Krishna Pvt. Ltd. Etc Vs. I.T.O. Calcutta & Ors  INSC 819 (16 July 1996)
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Majmudar S.B. (J) B.P.Jeevan Reddy,J.
JT 1996 (6) 440 1996 SCALE (5)353
16TH DAY OF JULY, 1996 Present:
Mr. Justice B.P. Jeevan Reddy Hon'ble Mr. Justice S.B. Majmudar Jaideep Gupta,
Adv. for M/s. Khaitan & Co, Advs. for the apellants. B.B. Ahuja, Sr. Adv.
B.S. Ahuja and S.N. Terdol, Advs. with him for the Respondents.
following Judgment of the Court was delivered:
PRIVATE LIMITED ETC. V. I.T.O. CALCUTTA & ORS.
APPEAL NO. 1562 OF 1977.
is an appeal preferred by the assesee against the judgment and order of a
Division Bench of the Calcutta High Court allowing the writ appeal preferred by
the Revenue [Income Tax Officer, Central Circle-VI and Others] against the
judgment of learned Single Judge. The learned Single Judge had allowed the writ
petition filed by the assessee questioning the validity of a notice issued under
Section 148 read with Section of the Income Tax Act.
return filed for the Assessment Year 1959-60, the assessee had shown certain hundi
loans totalling Rs.8,53,298/- said to have been taken from a number of persons.
The Income Tax Officer accepted the averment and made the assessment. During
assessment proceedings for the succeeding year, 1960-61, the assessee again
showed hundi loans in sum of more than Rupees seventeen lakhs. The Income Tax
Officer enquired into the truth of the averment and found that many of them
were bogus claims while some of the alleged lenders were found to be near
relations of directors or principal shareholders of the assessee. The Income
Tax Officer held that our of the hundi loans of more than Rupees seventeen lakhs
claimed by the assessee, loans totalling Rs.11,15,275/- were not established to
be genuine loans and accordingly added that amount as income from undisclosed
sources. Having regard to the similarity of the claims and the persons who are
said to have advanced hundi loans during the accounting year relevant to the
Assessment Year 1959-60, the Income Tax Officer issued a notice under Section
148 calling upon the assessee to file a revised return for the Assessment Year
1959-60. Immediately, upon receiving the said notice, the assessee approached
the Calcutta High Court by way of a writ petition questioning the validity of
the notice on the grounds that the Income Tax Officer had no reasonable ground
to believe that income chargeable to tax has escaped assessment for the said
year on account of any omission or failure on his part to make a full and true
disclosure of all material facts. The writ petition was allowed by a learned
Single Judge, as stated above, whose decision has been reversed in appeal by
the Division Bench.
Court entertained the Special Leave Petition filed by the assessee and granted
leave on July 26, 1977. This Court however, did not stay
the proceedings pursuant to the impugned notice. It directed that the Income
Tax Officer may proceed to complete the assessment proceedings but will not
issue a demand notice. The Income Tax Officer has accordingly completed the
147, 148 and 151, as they stood at the relevant time, read as follows:
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
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 re-assess 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 relvant assessment year).
For the purposes of this section, the following shall also be deemed to be
cases where income chargeable to tax has escaped assessment, namely:-
income chargeable to tax has been under assessed; or
such income has been assessed at too low a rate; or
such income has been made the subject of excessive relief under this Act or
under the Indian- tax Act, 1922 (11 of 1922); or
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 diligence have been discovered by the Income-tax Officer will not
necessarily amount to disclosure within the meaning of this section.
Issue of notice where income has escaped assessmentó
Before making the assessment, re-assessment or recomputation under section 147,
the Income-tax Officer shall serve on the assessee a notice containing all or
any or the requirements which may be included in a notice under sub- section
(2) or Act shall, so far as may be, apply accordingly as if the notice were a
notice issued under that sub-section.
The Income-tax Officer shall, before issuing any notice under this Section,
record his reasons for doing so.
