9911796707
TMI Blog1988 (2) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh & Sons, Delhi, as follows : Credit Debit 10-8-1974 Draft No. 9023567 13-11-1974 Balance Rs. 50,000 carried over Rs. 90,000 22-8-1974 Draft No. 198543 Rs. 20,000 22-8-1974 Draft No. A-074088 Rs. 20,000 ---------- ---------- Rs. 90,000 Rs. 90,000 ---------- ---------- In the original assessment the assessee filed the balance sheet in which the credit entry of Rs. 90,000 appears to the account of Chaudhary Sukhbirsingh & Sons. The copy of interest account is also filed in the original assessment proceedings. In the course of original assessment proceedings in pursuance of enquiry made by the ITO, the assessee also filed confirmatory letter dated 10-2-1976 from the said party in support of the credit. The confirmation letter is signed by Chaudhary Sukhbirsingh as Proprietor of Chaudhary Sukhbirsingh & Sons. The confirmation letter also gives permanent account number of said Chaudhary Sukhbirsingh & Sons. On the basis of the material the ITO making the original assessment accepted the said credit as genuine and also allowed interest payment of Rs. 3,200 made to the said party during the year in question. As stated earlier, the original assessment was comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enclosed with the said letter issued by the ITO to the assessee. The ITO further called upon the assessee to show cause as to why this amount of Rs. 90,000 be not added to the total income of the assessee and why the interest thereon should not be disallowed. The assessee gave a reply to the said letter on 30-12-1983. In the said reply the assessee submitted that he had furnished all material facts necessary for the purpose of assessment and the ITO after making full enquiry was satisfied about the genuineness of the said credit of Rs. 90,000 and hence he accepted the same. The assessee had furnished balance sheet, interest account, confirmation letter from Sukhbirsingh, details of draft numbers by which the amounts were received, permanent account number of the said party and all information necessary for completing the assessment. The assessee, therefore, contended that the provisions of section 147(a) were not applicable to the facts of the case and hence the reopening under that section was bad in law. If the reopening is to be treated in consequence of information received from Delhi after the completion of the original assessment then the same could be only under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to five pages, relying on the memory and after contacting the parties. He says in the statement that he has not maintained any record for such name-lending. The assessee contended before the ITO that the said statement is thoroughly unreliable on the face of it and is contradictory in many ways and appears to be palpably false. On the basis of the said statement, it was contended that no reasonable man can entertain a belief that the income of the assessee has escaped assessment especially when the same has been made after obtaining confirmation letter from said Sukhbirsingh who has confirmed to have advanced money to the assessee by bank drafts and has also received back the amount mostly by draft and partly by cash. The income-tax has been deducted at source on the interest payment and has been deposited by the assessee. It was therefore contended that there was no material to entertain a belief that any income chargeable to tax escaped assessment by reason of non-disclosure of all material facts necessary for the purpose of assessment. It was contended that if at all the ITO could entertain a belief regarding escapement of income on the basis of the said piece of information the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived, etc. The details of repayment were also given so also the Permanent Income-tax Account Number of said Chaudhary Sukhbirsingh & Sons was given in the said confirmation letter. The counsel, therefore, submitted that the assessee having submitted all those information in pursuance of enquiry made by the ITO, there was no further duty cast on the assessee to instruct the ITO as to what inference he should draw from the said material. All the primary facts necessary for the purpose of assessment were furnished by the assessee and the ITO being satisfied with the said evidence and material accepted the credit as genuine. According to the counsel, if the ITO wanted to investigate the matter further he should have done so at that stage. If he had doubted the genuineness of the transactions, it was for the ITO to investigate and determine whether the documents furnished by the assessee were genuine or not. But the ITO being satisfied with the evidence and having decided not to investigate the matter further it could not be said that the assessee failed to make a true and full disclosure of material facts, by not confessing before the ITO that the credit entries in its books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the case. The revenue mainly relied on the following cases : Calcutta High Court decision in H. A. Nanji & Co.'s case; Punjab & Haryana High Court decision in Kirpa Ram Ramji Dass v. ITO [1982] 135 ITR 68; Calcutta High Court decisions in Biju Patnaik v. ITO [1976] 102 ITR 96 and Girindranath Paul v. ITO [1975] 99 ITR 426. The assessee relied upon the following decisions : Calcutta Discount Co. Ltd.'s case, Burlop Dealers Ltd.'s case, Madnani Engg. Works Ltd.'s case, Lakhmani Mewal Das' case and Dinesh Kumar Gordhandas v. CIT [1983] 140 ITR 211 (MP). 