Dipak Kumar Sen, J.
1. At the instance of Sri Panchanan Hati, theassessee, the Income-tax Appellate Tribunal proceeding under Section 256(1) ofthe Income-tax Act, 1961, has drawn up a statement of case and has referredthe following question to this court as a question of law arising out of itsorder dated the 19th July, 1975 :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessment could be reopened under Section 147(a) of the Income-tax Act, 1961, for the assessment year 1960-61 ?'
2. The relevant facts found and/or admitted in these proceedings are ofshort compass. The assessee is an individual and was assessed to income-tax in the assessment year 1960-61, the relevant previous year being 1366H.S., under Section 23(3) of the Indian Income-tax Act, 1922. The assessmentorder was passed on the 20th December, 1961.
3. Thereafter, the assessment was sought to be reopened under Section 147 of the Income-tax Act, 1961, and a notice under Section 148 was issued and served on the assessee on the 31st March, 1969. The ground for reopening as recorded was as follows :
'It was revealed in the course of investigation at subsequent stages that there were cash credits in the assessee's books of hundi loans in the accounts of bogus parties who by their confession made before the department at subsequent stages had stated that they had acted as name-lenders for third parties' accounts. This material fact necessary for assessment was kept concealed by the assessee at the original assessment stage.'
4. In compliance with the said notice another return of income was filed. The assessee, however, challenged the legality of the proceedings on the ground that there was no omission or failure on his part to disclose all material facts fully and truly in the course of original assessment proceedings. The contentions of the assessee were rejected by the ITO who completed the reassessment and made an addition of Rs. 15,000 to the assessee's income.
5. Being aggrieved, the assessee preferred an appeal before the AAC, who upheld the reassessment. The assessee went up on a further appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal that the ITO who made the original assessment had full knowledge of the hundi loans and that the books of account relating to the relevant period had been placed before him. In connection with the interest payable on such loans the ITO had scrutinised the hundis in question. It was submitted that the ITO thereafter proceeded to reopen the assessment on a mere change of opinion. It was contended on behalf of the revenue on the other hand that in the original assessment proceedings the ITO had not made any enquiry into the genuineness of the transactions nor had the assessee filed confirmation letters from his creditors.
6. The Tribunal found that in the course of the original assessment proceedings the assessee had not disclosed fully and truly all material facts necessary for the assessment. At that stage, the assessee produced the books of account, and in connection with the claim for allowance of interest produced the discharged hundis. The Tribunal found that the ITO was aware of the loans taken on hundis but did not apply his mind on the genuineness thereof. The Tribunal found further that subsequent to the completion of the original assessment information was made available to the ITO 'that the hundi bankers from whom the assessee claimed to have obtained loans confessed before the ITO assessing them that the loans alleged to have been advanced by them were not genuine as they acted as name-lenders for others for acting as false creditors'. The Tribunal held that such information constituted reasonable ground for the formation of a belief that the assessee in the course of the original assessment proceedings failed to disclose fully and truly all material facts necessary for his assessment and thereby income chargeable to tax had escaped assessment. The Tribunal concluded that there was a direct nexus between the confessional statement of the creditors and the assessment of the, assessee with reference to loans. Accordingly, the Tribunal held that the original assessment of the assessee for the assessment year 1961-62 had been validly reopened.
7. At the hearing, Mr. Kalyan Ray, learned counsel for the assessee, hascontended before us that in the facts found by the authorities it could notbe said that the ITO had any reason to believe that income of the assesseechargeable to tax had escaped assessment for the year 1960-61 by reasonof any omission or failure on the part of the assessee to disclose fully andtruly all material facts necessary for his assessment. The informationwhich subsequently came to the knowledge of the ITO could not be said tohave been and was not found to be within the knowledge of the assessee.It was not possible for the assessee to anticipate that a confession would bemade by his creditor admitting that he had acted as a name-lender inrespect of loans shown to have been advanced by him to third parties.In any event, there was no confession by any of the creditors that thehundis executed by the assessee were not genuine or that the assessee did not in fact obtain any money from them. Mr. Ray submitted that thispiece of information might have formed the basis for reopening of theassessment under Section 147(b) but was not sufficient for a reopening under Section 147(a).
