1974 (8) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reassessment under section 147(a) of the Income-tax Act, 1961.
2. Obligation of the assessee to disclose material facts.
3. Applicability of section 69B of the Income-tax Act.
4. Relevance of subsequent information for reassessment.

Issue-wise Detailed Analysis:

1. Validity of reassessment under section 147(a) of the Income-tax Act, 1961:

The primary issue was whether the reassessment under section 147(a) was proper and valid. The court emphasized that to confer jurisdiction under section 147(a), two conditions must be satisfied: (1) the Income-tax Officer (ITO) must have reason to believe that income had been under-assessed, and (2) such under-assessment must have occurred due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, while the ITO may have had reason to believe that income was under-assessed, it was contended that there was no omission or failure on the part of the assessee to disclose material facts. The court found that the assessee had disclosed all primary facts, including the expenditure on the house construction, and thus, the reassessment under section 147(a) was not justified.

2. Obligation of the assessee to disclose material facts:

The court reiterated that the duty of the assessee is to disclose all primary facts necessary for the assessment. Once these facts are disclosed, it is up to the ITO to draw inferences. The court referred to the Supreme Court decisions in Calcutta Discount Co. Ltd. v. Income-tax Officer and Commissioner of Income-tax v. Burlop Dealers Ltd., which support the view that non-disclosure of inferences does not amount to non-disclosure of material facts. The court found that the assessee had disclosed the investment in the house in its books of account and balance sheet, and there was no evidence that the assessee had obscured or misled any entries.

3. Applicability of section 69B of the Income-tax Act:

The department argued that under section 69B, the assessee had a legal obligation to disclose the true and full details of all investments over the house. The court, however, found no substance in this argument. It referred to the Supreme Court's decision in Muthiah Chettiar v. Commissioner of Income-tax, which held that section 34(1)(a) of the 1922 Act (corresponding to section 147 of the 1961 Act) did not impose an obligation on the assessee to disclose certain income. Similarly, section 69B imposed an obligation on the ITO to compute income but did not create a disclosure obligation for the assessee. The court concluded that the assessee had no legal obligation to disclose the investment under section 69B, and thus, the reassessment under section 147(a) was not justified.

4. Relevance of subsequent information for reassessment:

The court noted that the reassessment was based on the subsequent information provided by the income-tax inspector, who estimated the cost of construction at Rs. 30,000. The court held that this information could, at best, attract the provisions of section 147(b) and not section 147(a). It cited the Assam High Court's decision in Bajranglal Beria v. Income-tax Officer, which held that reassessment based on subsequent information does not justify action under section 147(a). The court found that the ITO's action was solely based on the inspector's report and not on any omission or failure by the assessee to disclose material facts.

Conclusion:

The court answered the question in the negative, holding that the reassessment under section 147(a) was neither proper nor valid. The assessee was entitled to costs, and the hearing fee was assessed at Rs. 100. The judgment was concurred by both judges, and the question was answered against the department and in favor of the assessee.