10. We have carefully considered the facts and circumstances of the case and the arguments advanced by both the sides and we have carefully gone through the decisions relied upon by both the sides. It is a known principle that the assessment once made is final and it cannot be reopened or even rectified except in the circumstances as provided in the Act itself. There is a finality attached to the order and if it is to be reopened as per certain provisions of law, then such provisions are to be strictly construed. The only provision authorising reopening of completed assessment is section 147 which is divided into two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary 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 had to draw inference as regards certain other facts inferred from them, the authority had to draw the proper legal inferences, and ascertain, on a correct interpretation of the taxing enactment, the proper tax leviable. So far as primary facts are concerned, it was the assessee's duty to disclose all of them including particulars of entries in account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed. The duty however, did not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts were before the assessing authority, it was for him to decide what inferences of facts could be reasonably drawn and what legal inferences had ultimately to be drawn. It was not for anybody else - far less the assessee - to tell the assessing authority what inferences, whether of facts or law, should be drawn". On the basis of the ratio laid down in the aforesaid case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee knew that the said arrangement was not genuine. In appeal before the Tribunal, the Tribunal held that the assessee had produced all relevant accounts and documents necessary for completing the assessment and that the assessee was under no obligation to inform the ITO about the true nature of transaction. In this view of the matter, the Tribunal reversed the order of the AAC. The Supreme Court in that case on page 612 observed as follows : "We are of the view that under section 34(1) (a) if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the ITO about the inference which the ITO may raise from those facts. The terms of the Explanation to section 34(1) also do not impose a more onerous obligation. Mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1), but where on the evidence and the materials produced the ITO could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1) (a) will not lie merely on the ground that the ITO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing disclosed all documents and evidence, i.e., primary facts, there was no further duty cast on the assessee to instruct the ITO as to what further investigation he should make and what further inference he should draw from the evidence produced and in such a situation the case could not be reopened under section 34(1) (a) of the Indian IT Act, 1922. In the present case, the assessee had disclosed all material facts, viz., balance sheet, interest account, confirmation letters from the creditor, details of payment received by draft number, etc., permanent account number of the said creditor and such other primary facts as were necessary for completing the assessment. It was then not for the assessee to instruct the ITO as to what further investigation, he should make in the matter and what inference, he should draw from the said facts. The ITO having accepted the said evidence, he could not reopen the case on the ground that the assessee had not disclosed fully and truly all material facts at the time of original assessment. The statement of Sukhbirsingh referred to above is not enough to conclude that the material facts disclosed by the assessee at the time of original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not see any distinction at all between Burlop Dealers' case [1971] 79 ITR 609 (SC) and the present one and the language of section 147(a) being identical with that of section 34(1)(a) the ratio of the decision in Burlop Dealers' case must govern the decision of the present case. We must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of section 147(a) was not satisfied." From the above decision, it is clear that the duty cast on the assessee is to disclose all material facts necessary for the purpose of his assessment. In the present case, as in the case of Madnani Engg. Works Ltd., the assessee had produced confirmation letters giving full details of the amounts received by bank drafts as also entries in the books of account showing payment of interest, tax deducted at source on such interest payment, permanent account number of the creditor and other relevant details necessary for the purpose of making the assessment. It was then for the ITO to investigate and determine whether the documents and evidence produced by the assessee was genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise of a statement is to be decided all the material