8. In support of his contentions, Mr. Ray cited a number of decisions which we shall consider in their chronological order :
(a) P.R. Mukherjee v. CIT : 30ITR535(Cal) . In this case, the question before a Division Bench of this court was whether notices under Section 34(1) had been validly issued. The court in construing Clauses (a) and (b) of Section 34 of the earlier Act, in pari materia with the corresponding Sections 147(1) and 147(b) of the later Act, held as follows (page 544):
'The important words with which Clause (b) opens are : 'Notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee.' The clause, therefore, presupposes the absence of some conduct on the part of the assessee of which Clause (a) contemplates presence. What is such conduct The words of Clause (a) are : 'omission or failure...to disclose fully and truly all material facts '--I am leaving out the case of an omission or failure to make a return. The words I have just quoted may, in one view, cover a bare omission or failure to mention all material facts, and, in another view, they may be said to cover only the case where the assessee, knowing all the material facts, does not mention them fully or truly or, in other words, deliberately withholds information or full information. Support for the second view would seem to be afforded by the grammatical meaning of the words ' omission', 'failure' and 'disclose'. It may well be said, and I should think, said correctly, that a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. A similar implication is carried by the word 'disclose', because one cannot be expected to disclose a thing or said to have failed to disclose it, unless it is a matter which he knows or knows of. Of the two meanings of the relevant words in Clause (a) I, as at present advised, should think that the second is the correct view. If that be so, then the words with which Clause (b) opens must be taken as contemplating both a case where there has been no actual omission or failure to mention all material facts at all and the case where there has been an omission or failure in fact, but such omission or failure was not in respect of facts known to the assessee at the time and, therefore, not deliberate. If such be the comprehensive meaning of the opening words of Clause (b), it is possible to imagine a case where a failure or omission did in fact occur and yet it would be Clause (b) and not Clause (a) which would be applicable. ' (b) Gordon Woodroffe and Co. Ltd. v. ITO : 51ITR12(Mad) . This decision was cited for a dictum laid down by the Madras High Court in respect of Section 34 of the Indian Income-tax Act, 1922, as follows (page 18):
'The assessee is bound to be quite candid in the matter of placing all materials and facts before the department without in any way trying to hoodwink the authority and to escape taxation. Equally, the department is bound to discharge the statutory duty of making a proper assessment by examining with care and caution the materials that have been made available. Provided that the assessee has done all that he could or need do in the matter, the assessing authority cannot act perfunctorily with the hope and expectation that any error which he might commit by not making a proper assessment can subsequently be rectified by resorting to the machinery under Section 34 of the Act...In a case in which Section 34(1)(a) is resorted to by the department it would be dangerous and certainly illegal to impute default on the part of the assessee in the matter of making a full and true disclosure of material facts merely from the non-performance or improper performance of the official duties by the assessing officer.' (c) CIT v. Hemchandra Kar : 77ITR1(SC) . This is a decision of the Supreme Court. This decision was cited for the following observations made in construing the scope of Section 34(1) of the earlier Act (page 5):
'From the primary facts in his possession whether on disclosure by the assessee or discovered by him on the basis of facts disclosed or otherwise, the assessing authority has to draw inferences as regards certain other facts and ultimately from the primary facts and the further facts inferred from them the authority has to draw the proper legal inferences. Therefore, the duty of disclosing all the primary facts lies on the assessee.'' (d) CIT v. Bhanji Lavji : 79ITR582(SC) . The facts in this case decided by the Supreme Court were that the assessee carried on business in ghee at Porbandar, which was at the material time outside the taxable territories. The ITO in Bombay initiated proceedings against the assessee as a non-resident for the assessment years 1947-48, 1948-49 and 1949-50. In the said years the assessee had a current account with the Bank of India Ltd., Bombay, and sale proceeds in respect of large quantities of ghee supplied outside the taxable territories used to be credited in that account and then transferred to Porbandar. The assessee also had a current account with a firm in Bombay and obtained interest therefrom. These facts were disclosed by the assessee at the assessment and it was contended that as the assessee had no business in the taxable territories and as no taxable income arose within the taxable territories except the interest earned in Bombay, the assessment proceedings should be discharged. The ITO accepted the contentions of the assessee and dropped the proceedings. In 1956 the ITO, Probandar, initiated proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922, for reopening the assessments for the said assessment years. The assessee challenged the jurisdiction of the ITO to initiate such proceedings and contended that it had disclosed fully and truly all primary facts at the original assessment. The ITO rejected the plea and reassessed the assessee to tax. The order of the ITO was upheld by the AAC and the Income-tax Appellate Tribunal. On a reference, the High Court of Bombay accepted the contentions of the assessee. The revenue preferred an appeal to the Supreme Court. The Supreme Court dismissed the appeal and in its judgment observed, inter alia, as follows (page 587):
' It is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question; it is for the Income-tax Officer, if that issue is raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. Failure to disclose how the delivery of ghee was given at Porbandar was wholly irrelevant, and failure to furnish particulars in that behalf cannot assist the case of the department.......It was again no duty of the assessee to disclose to or instruct the 'Income-tax Officer that there were 'profits embedded in the receipt' of the money at Bombay. Section 34(1)(a) does not cast any duty upon the assessee to instruct the Income-tax Officer on questions of law. The assesses had disclosed that ghee was delivered at Porbandar by him and the price in respect of those supplied was received in Bombay which was subsequently transferred to Porbandar. We are unable to accept the view of the Tribunal that the ' question of receipt of sale proceeds in British India was thus bypassed'.' (e) CIT v. Burlap Dealers Ltd. : 79ITR609(SC) , where the Supreme Court reiterated the law as follows (page 612) :
' We are of the view that under Section 34(1)(a) if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Incomer tax Officer may raise from those facts. The terms of the Explanation to Section 34(1) also do not impose a more onerous obligation.........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 He merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous.' (f) Gemini Leather Stores v. ITO : 100ITR1(SC) . This decision was cited for the following observations of the Supreme Court at page 41
'It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight.' (g) ITO v. Lakhmani Mewal Das : 103ITR437(SC) . Here the Supreme Court considered Section 147 of the Income-tax Act, 1961, and observed as follows (page 445) :.