Section for issue of notice.-- -
notice shall be issued under section 148 after the expiry of eight years from
the end of the relvant assessment year, unless the Commissioner is satisfied on
the reasons recorded by the Income-tax Officer that it is a fit case for the
issue of such notice." Section 139 places an obligation upon every person
to furnish voluntarily a return of his total income if such income during the
previous year exceeded the maximum amount which is not chargeable to income
tax. The obligation so placed involves the further obligation to disclose all
material facts necessary for his assessment for that year fully and truly. If
at any subsequent point of time, it is found that either on account of an
omission of failure of the assessee to fail the return or on account of his
omission or failure 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 the Income Tax Officer is entitled to re-open the
assessment in accordance with the procedure prescribed by the Act. To be more
precise, he can issue the notice under Section 148 proposing to re-open the
assessment only where he has reason to believe that on account of either the
omission or failure on the part of the assessee to file the return or on
account of the omission or failure on the part of the assessee to file the
return or on account of the omission of failure on the part of the assessee to
disclose fully and truly all material facts necessary for his assessment for
that year, income has escaped assessment. The existence of the reason(s) to
believe is supposed to be check, a limitation, upon his power to re-open the
assessment. [See the leading decision on this subject in Barium Chemicals v.
Company Law Board (1966 Suppl. S.C.R.311 at 361 = A.I.R.1967 S.C.295 at 324)]
Section 148(2) imposes a further check upon the said power, viz., the
requirement of recording of reason for such re-opening by the Income Tax
Officer. Section 151 imposes yet another check upon the said power, viz., the
Commissioner or the Board, as the case may be, has to be satisfied, on the
basis of the reasons recorded by the Income Tax Officer, that it is a fit case
for issuance of such notice. The power conferred upon the Income Tax Officer,
by Sections 147 and 148 is thus not an unbridled one. It is hedged in with
several safeguards conceived in the interest of eliminating room for abuse of
this power by the assessing officers. The idea was to save the assessees from
harassment resulting from mechnical re-opening of assessment but this
protection avails only those assessees who disclose all material facts truly
to the facts of this case, the reasons recorded by the Income-Tax Officer for
re-opening the assessment for the year 1959-60 are to the following effect:
the course of the assessment proceeding for the assessment year 1960-61
investigation were made into the unsecured loans of Rs.17,32,298/- which was
the position of the last day of the accounting year relevant to the assessment
year 1960-61. These investigations disclosed that a large number of them were
Bogus Hundi Loans or Loans from near relations or the Directors or principal
shareholders. Hence, the amounts credited to some of these accounts have been
assessed as income from undisclosed sources to the extent of Rs.11,51,275.00.
loans are noticed for the assessment year 1959-60 and they stand at Rs.853,298/-
as per Balance Sheet as on 16th April, 1959.
have, therefore reasons to believe that by reason of omission or failure on the
part of the assessee company to disclose fully and truly all material facts
necessary for its assessment of 1959-60 in regard to these accounts, income
chargeable to tax has escaped assessment.
, propose action under Section 147(a) of I.T. Act, 1961." We may also
mention that after hearing this appeal for some time, we found it appropriate
to look into the relevant record and accordingly made the following order on
October 10, 1995:
hearing the appeals for some time, we find it necessary to look into the record
to satisfy ourselves with respect to the following fact:
at the time of issuing of notice under section 148, the I.T.O. had meterial
before him showing the persons who have lent the sum of Rs.8,53,298 during the
accounting year relevant to accounting year relevant to assessment year
1959-60, were the very same person who are said to have lent Rs.11,51,275
(bogus loans) during the accounting year relevant to assessment year 1960-61,
and disallowed by the I.T.O. in that assessment year? Adjourned for eight
weeks." Accordingly, the Income Tax Officer has submitted a chart showing
that out of the unsecured hundi loans of Rs.8,53,298/- claimed by the assessee,
ten persons who are said to have lent a total amount of Rs.3,80,000/- were
common to both the Assessment Years 1959-60 and 1960-61.
other words, these very ten persons are said to have advanced loans again
during the next year and all the ten were found to be bogus lenders as recorded
in the asssessment proceeding relating to Assessment Year 1960-61.
the question is can it be said in the above facts that the issuance of the
notice under Section 148 was not warranted? Can it be said in the face of the
above facts that the Income Tax Officer had no reaosn to believe that on
account of the assessee's omission/failure to disclose fully and truly all
material facts necessary for his assessment for that year, income chargeable to
tax has escaped assessment fot that year. In the reasons recorded by the Income
Tax Officer [as required by Section 148(2)], he had stated clearly that in the
course of assessment proceedings for the succeeding assessment year, it was
found that out of the unsecured hundi loans pur forward by the assessee, a
large number were found to be bogus and that many of the so- called lenders
were found to be near relations of the Directors or the principal shareholders.