facts necessary for the purpose of assessment and the ITO was satisfied about the genuineness of the credit. Therefore, the determination of the question that a particular credit is genuine, is on the basis of inference drawn by the ITO on certain facts before him. Now up to the stage till the issue of notice under section 148 there was no material with the ITO to come to the reasonable conclusion that the facts disclosed by the assessee at the time of original assessment were untrue. In such a situation, it cannot be said that the assessee failed to disclose fully and truly all material facts necessary for the purpose of his assessment and it was because of such failure, the income chargeable to tax has escaped assessment. Applying the test laid down by the Supreme Court in the aforesaid case to the facts of the present case it is clear that the provisions of section 147(a) are not applicable to the present case. 13. The assessee further relied upon the decision of the Madhya Pradesh High Court in the case of Dinesh Kumar Gordhandas. In that case, the assessee-firm submitted its returns for the assessment years 1967-68 and 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stated that he had reasons to believe that the hundi loans shown by the assessee were fictitious and income had escaped assessment. He issued a notice under section 148 which was challenged by the assessee in writ proceedings. The Calcutta High Court distinguished the Supreme Court cases viz., Calcutta Discount Co. Ltd.'s case, Burlop Dealers Ltd.'s case and Madnani Engg. works Ltd.'s case on facts. The Calcutta High Court distinguished the aforesaid cases in the following manner : "The cases are distinguishable on facts from the case before us. Here the ITO was proceedings not merely on the basis of the primary facts which he had at the time of original assessment. The assessee claimed deductions from income for the relevant year on account of interest paid on a number of hundi loans which were accepted as genuine in the original assessment. Subsequently, the ITO received a list of bogus hundi creditors from the Government authorities which included the alleged creditors of the assessee. The ground for the belief for initiation of proceedings under section 147, clause (a), was thus not the same set of primary facts as at the time of original assessment as in the cases cited ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact could be ascertained only by a bare comparison of the list of bogus creditors with the creditors disclosed by the assessee in the course of assessment and did not involve any act of drawing conclusion by a process of reasoning, nor was it based, on materials disclosed by the assessee during assessment as in the cases cited above but on fresh materials which came into the possession of the ITO after assessment. It cannot accordingly be said that the discovery of the creditors of the assessee as bogus creditors according to the list was an inferential facts based on the same materials which the assessed had disclosed as primary facts in respect of the assessment in the usual course nor was the belief a result of mere pretense or change of opinion only on the same primary facts or one a prudent man acting bona fide could not have arrived at." The aforesaid observation was in the context whether the discovery of the creditor of the assessee as a bogus creditor according to the list was inferential fact based on the same material or whether it was based on additional primary fact which came into possession of the ITO after making the assessment and which the assessee had fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 16, 1966. In October 1971, the ITO, however, initiated proceedings for reopening the assessment of the petitioner on the basis that the parties in whose names cash credits appeared in its books were established to be bogus hundi and hawala dealers, that the cash credits represented the petitioner's income and on that account he had reason to believe that an amount of Rs. 66,220 had escaped assessment. The petitioner filed a writ petition to quash the notice issued for reassessment on the ground that the petitioner having disclosed all facts truly and fully at the time of its original assessment, which was, after investigation, accepted by the ITO, the ITO had not jurisdiction to proceed against it on the basis of a mere change of opinion or information alleged to have been received subsequent to the finalisation of the assessment after a period of four years from the original assessment after a period of four years from the original assessment. The revenue contended that the facts and material presented by the petitioner were accepted by the ITO without making any enquiries into the individual items or the genuineness of the cash credits, that apart from the letters of confirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the ITO on the basis of which he can believe or come to the conclusion that the facts disclosed by the assessee at the time of original assessment were untrue. In fact in the reasons recorded on 12-9-1979, which are quoted above, the ITO has not referred to any material at all. Even if it is to be assumed that the ITO had with him the copy of statement of Sukhbir Singh, referred to above, even then on the basis of that statement, which has been pointed out to be palpably unreliable and contradictory in many ways, it cannot be said that the ITO could reasonably come to the conclusion that the disclosure of material facts made by the assessee at the time of original assessment was untrue. 