'The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material, bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds, for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate' or not is not a matter for the court to investigate......The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith.' It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.' The facts before the Supreme Court were that an assessment was sought to be reopened on the basis of a confession of one of the creditors that he was only doing name-lending. The Supreme Court did not consider such confession to be a valid ground for reopening as there was nothing to show that the confession related to any loan to the assessee, and in particular to the loan of the assessee sought to be impugned. There was also no indication as to when that confession was made and whether it related to the period relevant to the assessment sought to be reopened. In the absence of the date of the alleged confession, it was assumed that it was made a few weeks or months before the report from which it could not be inferred that the confession pertained to the loan shown to have been advanced to the assessee.'
(h) Sujir Ganesh Nayak & Co. v. ITO : 104ITR524(Ker) . In this case, the Kerala High Court construed the scope and effect of Section 147 of the Income-tax Act, 1961, in the background of all the judgments of the Supreme Court and observed as follows (page 539):
'The controversy here centres round the truth or falsity of certain loans. In other words, the facts in dispute here are the loans. They are either facts or not facts. If the loans are real transactions and so are facts then irrespective of the question whether they are primary facts or inferential facts, as they have been mentioned in the return, there is no nondisclosure for Section 147(a) to apply. On the other hand, if they are bogus and consequently not facts, then also Section 147(a) has no application because mention of them in the return is only a positive or affirmative statement of false transactions which are not in the region of facts and by no stretch of imagination can it be said to be a negative act of non-disclosure of facts. In either case Section 147(a) has no application. If the Income-tax Officer has reason to believe that the assessee had made in his return incorrect or false statements not amounting to facts he has to look to other provisions in the Act for proceeding against the assessee and not Section 147(a). Righteous indignation may be felt if assessment was made accepting the case of the assessee that he had taken loans and subsequently the loans are found to be bogus but that is not a justification for invoking Section 147(a) unless the case falls within it.
If an Income-tax Officer who has power to conduct an enquiry to ascertain the truth or falsity of a statement either blindly accepts that statement or conducts an inquiry, whether in a casual or careful manner, and then accepts that statement as true and thereafter makes the assessment, can he later on change his opinion and avail of the provisions of Section 147(a) saying that what he considered and treated previously as a fact was really not a fact Section 147(a) does not provide for reopening of assessment on such change of opinion by him and that is exactly what the Supreme Court decisions have said.'
9. Mr. B.K. Bagchi, learned advocate for the revenue, has contended on the other hand that in the facts of this case it has not been disputed that a subsequent information came to the knowledge of the ITO. He submitted that it was evident from this information that there was a possibility of escapement, of assessment and, therefore, this information constituted sufficient material for the ITO to reopen the assessment. He also submitted that sufficiency of such reasons was not justiciable in a court of law and that reasonableness of a ground on which an assessment could be reopened under Section 147 was a question of fact. In the instant case, it had not been challenged that the ground on which the ITO proceeded was based on no evidence or was perverse and, therefore, the matter was concluded in favour of the revenue.
