Calcutta High Court
G. S. Atwal & Co. (Gua) vs Commissioner Of Income Tax. on 24 October, 1990
Equivalent citations: (1993)109CTR(CAL)328
JUDGMENT
AJIT K. SENGUPTA, J. :
In this reference under s. 256(1) of the IT Act, 1961, for the asst. yr. 1965-66 the following questions of law have been referred to this Court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reopening of assessment under s. 147(a) of the IT Act, 1961, was justified ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that conditions precedent to initiate proceedings under s. 147(a) of the IT Act, 1961, was satisfied ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the query made by the ITO by his letter dt. 7th October, 1967 to M/s. Hewitt-Robins Inc. regarding the nature of the advance before the original assessment was general in nature ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was a nexus between the materials available before the ITO and the formation of belief that income escaped assessment during the previous year for the asst. yr. 1965-66 ?"
2. Shortly stated the facts leading to this reference are as under :
The ITO in his fresh assessment order noted that the original assessment was made 0n 19th June, 1968 on a total income of Rs. 1,26,028 which was reduced in appeal to Rs. 1,23,990. He also noted that the assessee had income from contract business, a major portion of which was derived from sub-contract under M/s. Hewitt Robins Inc. an American concern entrusted with the work of installation of iron ore, handling plant of Paradeep Port during the financial year 1964-65. The assessee disclosed Rs. 8,70,837 as total receipt from the said American concern. The ITO pointed out that the assessee received also another sum of Rs. 3,50,000 which was not shown in the receipt. He pointed out that in the balance sheet as on 31st March, 1965, the assessee, however, has shown the liability of Rs. 5 lakhs which was made up of Rs. 3,50,000 as mentioned above and another sum of Rs. 1,50,000 received on 7th Dec., 1963 which was shown earlier as advance and stood as such in the balance sheet for the year under consideration. The ITO noted that later on an enquiry was made in early 1973 and it was learnt from the auditors of the said American concern that although Rs. 1,50,000 was paid during the asst. yr. 1963-64, the payment was really in the nature of advance and that the subsequent payment of Rs. 3,50,000 was not at all in the nature of an advance but on account of payment of net bills. The ITO reproduced such details in the assessment order.
But the Assessing Officer pointed out that the net amount was paid to the assessee by cheque on 20th April, 1964 by the American concern, being at Rs. 3,50,000. He was of the view that the assessees due for the year were squared up during the year for which Rs. 5 lakhs should have been accounted for as income for the year under consideration. He was, therefore, of the view that there was a total escapement of income of Rs. 5 lakhs due to the non-disclosure of the assessee of all the material facts at the time of the original assessment. He initiated proceedings under s. 147(a) of the Act.
The assessee complied with the noticed issued under s. 148 and filed the return under protest. The assessee submitted written submissions before the ITO stressing the point that the above sum was really in the nature of advance. But the ITO did not agree with the submissions made before him as the "advance account" did not reflect the correct position as the real character of both the receipts of Rs. 3,50,000 and Rs. 1,50,000 was clear from the letter of the auditors of the American company received at the time of making enquiry on the point. He, therefore, proceeded and completed the reassessment proceedings after taking into account the provisions of s. 144B. In the reassessment order, the originally assessed income of Rs. 1,23,990 was considered and Rs. 5 lakhs were added on the basis of the discussion made above.
The assessee took up the matter before the CIT(A) raising various points including the reopening of the assessment under s. 147(a). The CIT(A) considered the different contentions made before him and the facts available. He, inter alia, observed that the ITO on his own account was not aware of the correct facts that the net receipts of Rs. 3,50,000 which was no due to his oversight, but on account of omission or failure of the assessee to disclose the primary and basic facts fully and correctly. He found that the materials which were available subsequently have a direct nexus or live-link with the formation of the ITOs belief that the income had escaped assessment as contemplated under s. 147(a). The CIT(A) sustained the order of reassessment.
The assessee took up the matter before the Tribunal and reiterated the same points made out before the authorities below. It was contended before the Tribunal that all the basic and primary facts were before the ITO who made the original assessment and who asked for assessee to produce complete books of accounts, etc., under ss. 142(1) and 143(2) and that the assessee clarified other points during the hearing. According to the assessee, the information obtained by the ITO subsequently in 1973 was a secondary one and could not be relied upon by the ITO who made these assessment without stating the correct facts. On a consideration of the facts and circumstances of the case the Tribunal held that the assessee on the facts of the case failed to disclose the primary facts fully and truly at the time of the original assessment and as such the reopening of the assessment under s. 147(a) was justified.
