Patna High Court
Dhanaraj Singh & Co. vs Commissioner Of Income Tax & Anr. on 4 March, 1994
Equivalent citations: (1996)132CTR(PAT)323
Author: K. S. Paripoornan
Bench: K. S. Paripoornan
JUDGMENT
K. S. PARIPOORNAN, C.J. :
This batch of three connected cases are filed by the same assessee, a firm, carrying on contract business. Common questions arise for consideration in this batch of three cases. The respondent is the Revenue. In this batch of cases, the petitioners assessments for the years 1983-84, 1984-85 and 1985-86 are sought to be reopened by the issue of a notice under s. 148 r/w s. 147 of the IT Act, 1961. The previous years relevant for the assessment years ended on 31st March, 1983, 31st march, 1984 and 31st March, 1985. The writ applications relating to these CWJC Nos. 7512 of 1992, 7511 of 1992 and 7510 of 1992, respectively. Stated briefly, the attack is against Annex. 3 notice issued under s. 148 of the IT Act as one issued illegally and without jurisdiction. The notice under s. 148 r/w s. 147 of the IT Act for the year 1983-84 (Annex. 3 in CWJC No. 7512 of 1992) is dt. 21st March, 1991. Similar notice for the year 1984-85 (Annex. 3 in CWJC No. 7511 of 1992) is dt. 26th March, 1992, and for the year 1985-86 the notice is dt. 26th March, 1992 (Annex. 3 in CWJC No. 7510 of 1992).
2. Substantially similar are the facts stated and dealt with by the petitioner and by the respondent/Revenue in the writ petition, in the counter-affidavits and in the rejoinder affidavits in all the three cases. CWJC No. 7512 of 1992 relating to the earliest asst. yr. 1983-84 was taken as the representative case and it was agreed at the Bar that the pleadings in the case may be taken as the basis for all the three years. Both sides proceeded on that basis. In appreciating the pleas raised before us, we have to bear in mind that the provisions of ss. 147, 148 and 151 of the IT Act, as they stood prior to the substitution of those sections by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, are the relevant statutory provisions governing the matter. For appreciating the controversy in this case, it is useful to quote ss. 147, 148 and 151 of the IT Act as they stood at the relevant time :
"147. Income escaping assessment. - If -
(a) the AO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the AO 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 cl. (a) on the part of the assessee, the AO 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 ss. 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 ss. 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 underassessed;
(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 IT Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
Explanation 2. - Production, before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO 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 s. 147, the AO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 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 AO shall, before issuing any notice under this section, record his reasons for doing so.....
151. Sanction for issue of notice. - (1) No notice shall be issued under s. 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice.
(2) No notice shall be issued under s. 148 after the expiry of four years from the end of the relevant assessment year, unless the Chief CIT or CIT is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice."
3. The petitioner-firm carries on contract business. According to it, it has maintained necessary books of account in the regular course of business and is being assessed to tax as a registered firm under the IT Act. The further case pleaded is that for the accounting periods relevant for the asst. yrs. 1983-84, 1984-85 and 1985-86, the petitioner has maintained necessary books of account in the regular course of business. The petitioner filed returns for the aforesaid years and, after discussion with the CIT, filed revised returns under the Amnesty Scheme on 30th Sept., 1986, with a covering letter. It is the petitioners specific case that along with the return the audited trading and P&L account, balance sheet, partners capital account and details of the loan accounts duly verified and confirmed by the creditors giving also their income-tax file numbers, were filed. They are evidenced by Annex. 1 series. It is stated that the returns were scrutinised by the second respondent - the ITO, Ward I(1), Patna - and the assessments were completed by him under the Amnesty Scheme itself under s. 143(3) of the Act on 30th March, 1987, accepting the returned income. The assessment order is Annex. 2. Thereafter, the petitioner was served with Annex. 3 notice dt. 21st march, 1991, under s. 148 of the IT Act stating that the second respondent had "reasons to believe" that the petitioners income chargeable to tax has escaped assessment within the meaning of s. 147 of the Act and, therefore, it is proposed to reassess the income for the said assessment year. This is for the year 1983-84. Similar notices were issued for the asst. yrs. 1984-85 and 1985-86, dt. 26th March, 1992. Annex. 3 notice did not contain any particulars as to why it is stated that the income has escaped assessment. According to the petitioner, in issuing the notices in all the three cases, none of the pre-conditions postulated by s. 147 of the IT Act is satisfied and so the ITO had no jurisdiction to issue the notice under s. 148 of the Act. It is stated that in order to attract jurisdiction for the initiation of proceedings under s. 148 r/w s. 147 of the Act, the following conditions should be satisfied :
(a) There must be escapement of chargeable income of the relevant assessment year;
(b) The AO must have reasons to believe (and not merely reasons to suspect) that such escapement is due to failure of the assessee to file return for that year or due to his failure to disclose fully and truly all the material facts necessary for his assessment for that year; and
(c) Even if there is no such failure, the AO has, in consequence of information in his possession, reasons to believe escapement of income.
