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TMI Blog1968 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... oing business as a contractor and was being assessed as an individual. In the year 1941 he joined a partnership firm known as Tejoo Kaya Co., Bhavnagar Works. When the assessee made his return for the assessment year 1942-43 the assessee filed full details regarding the said partnership in Tejoo Kaya Co. In the form of return for that year Part III was a part requiring the disclosure of information in cases where the assessee was a partner in a firm or firms. In 1942-43 details about his partnership with Tejoo Kaya Co. were disclosed but when the assessee made his returns for the assessment years 1943-44 and 1944-45 Part III was not filled up. Though it has been stated in the statement of the case that in those years " the relevant portion having been scored out " Part III was not filled up, what really appears to be the case is that the assessee entered against the space provided in Part III the words " not applicable " and drew a line across that Part. A similar return for the assessment year 1944-45 was filled up by the assessee on 11th May, 1945, though it bears the date 24th April, 1945. Before and after this return for 1944-45 was made, a firm of chartered accountants o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrai Jain was a partner with Messrs. Tejoo Kaya Co., New Nagpada, Bombay, in their works at Bhavnagar. No profits had been received out of this partnership in 1997 or later, as a dispute is going on in connection with the affairs of this partnership. Hence no income has been shown or no loss has been claimed in connection with this partnership. Our client reserves the right to claim the correct figure of loss as may be ascertained from the file of Messrs. Tejoo Kaya." After the return for the assessment year 1944-45 was made the assessee's chartered accountants wrote on 24th February, 1948, a letter with reference to the assessment years 1943-44 and 1944-45 in which they stated : " With reference to the above assessments, we have the honour to refer you to our letter of the 8th June, 1944, wherein we have stated that our client was a partner with Messrs. Tejoo Kaya Co., New Nagpada, Bombay, in their works at Bhavnagar and that no profits have been received by him at that time, as there was a dispute going on regarding the partnership affairs. The matter went to the High Court and the final judgment has been given by the High Court on 22nd July, 1947. As per this judgment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at he had derived any income from the partnership or had been under-assessed to any extent. A further letter to the same effect was addressed to the Income-tax Officer on the 24th September, 1952, but the Income-tax Officer overruled the assessee's objection and completed the assessment under section 34(1)(a). The Income-tax Officer held that " the assessee had failed to disclose in the return of income on the basis of which the original assessment was completed the full and true material facts necessary for his assessment for that year." In appeal to the Appellate Assistant Commissioner, that officer considered the facts and circumstances, particularly the two letters dated the 8th June, 1944, and the 24th February, 1948, and the fact that the assessee had in Part III of the return of income for the year 1944-45 stated " not applicable ". In view of these facts he held that " technically the full facts were not disclosed by the appellant for that year and the Income-tax Officer was legally justified in taking recourse to action under section 34(1)(a) to reopen the assessment on the ground that the full particulars were not supplied and that the appellant did not disclose that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings of the Tribunal and has urged that the conclusion which the Income-tax Officer and the Appellate Assistant Commissioner had reached upon the material before them could not have been set aside by the Tribunal upon a mere re-appreciation of the evidence. He has urged that, in the first place, the assessee in filling up Part III of the form when he made his return was not only guilty of failing or omitting to state material facts but had positively misled the Income-tax Officer when he made the entry in the form " not applicable " and scored out the blank space. So far as the letter of 8th June, 1944, is concerned he urged that it was only a letter pertaining to the assessment years 1941-42 and 1942-43 and, therefore, could not be used by the assessee to show disclosure of material facts for the year with which we are concerned, namely, the assessment year 1944-45. As regards the letter dated 24th February, 1948, he urged that, in fact and in substance, that letter pertains to the year 1943-44 only and, therefore, that letter cannot avail the assessee to show that he had disclosed the material facts in the year 1944-45. Counsel also urged that the assessee persisted even in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or law---he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?" Their Lordships then went on to consider the effect of the Explanation to section 34(1) and held that the Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose " inferences " to draw the proper inferences being the duty imposed on the Income-tax Officer. The same view was reiterated by their Lordships in a recent decision in Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmuundry, where their decision in the Calcutta Discount Company's case was affirmed and followed by them. Now, what was the primary fact with the non-disclosure of which the assessee has been charged in the present case ? The primary fact that had to be disclosed, in our opinion, was the fact that the assessee was a partner in the firm, Tejoo Kaya Co. The Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter proceeds to state that, according to this judgment, there has been a loss in the Bhavnagar Works of Rs. 3,50,000 and that the assessee has been held to