Bombay High Court
Commissioner Of Income-Tax vs Jamnadas Dwarkadas And Co. on 15 March, 1994
Equivalent citations: [1994]209ITR1(BOM)
Author: Sujata Manohar
Bench: Sujata V. Manohar
JUDGMENT Mrs. Sujata Manohar, C.J.
1. This income-tax reference relates to the three assessment years 1964-65, 1965-66 and 1966-67. The assessments were originally made under section 143(3) of the Income-tax Act, 1961. In the assessment proceedings, the assessee was required to furnish details of particulars which were furnished by the assessee in the course of assessment proceedings, relating to purchase transactions of Rs. 10,000 and above, the assessee had shown, inter alia, purchases from one Messrs. Daswani Trading Corporation Pvt. Ltd. as under :
1964-65 Rs. 1,58,187 1965-66 Rs. 2,41,034 1966-67 Rs. 1,32,994
2. For the assessment year 1966-67, the assessee had also made purchases amounting to Rs. 7,692 from another concern, viz., Messrs. T. U. Patel and Sons Pvt. Ltd. This purchase transaction was not separately shown in the particulars which were furnished by the assessee, because this purchase transaction was below Rs. 10,000. While making the original assessments, the Income-tax Officer did not doubt the genuineness of these purchase transactions and, therefore, no addition was made on the ground that purchases made by the assessee from Messrs. Daswani Trading Corporation Pvt. Ltd. and Messrs. T. U. Patel and Sons Pvt. Ltd. were not genuine or were bogus.
3. Subsequently, one Tarachand, son of one Trikamdas Daswani, made a statement that the two concerns of Messrs. Daswani Trading Corporation Pvt. Ltd. and Messrs. T. U. Patel and Sons Pvt. Ltd. were not genuine trading concerns but were given havalas. In the course of the statement, the assessee's name was also mentioned by Tarachand.
4. On the basis of this statement, the Income-tax Officer reopened the assessment proceedings under section 147(a) of the Income-tax Act, 1961, and issued notices under section 148 of the Act for the above three assessment years. He made reassessments for the three assessment years on September 12, 1977, assessing the income of Rs. 1,09,045 for the assessment year 1964-65, Rs. 2,84,234 for the assessment year 1965-66 and Rs. 2,26,409 for the assessment year 1966-67 by adding the value of purchases made by the assessee from the above two firms for the three assessment years.
5. Being aggrieved by this order, the assessee carried the matter in first appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the purchases made from the above two firms had been duly reflected in the trading results and the assessee had produced all relevant books of account. The Appellate Assistant Commissioner, therefore, held that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments. Consequently, the assessments could not be reopened under section 147(a) of the Income-tax Act, 1961.
6. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue carried the matter in appeal before the Tribunal. The Judicial Member of the Tribunal confirmed the order of the Appellate Assistant Commissioner but the Accountant Member disagreed with the Judicial Member and came to a finding that the reopening of the assessments under section 147(a) of the Act was in order.
7. At the instance of the President of the Tribunal, the matter was referred to a third member, viz., the Vice-President of the Western Zone. He confirmed the finding of the Judicial Member that the reopening under section 147(a) of the Act was not valid. From the above findings of the Tribunal, the following question has been referred to us under section 256(1) of the Income-tax Act, 1961.
"Whether, on the facts and in the circumstances of the case, the Tribunal was in error in holding that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and the reassessment under section 147(a) for the assessment years 1964-65 to 1966-67?"
8. The question before us is a narrow question relating to the reopening of the assessments for the three assessment years in question. We have to consider whether the assessee had disclosed fully and truly all the material facts necessary for the assessment. If he had not, then reassessment under section 147(a) of the Act would be justified. On the other hand, if the assessee had disclosed fully and truly all the material facts necessary for the assessment, jurisdiction under section 147(a) of the Act could not have been exercised. Both the Appellate Assistant Commissioner and the two members of the Tribunal, who have confirmed the findings of the Appellate Assistant Commissioner, have proceeded on the basis that since the primary facts, viz., the purchase transactions from the above firms were disclose fully and truly all material facts necessary for the assessment. We need not examine a number of decisions on which reliance was placed by the assessee before the Tribunal as well as before the Appellate Assistant Commissioner, because the question as to whether an Income-tax Officer has jurisdiction in regard to reopening of assessments under section 147(a) of the Act has now been considered at length by the Supreme Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456. In the case before the Supreme Court, the assessee had disclosed a cash loan taken by it from a Calcutta Company. The Income-tax Officer subsequently received information that the managing director of the Calcutta company had confessed in its income-tax proceedings that the company had not advanced any loan to anybody during the period covering the date of the cash loan claimed by the assessee. The Supreme Court said that the notice for reassessment, which was issued as a result of this information, was valid and it did not amount to mere change of opinion. The Supreme Court (at page 478) has observed that it could not accept the argument that the question regarding truthfulness or falsity of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. It observed, (at page 478) : ". . . On of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say, 'your accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude."
9. In the present case, it is true that the purchase transactions with the above two firms were disclosed by the assessee. But the falsity of these purchase transactions was discovered by the Income-tax Officer after the assessment was completed. In these circumstances, we cannot say, in view of the ratio laid down by the Supreme Court in the above judgment, that the assessee had disclosed fully and truly all the material facts necessary for the assessment. The falsity of the disclosed material came to light at a later date. Hence the assessment could be reopened under section 147(a).
10. The Supreme Court (at page 477) has observed : "From a combined review of the judgments of this court, if follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reasons of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it was not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information". (emphasis ours). These observations directly apply to the present case.
11. It was argued before us by Mr. Dwarkadas, learned counsel for the assessee, that the Income-tax Officer, in the present case, has acted on information which was vague and unreliable and it has been so found by the Tribunal. Hence reassessment could not have been made on the basis of such vague and unreliable information. However, the question whether the material before the Income-tax Officer was sufficient for the purpose of making reassessment or not is not before us. The Supreme Court has observed that the belief is that of the Income-tax Officer. Hence the sufficiency of reasons for forming the belief is not for the court to judge. It is open, however, to an assessee to establish that there, in fact, existed no belief or that the belief was 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 material 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 with the formation of the requisite belief.
12. Therefore, we can only examine whether there was any relevant and specific material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any live link with the formation of the requisite belief. In the present case, the material which was available with the Income-tax Officer was directly relevant to the formation of the belief that the purchase transactions in question were not genuine. Whether that material was sufficient or not is not for us to decide. The only narrow question which is before us it whether the condition precedent for exercising jurisdiction under section 147(a) of the Act was fulfilled in the present case. In view of the interpretation put upon section 147(a) of the Income-tax Act, 1961, by the Supreme Court in the above case, there is no doubt that the condition precedent was fulfilled. We are not concerned with the merits of the reassessments.
13. In the premises, the question which is referred to us is answered in the affirmative and in favour of the Revenue. In the circumstances, there will be no order as to costs.