According to the petitioner, the said conditions precedent envisaged by the Act are totally absent in this case. In paragraph 12 of the writ petition, the petitioner has stated as follows :
"That the petitioner states that admittedly for the asst. yr. 1983-84 return was duly filed. It is also on record that all the material facts necessary for his assessment were also duly disclosed in the documents accompanying the return, viz., the audited trading and P&L account, balance sheet, details of loan accounts giving also their income-tax file numbers thereon, etc. After due consideration of these material on record, the assessment was completed on 30th March, 1987 (Annex. 2). It is thus, plain that there was neither any failure on the part of the assessee nor there was any new information available on the record, within the meaning of s. 147 of the Act. The issue of the notice under s. 148 r/w s. 147, is thus wholly arbitrary and without jurisdiction, and is solely for the purposes of making roving and fishing enquiries, which it is well settled, is not permissible thereunder. It may further be stressed here that all the loans have been received by account payee cheques. Even the repayment of the loans and interest thereon have all been made by account payee bank draft/cheques. Thus, the onus of the firm to prove the source of the receipts was fully established as required under s. 68 of the Act."
On the above facts, Annex. 3 notice issued under s. 148 r/w s. 147 of the Act is attacked as illegal and without jurisdiction.
4. On behalf of the Revenue, a counter-affidavit has been filed by the second respondent dt. 16th Sept., 1992. It is significant to note that the crucial averments in paragraph 12 of the writ application (extracted hereinabove) are not denied in the said counter-affidavit. In paragraph 3 of the counter-affidavit, the second respondent has pleaded thus :
"(a) That the return of income was originally filed at Rs. 4,18,590 which was revised on 30th Aug., 1986, and revised return was filed showing income of Rs. 2,52,140. In the balance sheet filed along with the return cash credits as noted against the seven persons amounting to Rs. 9,34,575 were appearing. During the course of assessment for the asst. yr. 1987-88, enquiry was carried out by the Investigation Wing of Calcutta and the alleged seven creditors were found to be non-existent....
(c) That there are sufficient materials in the possession of the Department to show that it is a case of underassessment and Rs. 9,34,575 has escaped assessment within the meaning of s. 147 of the Act...
(e) That respondent No. 2 had furnished the reasons for initiating proceedings under s. 147 to the petitioner and the allegation that the petitioner was not supplied with reasons for initiation of proceedings under s. 147 is incorrect. The show cause notice dt. 7th Aug., 1990, received by the petitioner on 8th Aug., 1990 contained the reasons for reopening the assessment under s. 147 of the IT Act, 1961".
In paragraph 6, it is further stated thus :
"... the AO has taken action under s. 148 of the Act in reopening the assessment made under s. 143 of the Act in view of the result of subsequent investigation made as detailed in the show cause dt. 7th Aug., 1990, vide Annex. A. That the return of income was originally filed at Rs. 4,18,590 which was revised on 30th Aug., 1986, and revised return was filed showing income of Rs. 2,52,140. In the balance sheet filed along with the return, cash credits as noted against the following names were appearing :
Rs.