be an 8 annas partner in the Bhavnagar Works. Then it is sought to be explained how the assessee has been liable for a loss of Rs. 54,000 and that, when he held a half share as ascertained by the High Court, the loss would work out at Rs. 1,75,000. Next comes the sentence upon which great reliance has been placed on behalf of the department : " Thus our client has actually suffered and paid a loss of Rs. 35,000 plus Rs. 19,000, i.e., Rs. 54,000, as his share of loss in this partnership and we are claiming this loss against 1943-44 assessment and the return filed is therefore, subject to this claim ". On the date of this letter both the returns made by the for the assessment years 1943-44 and 1944-45 were pending disposal. The assessments had not been made. The assessment for the year 1943-44 was made on 22nd April, 1948, and that for the year 1944-45 was made on 3rd January, 1949. Obviously the assessee had addressed a letter apprising the Income-tax Officer of the fresh facts and the new development that had taken place as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department from the primary facts within the meaning of that expression in the Calcutta Discount Company's case. After all, assessees who have done business do make returns of losses and the department on taking accounts finds a profit, but for that reason alone it cannot be said that the assessee has failed to disclose a material fact fully and truly. If, upon mere accounting, a different amount is found, it cannot be said that the assessee has failed or omitted to disclose a material fact. In this case, however, that question, as we have shown, does not arise because the fact that there was a profit was fully unknown to the assessee and the assessee, when he stated what was the result of the decision of the High Court, stated every fact which was in his possession and till that date every fact which was wholly true. If this letter gives the information, which on the face of it the letter furnishes to the department, we cannot understand how the Income-tax Officer could possibly have been mislead or even have misunderstood the entry which the assessee had made in his return in Part III " not applicable ". In order to understand the true import of that entry, it is necessary to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit from Bhavnagar firm of Messrs. Tejoo Kaya Co. are definitely bad and illegal inasmuch as I was not a partner in the relevant accounting period, nor at any material time when the income-tax proceedings against the said firm, were started and completed. I ceased to be a partner in that firm in May, 1942, and, therefore, I cannot have anything to do with the income-tax assessments of that firm for S.Y. 1999." It was urged that even in 1952, the assessee was still saying that he was not a partner which shows his attitude which was calculated to mislead the department. In the first place, these are not letters which can be taken into account in determining whether the assessee was guilty of an omission or failure to disclose fully and truly all material facts, for we must see the position as it existed on the date on which he was under a duty to disclose fully and truly the material facts. These letters were written in 1950 and 1952 by which time the assessment for the year 1944-45 was completed. It was completed long before on 3rd January, 1949. It cannot be said, therefore, that any recitals in these letters amounted to failure to disclose fully and truly the material fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain any mis-statements of fact or amount to an omission or failure on the part of the assessee to disclose fully and truly any material fact. That the mere failure to fill up part of the income-tax return cannot amount to a failure or omission to disclose the primary facts has been decided in a recent decision of the Calcutta High Court in Sudhir Kumar Bhose v. Income-tax Officer. This court has also taken the view that it is not in any way an omission to fill in a return that would amount to failure to disclose fully and truly the material facts : see D. R. Dhanwate v. Commissioner of Income-tax. Therefore, the mere crossing out of Part III of the return would not bring the assessee within the mischief of the section. We have already explained what is the effect, in our opinion, of his simultaneously writing in Part III the words "not applicable ". These words, if read with the explanatory letter which the assessee wrote on 24th February, 1948, show that the facts were truly stated. The profits in this case, if any, for which the assessee became liable were, as we have said, only ascertained when the assessment of the firm of Messrs. Tejoo Kaya Co. was made on 17th December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm was assessed. Much the same view has been taken by the Madras High Court in E. M. Muthappa Chettiar v. Commissioner of Income-tax. On the whole, therefore, we are satisfied that the decision of the Tribunal was a correct decision and that the assessee has not been guilty of any omission or failure to disclose fully and truly any of the material facts or the primary facts necessary for his assessment for the year in question. We may add here that it was an additional argument on behalf of the assessee having regard to the facts and circumstances here and, assuming that there was any omission or failure on the part of the assessee, that the omission or failure as such had not occasioned the escapement of income but the escapement of income was due to the more fact that the firm of Messrs. Tejoo Kaya Co. was not assessed for a long time, at least not until the assessments of the assessee were completed. The assessment of the assessee for the year 1944-45 was completed on 3rd January, 1949, and the profits of the firm, Messrs. Tejoo Kaya Co., were assessed for the same year on 17th December, 1949. In this respect Mr. Kolah had referred to a decision in Bhanji Lavji v. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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