16. The revenue relied upon the decision of the Calcutta High Court in the case of Girindranath Paul. In that case there appeared cash credits to the extent of Rs. 30,000 in the name of M/s. IT of Calcutta. At the time of the original assessment, it was explained by the assessee that the sum was advanced by the above party for goods to be supplied in the next year, t that the goods were actually supplied in the next year and that this explanation was accepted by the ITO. The records of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduce the view expressed by the Supreme Court in Madnani Engg. Works Ltd.'s case which is as follows : "The respondent could not be said to have failed to make a true and full disclosure of material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus." On appreciation of the facts and material on record, the reasons recorded by the ITO for reopening the assessment and after carefully going through the decisions cited by the learned counsel for the assessee and also the revenue, we are of the considered opinion that it could not be said at that stage that the ITO had any reason to believe that the facts and evidence disclosed by the assessee at the time of original assessment were untrue and it was because of making false statement the income chargeable to tax escaped assessment. The statement of Sukhbir Singh might give a feeling that some income might have escaped assessment but that statement by itself is not enough to lead to the formation of a belief that the disclosure made by the assessee at the time of original assessment was untrue. We, therefore, hold that the reopening made by the ITO under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the list of names included the sum of Rs. 90,000 alleged to have been advanced to the assessee firm. With reference to the same the ITO reopened the assessment u/s 147 (a), after recording his reasons for his belief, that the assessee's income had escaped assessment for this year. Similarly, the assessment for 1977-78 was also reopened with a view to disallowing interest of Rs. 4,750 which was allowed as a deduction in the original assessment. The reopened assessments were completed by the ITO after adding the sum of Rs. 90,000 to the income already assessed for 1975-76 and also disallowing the interest thereon both for 1975-76 and 1977-78. 3. Aggrieved with the same, appeals were filed before the CIT (Appeals) contesting the reopening of the assessments u/s 147(a) as also the assessments made in pursuance thereof. The submissions made regarding the applicability of section 147(a) before the CIT (Appeals) are summarised hereunder : There was a full and true disclosure of all material facts relating to the credit in question at the time of the original assessment. It was for the ITO to make through enquiries into those facts and decide whether the credit was acceptable or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be and verification and accordingly set aside the assessments and restored the same to the ITO's record for a factual verification of the credits and disposal of the assessments accordingly. 5. Aggrieved with the same the assessee is in appeal before us. The submission on behalf of the appellant my be summarised hereunder : Our attention was invited to the primary requirements to be satisfied for reopening the assessment u/s 147(a) which are as under : (i) The ITO must have reason to believe that income has escaped assessment. (ii) He must have reason to believe that such escapement is by reason of the omission of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year. With reference to the second condition, it was submitted, that, the assessee had furnished all the required material particulars in support of the credit in the account of Sukhbir Singh. Confirmation of the transaction was also filed before the ITO. The permanent account No. of the creditor was also furnished to the ITO on the confirmation letter as also the receipts issued by the alleged creditor. It was, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of all material facts. In the present case, though the assessee had filed a confirmatory letter relating to the credits, and, also furnished the permanent account number of the creditor, he could not be considered to have made a full and true disclosure of all material facts, inasmuch as the claim relating to the credits made by the assessee, stood disapproved in the light of the subsequent statement of the creditor himself before the Income-tax authorities, that, he had indulged in hawala transactions, which included the credits alleged to have been advanced to the assessee. In the light of the subsequent denial of the creditor, the earlier confirmatory letter had lost its veracity and evidentiary value. Reliance was heavily placed on Calcutta High Court's decision in H. A. Nanji & Co.'s case which has also considered the decisions of the Supreme Court in Calcutta Discount Co.'s case Burlop Dealers Ltd.'s case and Madnani Engg. Works Ltd.'s case the latter being distinguished by the Calcutta High Court. Our attention was also invited to the following IT Cases : S. P. Mohan Singh's case, Biju Patnaik's case, Kirpa Ram Ramji Dass' case, CIT v. Ess Ess Kay Engg. Co. (P.) Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the income of the assessee from undisclosed sources, but, the question is not, that, at the stage of reopening of an assessment u/s 147 (a). The question is whether this would constitute a material fact or a primary fact as referred to by the Supreme Court in Calcutta Discount Co. Ltd.'s case, which the assessee had failed to disclose at the original stage, so as to confer jurisdiction on the ITO to reopen the assessment on the belief, that, income had escaped assessment. I am of the opinion, that, it certainly does. The statement is not by a third party. It was by the alleged creditor himself confessing in so many words, that, he had indulged in hawala transactions and the credits appearing in his name in the books of the assessee were factitious. In this light, this would constitute a primary fact, which the assessee had failed to disclose as he must have been fully aware of it at the time of the original assessment. What is required is a full and true disclosure of all primary facts. A half-hearted and partial disclosure does not absolve the assessee or put it beyond the pale of section 147(a). 9. This is definitely not an inferential fact as made out on behalf of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of original assessment as in the case cited above, but altogether additional materials which were not before the ITO when the assessment now sought to be reopened was made. The decisions cited above lay down that the assessee is under a statutory obligation to disclose fully and truly all primary facts relating to assessment and to produce all relevant documents but he is under no obligation to disclose inferential facts which could be arrived at by a process of reasoning from such primary facts. The question for consideration is whether in such a case the initiation of proceedings under s. 147 is based on new primary facts or it is based on inferential facts on the primary facts already disclosed, the latter being impermissible in law. In this case, the disclosure of the hundi loans as genuine by the assessee were of primary facts which were accepted as such by the ITO during the assessment. The ITO, after the assessment, came to be in possession of a list of bogus creditors and therefrom he came to the tentative belief that in respect of the relevant year the hundi creditors of the assessee disclosed by him whose names appear in the list were bogus creditors. This fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in H. A. Nanji & Co.'s case. If a disclosure of facts which has been rendered to be false by subsequent events as in the present case, cannot be reached by recourse to section 147(a), I am afraid, the provisions would become a mere adornment in the Act. A catena of decisions are quite clear on this point. In S..P. Mohan Singh's case it has been held, that, "where the facts stated or disclosed by the assessee are either found to be bogus or non-existent he cannot forestall the reassessment on the plea that he had fully and truly disclosed all the material facts". Their Lordships have further observed in that decision that, "there is no question of truthfulness about a fact or a material fact which, to the knowledge of the assessee, was non-existent." In that case, the revenue received some classified information from Central Excise and Customs Department which revealed that, there was a bogus hundi racket and hawala dealings prevalent amongst the business men, a and that it was on the basis of such material, that the ITO concluded, he had reason to believe, that the petitioner had not fully and truly disclosed the material facts at the time of the original assessment. In Biju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement with the learned CIT (Appeals) that, the ITO was well within his jurisdiction in reopening the assessments u/s 147(a). 14. As regards the merits, I entirely agree with the reasoning of the CIT (Appeals) set out in para 11 of his order. Since no opportunity has been allowed to the assessee to cross-examine the creditor and the affidavit filed by the broker has also not been examined, it is but fair, that the assessment should be set aside and restored to the ITO for making a fresh assessment, after examining all the aspects referred to by the CIT (Appeals) in his order. 15. In view of this, the appeals are dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT As there is a difference of opinion between the Members, the following question is placed before the President for reference to the Third Member : "Whether, on the facts and in the circumstances of the case, the reopening of the assessments by the Income-tax Officer under section 147(a) is proper and valid in law ?" THIRD MEMBER ORDER.Per Dr. S. Narayanan, Vice President - The following question has been referred to me as Third Member by the president : "Whether, on the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 90,000 therefore, represents assessee's income which has escaped assessment. I have, therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for assessment year 1975-76 income chargeable to tax amounting to Rs. 90,000 has escaped assessment for the year. All action under section 147(a) is therefore necessary to reassess the income. Vardha, Dt. 12-9-1979 S. L. Deshpande, ITO." A notice u/s. 148 was thereupon issued on 12-9-1979 to the assessee and was served on the assessee on 13-9-1979. 