1. Jain Transport Organisation 1,04,072
2. Khub Chand Nem Chand 1,04,072
3. Glob Iron 2,07,903
4. Nand Lal Mul Chand 1,04,072
5. Max Worth Industrial Service 2,07,258
6. Delux Enterprises 1,55,444
7. Cresent Enterprises Ltd.
51,754 9,34,575 During the course of assessment for the asst. yr. 1987-88, enquiries were carried out by the Investigation Wing of Calcutta. The result of the enquiries is reported partywise as under :
1. Jain Transport Organisation No such business concern was found at the given address
2. Khub Chand Nem Chand Party was not found at the given address
3. Glob Iron Party was not found at the address
4. Nand Lal Mul Chand Could not confirm the loans
5. Max Worth Industrial Service Party was not found at the address given
6. Delux Enterprises Not found at the address given
7. Cresent Enterprises Ltd. The company was never at the address given."
The AO, in view of the above facts and after considering the reply of the petitioner dt. 5th Sept., 1990, came to the conclusion that the income of the petitioner had escaped assessment within the meaning of s. 147 of the Act and Rs. 9,34,575 had escaped assessment and, therefore, the AO recorded the reasons for initiating proceedings under s. 148 and the approval for initiating the proceeding was granted.
In Annex. A show cause notice dt. 7th Aug., 1990, it is specifically stated as under :
"During the course of assessment proceedings for the asst. yr. 1987-88, the interest paid to the above parties on such loans has been disallowed as they were held to be not genuine. Accordingly, your assessment for the asst. yr. 1983-84 has escaped assessment within the meaning of s. 147 of the IT Act as these loans were introduced during the accounting year relevant to the asst. yr. 1983-84. You are, therefore, requested to show cause why not your assessment for the asst. yr. 1983-84 is reopened under s. 147 and the loans stated above be added in your income."
In the reply of the assessee, dt. 5th Sept., 1990, to the show cause notice, the assessee has replied thus :
"The loans mentioned in your notice are genuine and they were taken by cheques and repayments were also made by cheques. All the parties are income-tax payers and it is only on the basis of suspicion and surmises that the interest has been disallowed in the asst. yr. 1987-88. As a matter of fact, we have already filed an appeal before the learned CIT(A) and the matter is lying sub judice before the learned CIT(A). In this background, you will kindly appreciate that there is no occasion for initiating proceeding under s. 147 on the facts and circumstances of our case and it would be wrong and illegal to reopen the assessment. In this regard, we would like to impress upon you that there was no failure on our part in filing inaccurate particulars of income in our return of income and it is only on account of change in opinion that you want to reopen the assessment for taxation of the genuine loans which is not permissible in law. Under the circumstances, we would request you to be kind enough not to reopen our assessment for the asst. yr. 1983-84."
Annex. C, at pages 58 to 62, filed along with the counter-affidavit, contains the reasons for initiating proceedings under s. 148 and for obtaining the approval of the CIT. Therein the officer has stated against columns 6, 7 and 12 thus :
"6. The quantum of income which has escaped assessment.
Rs. 9,34,575 cash credits
7. Where the provisions of s. 147(a) or 147(b) are applicable or both the sections are applicable.
147 of the IT Act, 1961
12. Whether the CIT/Board is satisfied on the reasons recorded by the ITO that it is a fit case for the issue of a notice under s. 148 Yes, I am satisfied."
The petitioner has filed a detailed rejoinder dt. 20th May, 1992. In paragraph 10, the petitioner has specifically stated that all the loans received by the assessee were by account payee drafts, interest was paid from time to time by account payee cheques/drafts, the principal amounts were repaid by account payee drafts, that all the creditors are income-tax assessees who have duly confirmed the transactions in question furnishing therein also their income-tax file numbers. In paragraph 11 to 17, the petitioner has attempted to show that no proper enquiry was conducted to surmise that either the parties from whom the loans were obtained were not genuine or that they did not exist and the materials recorded in the reasons for obtaining the sanction as also now placed cannot form the basis or the reasons for initiating proceedings under s. 148 r/w s. 147 of the IT Act and the initiation of the proceedings is merely for the sake of making a fishing enquiry which is not permissible under law. They are dealt with in paragraphs 11 to 17 of the rejoinder-affidavit. They are as follows :
"11. That with regard to Jain Transport Organisation, it has been alleged that no such business concern was found at the given address. It may be relevant to notice that whereas the show cause notice referred to Jain Transport Organisation, the enquiry report talks of Jain Transport Corporation at P. 4, Kalakar Street, while the confirmation letter filed shows that name as Jain Transport Organisation. It is thus evident that no proper enquiry was made. On the contrary, the enquiry report as received clearly shows that there is a business concern, Jain Transport Organisation at P. 14, Kalakar Street. This fact has clearly been suppressed while obtaining the sanction on the basis of reasons recorded. The copy of the enquiry report as also affidavit dt. 30th May, 1992, are enclosed and marked as Annexs. 4 and 5.
