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TMI Blog1965 (10) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance-sheets. At a later date, which is not quite clear from the statement of the case, the Income Tax Officer learnt that an amount of ₹ 21,352 was lying deposited with the Morvi Mercantile Bank Ltd., Morvi, in the name of the assessee. The Income Tax Officer, therefore, decided to initiate proceedings under section 34(1)(a) and sought permission therefore from the Commissioner of Income Tax. The permission was sought for on the ground that : "The assessee deposited the amount of ₹ 21,352 in Morvi Mercantile Bank Ltd., Morvi in Samvat year 2008. The assessee has not been able to prove satisfactorily the source of this deposit. Hence, action under section 34(1)(a) is proposed to tax this amount which has escaped assessment." 3. It is clear according to the Income Tax Officer that the deposit of ₹ 21,352 was made in Samvat year 2008, the relevant account year, that that amount had escaped assessment, and that the case fell under clause (a) of section 34(1). It would also seem from the application by the Income Tax Officer that he asked for an explanation but that the explanation given by the assessee was not satisfactory to the Income Tax Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. He presumably noticed this mistake and, therefore, added this amount in the assessment and that was how he assessed tax on a total income of i ₹ 27,720 comprised of the original assessed income of ₹ 14,420 and ₹ 13,300. The amount of ₹ 13,300 was thus added for both the assessment year 1953-54 and 1954-55. 4. The assessee filed appeals against both these orders before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner deleted the amount of ₹ 13,300 from the assessment for the assessment year 1954-55 but retained the addition of this amount in the assessment for the assessment year 1953-54. Before the Appellate Assistant Commissioner, the assessee raised four contentions : (1) that the reason given by the Income Tax Officer for reopening was that the assessee had deposited in Samvat year 2008 the said amount of ₹ 21,352 and that that amount had escaped assessment. That reason having been found to be incorrect the very basis and purpose for which notice under section 34 was issued stood extinguished, that therefore, the notice itself stood extinguished, that therefore, the notice itself stood canceled and consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preceding year and was not a deposit made in the year of account. "Thus, the action under section 34 when it was initiated was perfectly legal and the notice issued under section 34 and the proceeding s in pursuance thereof were perfectly valid." Before the Tribunal, the contention urged was that the proceedings under section 34(1)(a) were not validity initiated and that, since it was found in the course of the reassessment proceedings that the sum of ₹ 21,352 which was the basis so the initiation of the action under section 34(1)(a) was not the amount which had escaped assessment it was not open to the Income Tax Officer to include ₹ 13,300 which sum was not be basis for the initiation of proceedings under section 34(1)(a). The Tribunal rejected that contention and held that the proceedings were validly initiated because at the time when the Income Tax Officer initiated them he had in the circumstances of the case reason to believe that the assessee had made deposit with the Morvi Bank which had not been disclosed in the course of the original assessment. 7. The question referred to us is : "Whether, on the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at non-disclosure has resulted in non-assessment Mr. Kaji argued, therefore, that since the amount of Rs, 21,352 was not item assessable to tax in the relevant year of account, it was not a fact which the assessee was bound to disclose as it had no bearing on and was not material to the assessment for that year and, therefore, there being no non-disclosure as contemplated by clause (a) of section 34(1), there could be no reason to believe that there was non-assessment on account of any non-disclosure. Mr. Kaji placed considerable reliance on the Supreme Court decision in Calcutta Discount Co's case. especially on certain observations made therein which he said supported his analysis of section 34(1)(a). 11. The learned Advocate-General, on the other hand, argued that the decision in the case of Calcutta Discount Co. did not lay down what Mr. Kaji contended, for the only proposition that it laid down was that the duty of an assessee is to disclose all relevant facts which have a bearing on the assessment and which would assist the taxing officer to properly assessee, but that it did not lay down the converse proposition that if there was no non-disclosure of a relevant or a pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the fact before he initiates the proceedings, which is not what the section enacts. Both Mr. Kaji and the learned Advocate General relied on the Calcutta Discount Co's case Mr. Kaji relying on it show that the fact of non-disclosure is an objective fact which must per-exist and which the court can enquiry into and that the only thing that rest on the reasonable on account of an omission or failure to disclose and the learned Advocate General relying on the decision to show that both omission of failure to disclose and the consequent non-assessment were matters of reasonable belief of the Income Tax Officer. There being thus divergent views as to what the Supreme Court has laid down in that case, it will be necessary to consider what precisely has been held there. 12. In that case, the report of the Income Tax Officer who proposed to initiate proceedings under section 34 was that profits realised by the company by sales of shares were not assessed to tax in the original assessment as at that time the company had represented that the sales were causal transaction and in the nature of change of investments. But the result of the company's trading from year to year showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 34(1)(a). At page 201, the Supreme court framed its conclusion on the scope of section 34(1)(a) in the following passage : "The position, therefore, is that if there were in fact some reasonable ground for thinking that there had been non-disclosure as regard any primary fact which could have a material bearing on the question of `under assessment', that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving act the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income Tax Officer had when he assumed jurisdiction some prima facie ground for thing that there had seen some non-discolore of material facts." 