1981 (10) TMI 14 - HC - Income Tax

Summary

Issues Involved
1. Validity of proceedings under Section 147(a) of the Income-tax Act, 1961.
2. Disclosure of primary facts by the assessee.
3. Jurisdiction of the Income-tax Officer (ITO) to reopen assessments.

Detailed Analysis

1. Validity of Proceedings under Section 147(a) of the Income-tax Act, 1961
The primary issue was whether the Appellate Tribunal was justified in holding that the proceedings under Section 147(a) of the Income-tax Act, 1961, were validly initiated against the assessee for the assessment years 1967-68 and 1969-70. The court analyzed the conditions under Section 147(a), which requires the ITO to have "reason to believe" that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court emphasized that the ITO must have reasonable grounds for such belief, and these grounds must be based on primary facts disclosed by the assessee or discovered by the ITO.

2. Disclosure of Primary Facts by the Assessee
The court examined whether the assessee had disclosed all primary facts necessary for the assessment. It was noted that during the original assessments, the assessee had filed copies of the balance-sheet, details of the interest account, and a copy of the pyau account, showing the amount of interest paid to Smt. Chandravalbai. The court referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. ITO, which clarified that the duty of the assessee is to disclose fully and truly all primary facts. The court concluded that the assessee had indeed disclosed all primary facts, and it was the ITO's responsibility to make necessary inquiries and draw proper inferences from these facts.

3. Jurisdiction of the Income-tax Officer (ITO) to Reopen Assessments
The court scrutinized whether the ITO had jurisdiction to reopen the assessments under Section 147(a). The court found that the ITO had all the primary facts before him during the original assessments and failed to conduct further inquiries. The subsequent decision to discard the testimony of Smt. Chandravalbai and conclude that no loan was advanced was seen as a mere change of opinion. The court held that such a change of opinion does not confer jurisdiction to the ITO to initiate proceedings under Section 147(a). The court cited the case of Gemini Leather Stores v. ITO, where it was held that the ITO cannot remedy an error resulting from his own oversight by invoking Section 147(a).

Conclusion
The court concluded that the Appellate Tribunal was not justified in holding that the proceedings under Section 147(a) of the Income-tax Act, 1961, were validly initiated against the assessee for the assessment years 1967-68 and 1969-70. The court emphasized that the assessee had disclosed all primary facts necessary for the assessments, and the ITO's failure to make further inquiries did not justify reopening the assessments under Section 147(a).