreme Court in Commissioner of Income-tax v. Lakhiram Ramdas 2 that the pre-requisite condition for the initiation of a proceeding under section 34(1) (a) is that the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee..... to disclose fully and truly material facts necessary for this assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment, etc. This condition must be fulfilled before the Income-tax Officer can take action under section 34(1) (a).
Regard being had to the principle of law as enunciated by the Supreme Court, it appears that the Tribunal made a finding on the materials in record discussed before, that there was no true and full disclosure at the time of the assessment of the firm, and as such the reopening of the assessment individually against the assessee under section 34(1) (a) by the Income-tax Officer was justifiable. In the instant case this finding by the Tribunal is a finding of fact. In our opinion the material as placed before the Tribunal was sufficient for arriving at the above conclusion. Accordingly, if there is evidence, the sufficiency of that evidence or other evidence contra will not justify a refusal to accept the finding of fact arrived at by the Tribunal. Furthermore, findings of pure fact arrived at by the Tribunal are not to be disturbed by the High Court unless it appears that there was no evidence before it, upon which the members thereof as reasonable men could come to a conclusion to which they have come; and that is so, even though the High Court would on evidence have come to a conclusion entirely different from that of the Tribunal (vide the observations of the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax).
Having considered all the factual and legal aspects in this case we are of the opinion that the contention as raised by the assessee in this reference must fail, with the result that the question referred to must be answered in the affirmative.
The applicant will pay costs to the respondent. Certified for counsel.
SANKAR PRASAD MITRA J. - I agree.
Question answered in the affirmative.