13. The Supreme Court also observed that it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income Tax Officer had no material at all before him for believing that there had been such non-disclosure. Though the court cannot investigate into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive facts and cannot depend on the reasonable belief of the taxing officer. If it was otherwise, an Income Tax Officer can initiate proceedings by merely saying that he had reason to believe that the assessee had omitted or failed to file his return or had omitted or failed to disclose a material fact though in one case the assessee had in fact field his return and in the other case he had in fact disclosed and all material facts or the fact which the Income Tax Officer says was not disclosed, did not in fact exist. The existence of a primary fact is therefore an objective fact which the court can investigater, but once that fact is found to exist, if the Income Tax Officer reasonably believes that there was non-assessment, etc., the court cannot investigate into the adequacy or otherwise of his reason to come to that belief and the initiation in such cases would be valid. On the other hand, if there was in fact nomination or failure to file a return or no omission or failure to disclose a primary fact necessary for a proper assessment, there would be no ground or material for the taxing officer to have reason to believe the assessee had failed to omitted to file a return or had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a greater assessment than the one actually made. The rule of full and true disclosure of material and necessary facts should not be fastifiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the assessing officer would have material use of it to charge the assessee more than what he did. The Income Tax officer cannot certainly fall back on the section to make good his deficiencies in the first completed assessment. Cases sought to be brought with in section 34(1)(a) should strictly fall within that provision and it is for the department to show that the necessary conditions for the exercise of jurisdiction are fully present. The department is not at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set the machinery of the reassessment in motion. If this were to be permitted there is every danger of this provision of law being used as an instrument of person against the assessee. The true position is that if the Income Tax Officer was left in the dark in respect of basic and crucial facts, relevant to the assessment, he jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer in London owned shares in an Indian company but had no business activity in India. For the assessment year 1949-1950, the Indian company was called upon to file a return of the income for the London company as its agent. The Indian company thereupon filed a return and after considering all the material place before him, the Income Tax Officer decided that the London company was a non-resident company under section 4A(c) of the Income Tax Act, 1922, as more than fifty per cent of it income arose outside Indian and made an assessment on its Indian income. Subsequently, the Income Tax officer initiated proceeding under section 34(1)(a) for reassessment of the London company on the ground that the income of the London company outside India had been wrongly computed to be less than the Indian Income and that he London company was really a resident company. The case of the department was that (1) there was default in submitting the return as the Indian company was not entitled to make a return as the agent of a resident company and (2) that there was mis-statement and non-disclosure of material facts. The High Court negatived these contentions and held that the Income Tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uence of particular information in his possession, reason to believer that income had escaped assessment and might, even if the particular information proved to be ill-founded at the conclusion of the enquiry, yet being to tax such escaped income as came to light as a result of the enquiry. The learned judges have also observed that the non-existence of the original ground which led the officer to believe that income had escaped assessment was not a bar to reassessment of escaped income and did not visa such reassessment and that the statutory requirement of reasonable belief rooted in information in the possession of the officer was to safeguard the assessee from vexatious proceedings and was not a mantle of protection against taxation of income found to have escaped assessment. The learned Advocate-General argued that this decision was a direct authority supporting his contention that the reasonable belief of the Income Tax Officer that there was escarpment on account of non-disclosure were on enquiry subsequently to turn out to be unfounded. We do not thinks that the learned Advocate-General can find assistance for his contention in this decision. This decision at best is an aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant year of account were produced, that was not enough by reason of the Explanation to section 34(1), for attention was not drawn specifically to the account of the bank in the assessee's books. That may amount for non-disclosure but the question is, was there any non-disclosure of material fact necessary for a proper assessment on which the Income Tax Officer could have reason to believe that there was escapement. It is true that the court acting under its advisory jurisdiction may not have jurisdiction to inquire into the adequacy or otherwise of a reason to believe but that it is not the question before us. The question is, was there non disclosure of material fact which had a bearing on the assessment, which if, disclosed, would adversely result in a higher assessment. In other words, was it incumbent on the assessee to disclose to carry forwards entry in respect of the amount of ₹ 21,352 from the book of Samvat year 2008. 19. As laid down in Calcutta Discount Co.'s case, the duty of an assessee ends as son as he reveals to the Income Tax Officer all the primary relevant facts. The primary fact in the present case would be the deposit of the ₹ 21,352 durin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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