He stated that similar loans are also noticed for the Assessment Year 1959- 60
leading to escapement of income. It is not alleged by the assessee that the
Income Tax Officer had not checked up or tallied the names of the alleged
lenders for both the assessment years. In the absence of any such allegation -
which allegation, if made, could have afforded an opportunity to the Income Tax
Officer did find that a large number of alleged lenders who were found to be
bogus during the Assessment Year 1960-61 were also put forward as leanders
during the Assessment Year 1959-60 as well.
this is what he mean in the context, when he spoke of "similar loans"
being noticed for the year in question as well. In such a situation it is
impossible to say that the Income Tax Officer had no reasonable ground to
believe that there has been no full and true disclosure of all material facts
by the assessee during the relvant assessment year and that on that account,
income chargeable to tax had escaped assessment. As we shall emphasise
hereinafter, every disclosure is not and cannot be treated to be true and full
disclosure. A disclosure may be a false one or true one. It may be full
disclosure or it may not be.
partial disclosure may very often be misleading one. What is required is a full
and true disclosure of all material facts necessary for making assessment for
that year. This calls for an examination of the decisions of this Court analysing
and elucidating Sections 147 and 148 of the act.
first and foremost is the decision of the Constitution Bench Calcutta Discount
Co. Ltd. v. Income Tax Officer, Companies District-I, Calcutta & Anr. [(1961)
41 I.T.R. 191. The case arose under Section 34 of the Income Tax Act [as
amended in 1951]. In material particulars, the provisions in Section 34 were
similar to those in Section 147. Having regard to the fact that it is the only
Constitution Bench decision on the point, it is necessary to examine it in some
detail. The Constitution Bench explained the purport of Section 34 in the
confer jurisdiction under this section to issue notice in respect of
assessments beyond the period of four years, but within a period of eight
years, from the end of the relevant year two condition have therefore to be
satisfied. The first is that the Income-tax Officer must have reason to believe
that income, profits or gains chargeable to income-tax have been
under-assessed. The second is that he must have also reason to believe that
such 'under-assessment' has occurred by reason of either (i) omission or
failure on the part of an assessee to make a return of his income under section
22, or (ii) omission or failure on the part of an assessee to disclose fully
and truly all material facts necessary for his assessment for that year.
these conditions are conditions precedent to be satisfied before the Income-tax
Officer could have jurisdiction to issue a notice for the assessment or
reassessment beyond the period of four years, but within the period eight year,
from the end of the year in question..... The words used are 'omission or
failure to disclose fully and truly all material facts necessary for his
assessment for that year. It postulates a duty on every assessee to disclose
fully and truly all material facts necessary for his assessment. what facts are
material and necessary for assessment will differ from case to case. In every
assessment proceeding, the assessing authority will, for the purpose of
computing or or determining the proper tax due from an assessee, require to
know all the facts which help him in coming to the correct conclusion. From the
primary facts in his possession, whether on disclosure by the assessee, or
discovered by him on the basis of the 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 leagal inferences, and ascertain on a
correct interpretation of the texing enactment, the proper tax leviable.
when a question arises whether certain income received by an assessee is
capital receipt, of revenue receipt, the assessing authority has to find our
what primary facts have been proved, to decide what the legal inference whould
be...... 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 extand
beyond this." (Emphasis added) In that case, the alleged not-disclosure of
material facts fully and truly- to put it in the words of the court - was the
failure of the assessee to disclose "the true intention behind the sale of
the shares". The assessee had stated during the assessment proceedings
that the sale of shares during relevant assessment years was a casual
transaction in the nature of mere change of investment. The Income Tax Officer
found later that those sale were really in the nature of trading transactions.