3. At the hearing before us, Mr. D. Dhar, learned counsel for the assessee, has contended that the materials on the basis whereof the ITO came to the conclusion that there was omission to disclose the material facts necessary for the assessment for the said assessment year were before him when the original assessment was completed and accordingly the ITO cannot have a fresh look at it on the same set of materials and reopen the assessment. In other words, the conditions precedent for reopening the assessment have not been satisfied in this case. He has drawn our attention to the decision of this Court in the case of CIT vs. Kallu Babu Lalchand reported in (1969) 73 ITR 138 (Cal) where this Court held that where all the primary facts relating to a particular income were known to the ITO or were in his possession either by disclosure by the assessee or by his own discovery there cannot be any omission or failure on the part of the assessee to disclose in terms of s. 34(1)(a) of the Indian IT Act, 1922.
4. He has also relied on a decision of the Supreme Court in Gemini Leather Stores vs. ITO reported in (1975) 100 ITR 1 (SC) where the Supreme Court held that where in a proceeding for the original assessment the assessee did not disclose certain transactions evidenced by certain drafts but the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant, subsequently, the ITO cannot invoke s. 147(a) of the IT Act, 1961, with a view to assess the aforesaid amount as the income of the assessee from undisclosed sources.
5. He has also relied on a decision of the Madras High Court in Addl. CIT vs. Automobile Association of Southem India reported in (1981) 127 ITR 730 (Mad). There also the Madras High Court held that where all the primary facts are available to the officer in his records and if he had not applied his mind to such facts, subsequently, he cannot reopen the assessment on the ground of omission or failure to disclose fully or truly all material facts.
6. The real question, therefore, is whether all the primary facts were before the ITO when the original assessment was completed. The CIT(A) before whom the assessee contended that the ITO had no jurisdiction to invoke provisions of s. 147(a) r/w s. 148 of the Act dealt with the contention of the assessee as to whether the assessee disclosed all primary facts at the time of the original assessment. He found that on the basis of the representation and statement of accounts, the ITO completed the original assessment believing the representation made by the assessees representative as true. He further pointed out that the subsequent development was found only when the ITO obtained a report of the Inspector dt. 15th Feb., 1973, from the office of M/s. G Basu & Co. who were maintaining the books of accounts of the American concern, that a cheque of Rs. 3,50,000 was given to the assessee not as an advance but as a payment on the basis of the bills which were reproduced by the CIT(A) in the order. He also noted that this bill as reproduced by him in the appellate order was neither produced by the assessee nor the ITO was aware of the fact at the time of the original assessment. This finding has not been controverted before the Tribunal and the Tribunal also was of the view that there was non-disclosure of the primary facts relating to the aforesaid amounts. It is true that the ITO who made the original assessment wrote to the American concern on 7th Oct., 1967 to which reply was received on 21st Oct., 1967 to which reply was received on 21st Oct., 1967. This reply came before the completion of the original assessment but this letter dt. 21st Oct., 1967 did not categorically say that no advance was actually made to the assessee and to the assessee and it did not also give details of advances actually made in different years, if any. In our view, the authorities below were fully justified in holding that the reference made by the ITO at the time of the original assessment was in the nature of general enquiry concerning the assessee working under the American concern. If that be the position it cannot be said that the assessee fully or truly disclosed all the primary facts necessary for his assessment for the aforesaid assessment year. Our attention has been drawn to the decision of the Supreme Court in Indo-Aden Salt Mfg. & Trading Co. P. Ltd. vs. CIT reported in (1986) ITR 624 (SC) where the Supreme Court has held that the fact that the ITO could have in the original assessment proceeding found out the correct position by further probing, did not exonerate the appellant from the duty to make a full and true disclosure of material facts. It was also held by the Supreme Court that whether there was such non-disclosure of primary facts which has caused escapement of income from assessment was basically a question of fact.
The Supreme Court observed as follows :
"The assessees contention is that the ITO could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. Explanation 2 to s. 147 of the Act makes the position abundantly clear. The principles have also been well-settled and reiterated in numerous decisions of this Court : See Kantanmani Venkata Narayana & Sons vs. First ITO (1967) 63 ITR 638 (SC) and ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). Hidayatullah J., as the learned Chief Justice then was, observed in Calcutta Discount Cos case (1961) 41 ITR 191 (SC) that more production of evidence before the ITO was not enough, that there may be omission or failure of make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. It is sufficient to refer to the decision of this court in Calcutta Discount Cos case (supra) where it had been held that if there are some primary facts from which a reasonable belief could be formed that there was some non-disclosure or failure to disclose fully and truly all material facts, the ITO has jurisdiction to reopen the assessment. This position was again reiterated by this Court in Malegaon Electricity Co. P. Ltd. vs. CIT (1970) 78 ITR 466 (SC)".
7. Keeping in mind the aforesaid principles and looking into the facts of this case, we are of the view that there has been non-disclosure of primary facts in this case as rightly held by the CIT(A) and affirmed by the Tribunal which has caused escapement of income in the assessment. We are therefore, of the view that on the facts of this case the Tribunal came to a correct conclusion.
For the reasons aforesaid the questions in this reference are answered in the affirmative and in favour of the Revenue and against the assessee. No order as to costs.
BHAGABATI PRASAD BANERJEE, J. :
I agree.