6. The assessee filed a return in pursurance of the said notice of 12-9-1979 disclosing total income of Rs. 5,11,625 as originally assessed. Thereafter the ITO apparently did not proceed with the matter. On 21-9-1983 the ITO took up the proceedings not only for this assessment year but also for the assessment years 1976-77 and 1977-78. These two assessment years had also been reopended by then u/s 147 (a) of the Act. In his letter of 21-9-1983 issued to the assessee the ITO mentioned for the first time a statement said to have been made by Shri Sukhbir Singh before the ITO, Net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such an escarpment was because of non-disclosure of material facts for completing the assessment. 9. The ITO rejected the above submission and completed the reassessment by his order dt. 22-8-1984. The ITO relied on the decision in H. A. Nanji & Co.'s case. In that decision the Calcutta High Court had distinguished the following decisions : (i) Calcutta Discount Co. Ltd.'s case (ii) Burlop Dealers Ltd.'s case (iii) Madnani Engg. Works Ltd.'s case The ITO also referred in his order to the case of one M/s. Rakoor Industries Pvt. Ltd., Delhi, in whose books there was a credit in the name of Chaudhary Sukhbir Singh. An addition was made on this could in that case and that addition was also confirmed by the Delhi Bench of the Tribunal. Apparently in that case the department examined the books of account of Chaudhary Sukhbir Singh & Sons and it was seen that the total assets as per the balance sheet stood at Rs. 2,24,484. According to the assessee, it was evident from this that the said party was maintaining books of account but in the statement said to have been made by that party before the ITO, Delhi, he had denied having maintained and record and had also stated that he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the hounds on the strength of which it had obtained loans from the creditors as also entire in the books of account showing payment of interest. On the basis of this material the credit entries of interest. On the basis of this material the credit entries were accepted and interest payment was also allowed. This was for the assessment year 1959-60. In the course of the assessment proceedings for the year 1963-64 the ITO was of the view that various items shown as loans against the security of the hundis in the assessee's books of account were fictitious. He, therefore, reopened the proceedings u/s 147(a) for the assessment year 1959-60. The Supreme Court held that the action of the ITO in reopening the assessment was bad in law, because there was no non-disclosure on the part of the assessee. It observed (at p. 5) specifically as under: "The respondent could not be said to have failed to make a true and fully disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. We do not see any distinction at all between Burlop Dealers case [1971] 79 ITR 609 (SC) and the present one and the langua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the original assessment. That factual situation did not obtain in the instant case. The instant case was one where all primary facts necessary at the time of the original proceedings. (vii) The decisions in S. P. Mohan Singh's case was also distinguishable. The Court held there that where the facts stated or disclosed by the assessee in the original proceedings are either found to be bogus or non-existent, reassessment cannot be opposed on the plea that the assessee had fully and truly disclosed all material facts. If there was sufficient material to conclude that facts disclosed by the assessee at the time of the original assessment were entire and bogus or the documents produced were fabricated or misleading and because of such false representation income had escaped assessment then sec. 147(a) would apply, i.e., the basic fact to be considered in whether at the time of issue of notice u/s 148 there is material to conclude that the facts disclosed by the assessee at the time of original assessment were untrue and because of that income chargeable to tax had escaped assessment. On the contrary in the instant case at the time of the issue of notice u/s 148 there was no material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sukhbir Singh had admitted before the ITO at Delhi that he was doing hawala business (name-lending) for a number of years and that he had also furnished a list showing the names of the parties with whom he had done this business. The details of such transactions and the list of names included the sum of Rs. 90,000 alleged to have been advanced to the assessee-firm. That was why the ITO action under section 147(a). (ii) The assessment for 1977-78 was reopened with a view to disallow interest of Rs. 4,750 allowed as a deduction in the original assessment. In the reassessment under section 147(a) the ITO disallowed