The case of the Revenue was that the assessee ought to have stated that they
were material, on the basis of which, he has reasons to believe that the assessee
had put forward certain bogus and false unsecured hundi loans said to have been
taken by him from non-existent persons of his dummies, as the case may be, and
that on that account income chargeable to tax has escaped assessment. According
to him, this was false assertion to the knowledge of the assessee. The Income
Tax Officer says that during the assessment relating to subsequent assessment
year, similar loans [from some of these very persons] were found to be bogus.
On that basis, he seeks to re-open the assessment. It is necessary to remember
that we are at the state of re-opening only. The question is whether, in the above
circumstances, the assessee can say, with any justification, that he had fully
and truly disclosed the material facts necessary for his assessment for that
year. Having created and recorded bogus entires or loans with what face can the
assessee say that he had truly and fully disclosed all material facts necessary
for his assessment for that year. True it is that Income Tax Officer could have
investigated the truth of the said assertion which he actually did in the
subsequent assessment year - but that does not relieve the assessee of his
obligation, placed upon him by the statute, to disclose fully and truly all
material facts Indubitably, whether a loan alleged to have been taken by the assessee,
is true or false, is a meterial facts and not an inference, factual or leagal,
to be drawn from given facts. In this case, it is shown to use that ten persons
[who are alleged to have advanced loans to the assessee in a total sum of
Rs.3,80,000/- out of the total hundi loans of Rs.8,53,298/-] were established to
be bogus persons or mere name lenders in the assessment proceedings relating to
the subsequent year.
it not furnish a reasonable ground for the Income Tax Officer to believe that
on account of the failure- indeed not a mere failure but a positive design to
mislead - of the assessee to disclose all material facts, fully and truly,
necessary for his assessment for that year, income has escaped assessment? We
are of the firm opinion that it does. It is necessary to reiterate that we are
now at the stage of the validity of the notice under Section 148/147.
enquiry at this stage is only to see whether there are reasonable grounds for
the Income Tax Officer to believe and not whether the omission/failure and the
escapement of income is established. It is necessary to keep this distinction
recent decision of this Court in Phool chand Bajranglal v. Income Tax officer
[(1993) 203 I.T.R.456], we are gratified to note, adopts an identical view of
law and we are in respectful agreement with it. The decision rightly emphasises
the obligation of the assessee to disclose all material facts necessary for
making his assessment fully and truly. A false disclosure, it is held, dose not
satisfy the said requirement. We are also in respectful agreement with the
following holding in the said decision:
the belief is that of the Income tax Officer, the Sufficiency of reasons for
forming the belief is not for the court of judge but it is not for the court of
judge but it is open to an assessee to establish that there in fact not at all
a bona fide one or was based on vague, irrelevant and non-specific information.
To that limited extent, the court may look into the conclusion arrived at by
the Income-tax Officer and examine whether there was any meterial available on
the record from which the requisite belief could be formed by the Income-tax
Officer and further whether that material had any rational connection or a live
link for the formation of the requisite belief." Learned counsel for the assessee,
Sri Gupta placed strong reliance upon the decisions of this Court in Chhugamal Rajpal
v. S.P. Chaliha & Ors [(1971) 79 I.T.R.603], Income Tax Officer, I Word,
Dist. VI, Calcutta v. Lakhmani Mewal Das [(1976) 103 I.T.R.437] and
Commissioner of Income Tax, Calcutta v. Burlop Dealers Limited [(1971) 79
I.T.R.609] as laying down propositions contrary to those laid down in Phool Chand
Bajranglal. We cannot agree. The principle is well-settled by Calcutta Discount
and it is not reasonable to suggest that any different proposition was sought
to be enunciated in the said decisions. Calcutta Discount emphasises repeatedly
the assessee's obligation to disclose all material facts necessary for his
assessment fully and truly in the context of the two requirements - called conditions
precedent which must be satisfied before the Income Tax Officer gets the
jurisdiction to re-open the assessment under Section 147/148. This obligation
can neither be ignored nor watered down. Nor can anyone suggest that a false
disclosure satisfies the requirement of full and true disclosure. All the
requirement stipulated by Section 147 must be given due and equal weight.
Finality of proceedings is certainly a consideration but that avails one who
has fully and truly disclosed all material facts necessary for his assessment
for that year - and not to others. All the decisions relied upon by Sri Gupta
have been elaborately discussed and distinguished in Phool Chand Bajranglal and
we fully agree with the same. We think it unnecessary to repeat those reasons.