12. That with regard to the credit in the account of Khub Chand Nem Chand, it has been alleged that the party was not found at the given address. Here also while obtaining the sanction the correct facts have been suppressed. It is on record that the credits were obtained in December, 1982, while the enquiries were being conducted in July, 1989, and even in this enquiry it was reported that the party had left the premises two years back. This important fact has been suppressed inasmuch as this fact establishes beyond doubt that such a party was in existence at the relevant time and is still in existence though not at the earlier address. In this case also, the said party is an income-tax assessee who had furnished a confirmation account giving also its income-tax file numbers.
13. That with regard to the credit in the account of Glob Iron and Steel Co., it has been alleged that the party was not found. In this case also, the material fact has been suppressed. According to the enquiry report, this party had left this address in April, 1988. The transaction in this case was also entered in December, 1982, while the enquiry was made in July, 1989. The enquiry further supports the fact that the party was not only in existence at the relevant point of time but was even in existence till March, 1988. The facts in this case are identical with the case of Khub Chand Nem Chand as stated in paragraph 12 above.
14. That with regard to the credit in the name of Nand Lal Mulchand it has been alleged that the said party could not confirm the loan. This is clearly a misstatement inasmuch as even in the asst. yr. 1987-88 interest paid to this party has been allowed and not disallowed. Moreover, from the mere fact that the said party could not confirm the loan, the non-existence of the party cannot be inferred. On the contrary, it establishes the existence of the party. In fact, the said party had confirmed the loan directly to the AO and it is on that count that the interest paid to this party was duly allowed in the asst. yr. 1987-88.
15. That with regard to the credit in the account of Max Worth Industrial Services Ltd. the credits in this account are in January, 1983, by bank drafts, while the enquiries have been conducted in July, 1989. It has been alleged that the party was not found at the address given. Here also, the relevant material facts have been suppressed. In the enquiry report it was confirmed that such a concern had existed there but had shifted only about two years back and that the informant was not aware of the present whereabouts. The facts in this respect are also similar as stated in paragraph 12 above and the existence of this party at the relevant time stood duly proved. The additional fact which has been lost sight of, is that it was a case of a limited company and the present whereabouts can be easily ascertained from the office of the Registrar of Companies. Moreover, merely because the creditor was not at the original address after the lapse of six years can be no justification for an inference that the party was non-existent.
16. That the credit in the account of Delux Enterprises was in January, 1983, while the enquiry was made in July, 1989. Here also the allegation is that the party was not found at this address but the material facts have been suppressed. In this case also, the enquiry report clearly stated that the party had left this address in April, 1988. The existence of the party at the relevant time was thus established and without any enquiry whatsoever the proceedings in question were initiated. The facts here also are similar to the facts of the case in paragraph 12 above.
17. That with regard to the credit in the account of Cresent Enterprises Ltd., the allegation is that the company never existed at the address given. It may be pointed out at this stage that the name of the company is Cresent Export Ltd. as is evident from the confirmation loan account filed by the party with the return, while the enquiry appears to have been conducted in the name of the Cresent Enterprises Ltd. and evidently no such company can be found at the address given. Without prejudice to the above, it was clearly a case of a limited company and the present whereabouts of the same can be easily ascertained from the office of the Registrar of Companies. Evidently, no attempt has been made and merely on suspicion it has been inferred that the said creditor is non-existent. The fact is that the said company is still in existence and is regularly being assessed to income-tax. The present address of the said company is B. Camac Street, 10th Floor, Calcutta, and they have confirmed on affidavit the genuineness of the said transactions."