such interest. (iii) The Commissioner (Appeals) upheld the reopening of the assessment but held on merits that the ITO had merely gone on the basis of the statement recorded by the ITO, Delhi and that the matter had to be looks into again by the ITO for verification of the credit and also to give the assessee an opportunity of cross-examining the Delhi party. (iv) The facts and circumstances of the case showed that the assessee had failed to disclose fully and truly all material facts necessary for its assessments for the years under consideration. The disclosure must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter case reopening is not possible as it would be only a change of opinion but in the former case action under section 147(a) would be justified. The instant case falls in this category. The disclosure of facts made by the assessee was rendered false by a subsequent event and section 147(a) was applicable to such a case. [See S. P. Mohan Singh's case.] (ix) Subsequent confessions made by alleged hundi creditors to the effects that they had indulged in hawala transactions would constitute material for the formation of the belief of income escaping assessment because of non-disclosure on the part of the assessee. See Kripa Ram Ramji Dass' case. (x) Section 147(a) could be applied if the facts disclosed by the assessee at the original assessment stage were found to be untrue on the basis of material discovered later by the ITO. See Ess Ess Kay Engg. Co. Ltd.'s case as also Sujir Ganesh Nayak & Co.'s case. In other words, if the disclosure of facts made by the assessee subsequently turns out to be false or not full, the ITO can form the belief of escarpment of income due to non-disclosure. (xi) The affidavit of the broker filed before the ITO was "of no use in this connection." Acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there are other reasons as well for holding that the action taken u/s 147 (a) was not valid. In Burlop Dealers Ltd.'s case the assessee-company disclosed a profit of Rs. 1,75,875 from a joint venture in plywood chests. It claimed that half the profit of Rs. 87,937 was paid to one R under an agreement dated 7-10-1948 for financing the transaction of the venture. The ITO brought to tax only Rs. 87,937 as the profit earned from the venture. For the assessment year 1950-51 the assessee had similarly claimed that it had paid half the profit from the joint venture to R but on examination of the transaction the officer held that the agreement of 7-10-1948 a was a got-up device to reduce profits and taxed the entire profit from the venture; and that was ultimately upheld. Meanwhile on 13-5-1955 a notice u/s 34(1) (a) of the old Act of 1922 [in pair material with sec. 147 (a) of the new Act] was issued for reopening the assessment for that year in the reassessment the sum of Rs. 87,937 allowed as a deduction in the original assessment. 15. The question before the Supreme Court was whether the assessee has been guilty of non-discolsure. The Court held that it was not. It note that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and that credits against the names of certain parties, viz., A, C, R, M and D were found not to be genuine and hence there was room to claim that the assessee was guilty of non-disclosure in the original assessment leading to escarpment of income chargeable to tax. A Single Judge of the High Court dismissed the writ petition but on appeals a Division Bench allowed the potion and question the notice. The matter went up to the Supreme Court. 19. The Supreme Court held, affirming the decisions of the Division Bench, that the extent of reason to believe on the part of the ITO was first of all a justiciable issue; that secondly, it was seen that the assessee had produced in the original assessment all the hundis on the strength of which it had obtained loans from creditors, as also entries, in the books of account showing payment of interest; and it was for the ITO to investigate and determine whether these documents were genuine or not and the respondent could not be said to have failed to makes a true and full disclosure of the material facts by not confession before the ITO that the hundis and the entries in the books of account produced by it were bogus. The Court went on to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of account and confirmed that the same was correct. He also gave his permanent A\c. No. and then signed the above declaration. According to the Departmental Representative, this was not before the Income tax officer at the original assessment. But my attention was invited to page 53 of the paper book by the learned counsel for the assessee. At page 53 is a copy of the reassessment order dated 28-2-1984. That clearly mentions that in the original assessment proceedings the assessee filed the confirmatory letter signed by somebody as authorized agent. The Departmental Representative then contended that interest payment of Rs. 3,200 was not disclosed in the original assessment and hence there was failure to disclose fully and truly all material facts. According to the Departmental Representative, the Confirmatory letter also not having mentioned anything relating to interest, action under section 147[a] was justified on account of non