In particular, we agree with the reasons given in Phool Chand Bajranglal for
holding that the decision of this Court in Burlop delears must be confined to
the particular fact-situation of that case and that it cannot be construed to
be of universal application irrespective of the facts and circumstances of the
case before the Court.
brought to our notice that certain other decisions of this Court have rightly emphasised
the requirement of full and true disclosure and have held that failure or omission
to do so, legitimately attracts the power under Section 147. In Inspecting
Assistant Commissioner of Income Tax v. V.I.P. Industies Limited [(1991) 191
I.R.R.661], a three-Judge Bench had this to say:
hearing learned cousel for both the parties, we are unable to uphold the order
of the High Court.
appears the notice of the Income-tax Department that the facts disclosed in the
return are not a true and correct declaration of facts. In that view of the
matter, we set aside the order of the matter, we set aside the order of the
High Court passed in Writ Petition No.1634 of 1988 (V.I.P. Industries v.
Inspecting Assistant Commissioner  187 ITR 639 (Bomb.)), and send the
case back on remand to the Income-tax Officer for a decision in accordance with
law after giving an opportunity of hearing to the parties concerned.
special leave petitions are disposed or." In Central provinces Manganese
Ore Co Ltd. v. Income Tax Officer, Nagpur [(1991) 191 I.T.R.662] again, this court observed:
only question which arises for out consideration is as to whether the two
conditions required to confer jurisdiction on the Income- tax Officer under
section 147 (a) of the Act have been satisfied in this case. The first is that
the Income-tax Officer must have reason to believe that the income chargeable
to income-tax had been under assessed and the second that such under assessment
has occurred by reason of omission or failure on the part of the assessee to
disclose fully and truly all material facts necessary for its assessment for
the year 1953-54.
as the first condition is concerned, the Income-tax officer, In his recorded
reasons, has relied upon the fact as found by the Customs Authorities that the
appellant had under-invoiced the goods it exported. It is no dought correct
that the said finding may not be binding upon the income-tax authorities but it
can be valid reason to beliveve that the chargeable income has been under-
assessed. The final outcome of the proceedings is not relevant. What is relevant
is the existence of reasons to make the Income-tax Officer believe that there
has been under-assessment of the assessee's income for particular year. We are
satisfied that the first condition to invoke the jurisdiction of the Income tax
Officer under Section 147 (a) of the Act was satisfied.
regards the second condition, the appellant did not produce the books of
account kept by them at their head office in London nor the original contracts of sale which were entered into
at London with the buyers. The appellant did
not produce before the Income-tax Officer any of the accounts with related to
the foreign buyers. No reasons were given for the supply of manganese ore at a
rate lower than the market rate. It is for the assessee to disclose all the primary
facts before the Income-tax Officer to enable him to account for the true
income of the assessee. The proven charge of under-invoicing per se satisfied
the second condition. The appellant's assessable income has to be determined on
the basis of the price received by it for the goods exported. If the true price
has not been disclosed and there was under invoicing, the logical conclusion
prima facie is that there has been failure on the part of the appellant to
disclose fully and truly all material facts before the Income-tax Officer. We
are, therefore, satisfied that both the conditions required to attract the
provisions of section 147 (a) have been complied with in this case.
Income Tax Officer v. Mewalal Dwarka Prasad (176 I.T.R.529), this Court held
that if the notice issued under Section 148 is good in respect of one item, it
cannot be quashed under Article 226 on the ground that it may not be valid in
respect of some other items. We need not, however, dilate on this aspect for
the reason that no argument has been urged before us to the effect that since
the notice under section 148 is found to be justifiable in respect of some loan
disclosed and not with respect to other loans, it is invalid.
the above reasons, the appeal fails and is dismissed with costs. Advocate's fee
Rupees ten thousand consolidated.
APPEAL NOS. 2101-03 OF 1980:
separate arguments have been addressed in these appeals obviously because the
decision in Civil Appeal No 1562 of 1977 would govern these cases as well. For
the reasons given for dismissing Civil Appeal No.1562 of 1977, these appeals
are also dismissed.