10. In support of his contentions Mr. Bagchi cited a few decisions considered hereafter in their chronological order.
(a) CIT v. Lakhiram Ramdas : 44ITR726(SC) , where the Supreme Court observed as follows (page 731):
'...what the Tribunal had to consider was whether the assessee had fully and truly disclosed all material facts necessary for the assessment. The Tribunal examined all the relevant materials produced by the assessee at the time of the original assessment and came to the conclusion that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The Tribunal referred to the account books produced by the assessee and particularly to the report of the examiner of accounts who submitted a report to the Income-tax Officer with regard to the bank account of the assessee in the Exchange Bank of India and Africa Ltd. In our opinion, in the circumstances of this case, the question whether the assessee had or had not failed to disclose fully and truly all material facts necessary for his assessment was a question of fact and we are unable to accept the argument of the learned advocate for the appellant to the contrary.' (b) S. Narayanappa v. CIT : 63ITR219(SC) . Mr. Bagchi relied on the following observations of the Supreme Court in construing Section 34 of the earlier Act:
'...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. Whether these grounds are adequate or not is not a matter for the court to investigate...Again, the expression 'reason to believe ' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section.' (c) Kantamani Venkata Narayana & Sons v. First Addl. ITO : 63ITR638(SC) . The following observations of the Supreme Court in this case were relied on (page 643):
'From the affidavit of the Income-tax Officer it clearly appears that there had been considerable increase since 1938 in the investments in the money-lending transactions of the assessee and in the wealth of the assessee...The increase in the wealth discovered was wholly disproportionate to the known sources of income of the assessee. That was, prima facie, evidence on which he had reason to believe that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such nondisclosure income had escaped assessment.' (d) ITO v. Mahadeo Lal Tulsyan : 111ITR25(Cal) . This judgment of a Division Bench of this court was cited for the following observations (page 33):
'When a person is said to have disclosed a fact, it means that he has disclosed a true fact. Similarly, when a document is said to have been disclosed, it implies that the document is a genuine one. To place before the Income-tax Officer any fact which is untrue or any document which is not genuine, is not to disclose a primary fact. If the hundi loans which were disclosed by the respondent to the Income-tax Officer as primary facts are found to be not genuine, in our view, there was no disclosure of primary facts. The Income-tax Officer reasonably believes that the hundi loans disclosed by the respondent at the time of the original assessment are bogus transactions. It is true that at the time of the original assessment the Income-tax Officer did not doubt the genuineness of the said transactions, but if, subsequently, he has reasons to believe that the transactions are not genuine at all, it is difficult to say that it is a mere change of opinion. A change of opinion by the Income-tax Officer contemplates formation of two different opinions or to make two different inferences at two stages on the same set of primary facts which are true.' (e) M. Varadarajulu Naidu v. CIT : 111ITR301(Mad) . In this case, on the information that the alleged creditors were found to have indulged in hawala business, assessments were reopened. The Madras High Court held that, on the facts, the ITO had prima facie reason to believe that income had escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts.
11. In the instant case, subsequent to the original assessment, a piece of information admittedly came to the knowledge of the ITO to the effect that persons shown in the assessee's books of account as creditors had confessed subsequently that they had acted as name-lenders for third parties. The ITO has proceeded on the basis that this fact was kept concealed by the assessee at the original assessment. The Tribunal found that the ITO concerned was aware of the loans taken on hundis but did not apply his mind on the genuineness of the loans and that the subsequent information received by the ITO constituted a reasonable ground for the formation of his belief that the assessee in the course of the original assessment proceedings failed to disclose fully and truly all material facts. The Tribunal did not state as to how the said information had a nexus or a rational connection with or had a relevant bearing on the formation of the belief of the ITO. For reopening of an assessment under Section 147(a) it is the reasonable belief of the ITO which will be material and the Tribunal in our opinion cannot substitute its own belief and justify the proceedings.
12. We called upon Mr. Bagchi to tell us specifically what particular material fact known to the assessee was not disclosed by him in the original assessment. But Mr. Bagchi was unable to specify such fact. The ITO believed that the subsequent confessional statement of the creditor was concealed by the assessee. It, however, appears to us that it was clearly impossible for the assessee to have disclosed this confession which was made subsequently to the authorities and not to the assessee and was not in existence during the original assessment.
13. No doubt the assessee could himself have confessed at the original assessment that the loans disclosed by him were not genuine. But, in our opinion, that would not be a material fact within the meaning of Section 147(a). We are in respectful agreement with the observations of the High Court of Kerala on this point. On similar facts, the Supreme Court in Lakhmani Mewal Das : 103ITR437(SC) held that the purported confessional statement had no bearing to the loans advanced to the assessee.
14. In the facts of the case before us, we are of the opinion that the ITO had no reasonable ground to believe that there was a failure on the part of the assessee to disclose fully or truly all material facts whereby any income of the assessee escaped assessment. It appears to us that the assessee had disclosed all primary facts within his knowledge at the original assessment which were duly considered by the ITO concerned. For the reasons given above, we answer the question referred in the negative and in favour of the assessee. There will be no order as to costs.
C.K. Banerji, J.
15. I agree.