5. We heard counsel for the petitioner, senior advocate, Mr. Jain, as also counsel for the Revenue. A few relevant dates and aspects deserve notice :
1. The ITO issued the show cause 7-8-1990 (Annex. A) notice to the assessee
2. Objections filed by the assessee 5-9-1990 (Annex. B)
3. Notice under s. 147 issued to 21-3-1991 (served on the assessee the assessee on 25-3-1991)
4. Appellate order for the year 1987-88 10-8-1992 5. Writ application filed 10-8-1992 In the writ petitions, the notices issued under s. 148 r/w s. 147 of the IT Act for the asst. yrs. 1983-84, 1984-85 and 1985-86 are assailed in CWJC Nos. 7512, 7511 and 7510 of 1992, respectively. It is common ground that the notices under s. 148 r/w s. 147 of the Act were issued more than four years after the end of the assessment years. It is also common ground that s. 147(a) of the IT Act, 1961, as it stood at the relevant time, is applicable in this batch of three cases. A perusal of ss. 147, 148 and 151 of the Act would go to show that the following conditions should be satisfied for a proper and legal assessment under those provisions in the instant cases.
1. The AO has reason to believe;
2. (a) that by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year; or
(b) 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 that year.
3. Income chargeable to tax has escaped assessment for that year.
4. The reasons which led the officer to entertain the belief must be recorded.
5. The notice of reassessment proceedings must be issued within the time limit specified in s. 149 r/w s. 151 of the Act.
6. Learned counsel for the petitioner/assessee relied upon four decisions of the Supreme Court and a decision of this Court to substantiate his plea that the conditions laid down in ss. 147 and 148 have not been satisfied in the instant case. The decisions relied on are :
1. Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC);
2. CIT vs. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC);
3. ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC);
4. ITO vs. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC);
5. CIT vs. Agarwalla Bros. (1991) 189 ITR 786 (Pat) In Calcutta Discount Co. Ltd.s case (supra) at pp. 199 and 200, the Court held thus :
"Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the ITO could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. 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 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 legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is a capital receipt, or a revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and, taking all these together, to decide what the legal inference should be."
The above passage was quoted with approval in the subsequent decision in Burlop Dealers Ltd.s case (supra). It was held therein that the assessees duty was to disclose (primary) material facts and the assessee had no duty to inform the officer all probable inferences that may be raised on the facts disclosed. If the officer made wrong inferences in the original assessment, he was not entitled to reopen the assessment. In Lakhmani Mewal Dass case (supra), the decision in Calcutta Discount Co. Ltd. (supra) was again followed. It was held that in order to have reasons to believe that income has escaped assessment there is necessity of live link between the material and belief. At page 448, the Court stated thus :
"As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment."
The earlier decision in Burlop Dealers Ltd.s case (supra) was cited and followed in ITO vs. Madnani Engg. Works Ltd. (supra). The case related to hundi loans for which interest paid to creditors was allowed as deduction. Subsequently, it was sought to be disallowed, in proceedings initiated under s. 147 of the Act, since the Department obtained information that the creditors were merely name lenders. There was no positive indication that the information so obtained related to the loans taken by the assessee. The question arose as to whether the assessee disclosed fully and truly all material facts during the original assessments. It was found that the assessee had produced through his authorised representative all books of account, bank statements and other necessary documents in connection with the return. The Court held that it was for the ITO to investigate and determine whether these documents were genuine or not, and it cannot be said that the assessee failed to make a true and full disclosure of the material facts, by not confessing before the ITO that the documents were bogus. In CIT vs. Agarwalla Bros. (supra), a Division Bench of this Court held that for determining the validity of the notice issued under s. 147 of the Act, only the reasons recorded at the time of issuing the notice can be considered. Only those reasons recorded under s. 147 of the Act can be looked into for determining the validity of the notice. Relying on the above decisions of the Supreme Court and the decision of this Court and the averments contained in paragraph 12 of the writ petition and paragraphs 11 to 17 of the rejoinder, quoted hereinabove, the assessees counsel contended that the issue of notices in this case to reopen the assessments under s. 147 r/w s. 148 of the IT Act is totally illegal and without jurisdiction.