disclosure. However, it was not in dispute before me that interest payments shown as made to the creditor were recorded in the books of account. Coupled with the specific confirmation received from the creditor regarding the loan transaction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found that the existence of shri S. K. Puri and Yodha Ram, who are said to be the two travelling agents employed by the firm and submitted daily progress reports, was doubtful as the assessee had failed to furnish even the basic information about them. (d) The assessee's claim that M/s. Kay Engineering sales corporation had issued circulars, letters, etc., to its distributors was doubtful and was not supported by any evidence. (e) Shri K. S. Khosla, who was working as director in charge (sales) in the account year relevant to the assessment year 1965-66, continued to work in this year as well and drew his salary and T. A. Bills. This was in addition to the payment made by the assessee to M/s. key Engineering Sales Corporation on account of overrinding commission." Acting on the above material (the Court noted] the ITO had rightly reopended the assessment for the assessment year 1966-67. In this regard it observed that the assessee had not disclosed fully and truly all the material particulars as regards the commission paid by it to the sole selling agent that even if the assessee had made a full disclosure of material facts, the same assessee had made a full disclosure of mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judge accepted the case of the assessee. The matter then came up before a Division Bench. 25. The Division Bench held that though the assessee did disclose the hundi loans in the assessment proceedings that by itself did not lead to the conclusion that escarpment of assessment, if any, was merely the result of a different view taken by the successor-ITO. The successor ITO arrived at the conclusion that the assessee concealed a part of its income by falsely representing the same as loans in the original assessment. That could note said to be a mare change of opinion or view. On the other hand the successor ITO was proceeding on the actual facts as subsequently found out leading to the conclusion of escarpment of income due to non disclosure. The court noted in this regard that from the reason assigned by the ITO in his report to the Commissioner and in his affidavit before the Court that certain transactions which were represented as loans a the time of the original assessment were believed to the succeeding two years were found to be not genuine. This lead to the further belief that due to such misrepresentation, a part of the income had escaped assessment. 26. In fact in the aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the matter he relies upon as not having been disclosed by the assessee is real or not and whether it is a primary fact or not and if it is a fact whether it is a primary fact or an inferential fact. The Court went on to note that in the case before it the controversy was about the truth or falsity of certain loans. They were either facts or not facts. It the loans were real transactions and so, are facts, then there is no non-disclosure whether they be primary facts of internal facts. On the other hand, if they are bogus and consequently, not facts, then also sec. 147(a) has no application, because mention of them in the return is only a positive or affirmative statement of false transactions which are not in the origin of facts and by no stretch of imagination can it said to be a negative act of non-disclosure of facts. In either case section 147(a) has no application. The ratio of this decision applies equally strongly here. 29. The last decision I would notice in this regard is in Panchanan Hati. In that case, subsequent to the original assessment a piece of information came to the knowledge of the ITO to the effect that persons shown in the assessee's books of account a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the ITO u/s 147(a) of the IT act 1961." 2. In support of the respective contention of both the learned representatives for the assessee and revenue many authorities were cited by them which were considered by the Tribunal. While arriving at the decision after careful analysis of the respective submissions on both sides, this Bench of the Tribunal consisting of Shri P. I. Mohan Singh, Judicial Member and Shri G. R. Raghavan, Accountant Member, differed from each other in their conclusions. 3. In his detailed order dated May 29, 1985, the learned Judicial Member for the various reasons discussed therein ultimately held that the reopening of the assessment by the ITO u/s 147 (a) of the act was bad in law and thus allowed the appeals of the assessee. 4. On the other hand, in his detailed order dated June 27, 1985 the learned accountant Member for the different reasons discussed therein could not agree with the conclusions as aforesaid of the judicial member but held that the assessment should be set aside and restored the case to the ITO for making a fresh assessment after examining all the aspects referred to by the CIT (Appeals) in his order and thus dismissed the appeals of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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