On the other hand, counsel for the Revenue contended that during the course of the assessment of the same assessee, for a subsequent year (1987-88), enquiry was carried out by the Investigation Wing of Calcutta and it was found that the seven creditors from whom the assessee is said to have obtained loans, were non-existent. It was further pleaded that the appellate order for the year 1987-88, dt. 10th Aug., 1992, directed investigation and so under s. 150 of the IT Act, there is no bar of limitation. Finally, it was contended that from the final assessment orders that may be rendered the assessee will have a statutory right of appeal and further second appeal and then a reference to this Court and so this Court should not exercise the discretionary jurisdiction under Art. 226 of the Constitution. To substantiate the above, our attention was drawn to the following decisions :
1. Phool Chand Bajarang Lal vs. ITO (1993) 203 ITR 456 (SC);
2. Kedarnath Goenka vs. ITO (1979) 120 ITR 390 (Pat);
3. Travancore Electro Chemical Industries Ltd. vs. Dy. CIT (1992) 195 ITR 857 (Ker).
7. On evaluating the rival pleas urged before us, I am of the view that the non-denial of the crucial averments contained in paragraph 12 of the writ application assumes significance on the facts of this case. The said averments taken along with paragraphs 11 to 17 of the rejoinder affidavit filed by the petitioner would go to show that the assessee had disclosed "all material facts" necessary for its assessments in those assessment years during the original assessment proceedings. It is evident that in all those years, the assessee had filed the returns along with the audited trading and profit and loss account, balance-sheet, partners capital account and details of the loan accounts, duly verified and confirmed by the creditors giving also their income-tax file numbers, etc. It is significant to notice that the loans were obtained by account payee drafts, interest was paid from time to time by account payee cheques/drafts and the principal amount also repaid by account payee drafts. All these matters were confirmed by the respective creditors who were assessees and had shown their income tax file numbers, etc. The persons from whom loans were obtained had also passed letters owning the transactions. All the facts necessary for the purpose of the assessees assessments for those years were before the ITO. The assessee had disclosed all of them with details. It may be that the ITO failed to make proper or further investigation, but there was no failure on the part of the assessee to disclose all the material facts necessary for the purpose of its assessments for the concerned assessment years. All that the Revenue has stated in the counter affidavit is that during the course of assessment proceedings in the subsequent asst. yr. 1987-88, an enquiry was carried out and the investigation revealed that the seven creditors from whom the assessee had obtained loans were found non-existent. In particular reliance was placed on the show cause notice dt. 7th Aug., 1990 (Annex. A to counter affidavit). Neither the counter affidavit nor the show cause notice (Annex. A) nor the recording of reasons (Annex. C) in any way point out that there was any failure on the part of the assessee to disclose truly or fully primary or material facts necessary for the purpose of its assessments for the relevant assessment years. There was no omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessments of those assessment years. This is not a case where the assessee failed to make a return under s. 139 of the Act for the relevant assessment years. In these circumstances, I hold that the AO could not (and did not) have any reason to believe that the income chargeable to tax has escaped assessment for the relevant assessment years, by reason of the omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessments for the relevant assessment years. No material or reason is shown to exist for the formation of the "belief" envisaged by s. 147 of the Act. On this basis, it follows that the condition precedent for reopening the assessment under s. 147 r/w s. 148 of the Act is non-existent. Even in the reasons recorded (Annex. C) or in the counter affidavit, the Revenue has no plea that the assessee failed to disclose fully and truly all the material facts necessary for its assessments for the relevant assessment years. I am fortified in taking the above view in the light of the four Supreme Court decisions and the Bench decision of this Court, brought to our notice by the assessees counsel, which have been adverted to hereinabove.
8. Counsel for the Revenue very heavily relied on the decision of the Supreme Court reported in Phool Chand Bajrang Lals case (supra) and contended that even if the loans taken by the assessee were accepted as genuine in the original assessments and interest paid was allowed as deduction, information obtained during the course of the assessment for the subsequent year will be sufficient for initiating proceedings under s. 147 r/w s. 148 of the Act. In other words, it was contended that the decision is Burlop Dealers Ltd.s case (supra) has been departed from and the subsequent definite and reliable information showing that the loans were bogus will be sufficient to set in motion, proceedings under s. 147 r/w s. 148 of the IT Act. I am of the view that the decision of the Supreme Court in Phool Chand Bajrang Lals case (supra) is distinguishable. In Phool Chand Bajrang Lals case (supra), the assessee-firm claimed that it had borrowed a loan from a Calcutta company. The assessee had produced evidence to show that the loan was raised in cash and interest was paid by cheque or bank draft. A confirmatory letter from the company was also produced. The assessments were completed on that basis. Thereafter, the ITO having jurisdiction over the Calcutta company informed the ITO of the assessee in a different place that the managing director of the Calcutta company had made a confession to the effect that the company was only a name lender and had never advanced any loan to any person and this was accepted in the assessments of the (Calcutta) company. On this basis, the ITO issued a notice under s. 147(a) of the Act. In the said background, and in considering Burlop Dealers Ltd.s case (1971) 79 ITR 609 (SC) (supra), at page 472, the Supreme Court held thus :
"Thus, it is seen that in Burlop Dealers case (1971) 79 ITR 609 (SC), apart from the ITO holding during the assessment proceedings of the same assessee for a subsequent year, that the alleged agreement between the assessee and Ratiram was bogus, there was no other information or material from any other external source which came to the notice of the ITO after the assessment proceedings which could enable the ITO to form a reasonable belief that the income of the assessee had escaped assessment in the earlier year. As a matter of fact, after the conclusion of the original assessment proceedings, there was no fresh material at all available with the ITO in Burlop Dealers case (supra), which could have enabled the ITO to entertain any reason to believe that the income of the assessee had escaped assessment for the asst. yr. 1949-50. An assessment order for the subsequent year could not by itself lead to any inference, much less to the formation of a reasonable belief that income chargeable to tax had escaped assessment in the previous year, on account of the failure on the part of the assessee to make a true and full disclosure of the primary facts during the proceedings of the concluded assessment."
In other words, in Phool Chands case (supra), it is the material which came to light de hors the assessment of the assessee subsequently (an external source) that provided the necessary basis or material for initiating proceedings under ss. 147 and 148 of the IT Act. The loans were in cash. There was a clear confession by the creditor (chief managing director of the Calcutta company) that the loans were bogus. But in these cases, the loans and repayments and interest payments were all by account payee cheques, drafts, etc., the creditors owned and acknowledged the loans, payments and repayments, they were themselves assessees and also passed on confirmatory letters, etc. The Revenue has no case that it is any external source that provided the basis for reopening the assessments in this batch of three cases. The method by which the loan was obtained and returned was also different. On the other hand, what is pleaded and disclosed from the files is that it is the enquiry that was made during the course of assessment in the assessees own case, for a subsequent year that is the basis for initiating proceedings under s. 147 of the Act. In the latter decision in Phool Chands case (supra), the Supreme Court did not depart from its earlier decisions in Calcutta Discount Co. Ltd. vs. ITO (supra), ITO vs. Lakhmani Mewal Das (supra) or ITO vs. Madnani Engineering Works Ltd. (supra). I repel the plea of the Revenue that the decision in Phool Chand Bajrang Lals case (supra) is relevant or applicable to the case on hand.
9. It cannot be doubted that the conditions envisaged by ss. 147 and 148 of the Act should be present and proved in order to initiate proceedings under the said sections. If the prerequisites envisaged by the said sections are absent, the ITO cannot assume jurisdiction to initiate proceedings under s. 147 of the Act. The question pertains to jurisdiction and is fundamental. There is total want of jurisdiction. In such circumstances, I am of the view that the availability of an alternative remedy, by way of appeals and reference which are likely to be lengthy proceedings, cannot be said to be an equally efficacious remedy. The availability of an alternate remedy is no bar and this Court can issue appropriate writs to afford effective and meaningful relief to the assessee. I further hold that this is not a case wherein s. 150 of the IT Act will apply and reliance placed on the appellate order (Annex. C) filed along with the petition by the Revenue has no relevance. The appellate order is dt. 10th Aug., 1992, and related to the assessees case for the year 1987-88. It cannot be said that the earlier notice dt. 21st March, 1991, was issued by the ITO, in these three cases in order to give effect to the observations contained in the said appellate order. The said plea has absolutely no foundation.
10. In the result, I hold that Annex. 3 in the three writ petitions are illegal and without jurisdiction. They are quashed. The writ petitions are allowed. There shall be no order as to costs.
N. K. SINHA, J. :
I agree.