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TMI Blog1986 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... in whose jurisdiction the said creditors were being assessed were furnished. The said loans were accepted and the assessment was completed on September 30, 1966, accordingly by the Income-tax Officer, " C " Ward, Asansol. Subsequently, it appears that the Income-tax Officer, " C " Ward, Asansol, received a letter from the Income-tax Officer, Additional, " F " Ward, Asansol, dated August 22, 1971/September 2, 1971, where it was stated, inter alia, as follows : " Your above assessee had loan transactions with the following loan creditors during the assessment year 1963-64 and earlier years : 1. Shri N. K. Sharaff, 23/24 Radhabazar St., Calcutta, assessed by the Income-tax Officer, " D " Ward, Howrah, from file No. A-348. 2. B. N. Sharaff, 23/24, Radhabazar St., Calcutta, assessed by the Income-tax Officer, " D " Ward, Howarh, from file No. S-1194. 3. Govindram Ramnarayan Das with H.O. at Hissar and Branch at Chittaranjan Road, Calcutta, assessed by the Income-tax Officer " A Ward, Hissar. The Income-tax Officer, 'D' Ward, Howrah, has intimated by letter dated May 21, 1971, that the Sharaffs filed disclosure petitions under section 271(4A) on March 29, 1966, declari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t possible for him to state anything further and wanted an opportunity to cross-examine the creditors. The Income-tax Officer held that the burden was on the assessee to prove the genuineness of the loans and that he had been allowed sufficient time and opportunity to produce them. It was held that the Revenue was under no obligation to give further opportunity to the assessee for cross-examining the creditors: The Income-tax Officer took note of the fact that the creditors have confessed that the transactions with the assessee were bogus and accordingly the amounts of the said loans together with interest were added to the total income of the assessee. It is recorded in the order of assessment that the confessions of the creditors were before the Income-tax Officer and had been kept separately with the endorsement "not for the assessee ". Being aggrieved, the assessee preferred an appeal from the order of reassessment to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that the Income-tax Officer had failed to compel the creditors to appear before him so that they could be cross-examined. He further found that the assessee had proved the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer was made available to the assessee. On a consideration of several decisions which were cited, the Tribunal held that from the reasons as recorded by the Income-tax Officer it was not clear how a detection was made that the loans in question were fictitious and represented the assessee's income from undisclosed sources. There was no reference in the recorded reasons of the said letter from the Income-tax Officer, Additional, " F " Ward, Asansol, nor was there any reference to the alleged confession of the creditors before their respective Income-tax Officers. The only evidence which the Income-tax Officer concerned had was the letter from the Income-tax Officer, Additional, "F " Ward, Asansol. From the said letter, it appeared that the Income-tax Officer, " F " Ward, Asansol, had in turn received information from the Income-tax Officer, " D " Ward, Howrah, and the Income-tax Officer, " A " Ward, Hissar. The Income-tax Officer concerned did not even obtain a copy of the original letters of the Income-tax Officers of Howrah and Hissar, nor did he ascertain from the creditors any confirmation of their confessional statements made. The Tribunal held that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922 (" the 1922 Act "), to cancel an assessment where an income disclosed by the assessee was held to be not his income but was income assessable in the hands of some other person. This decision has no application in the instant case. (b) Biju Patnaik v. ITO [1976] 102 ITR 96 (Cal): In this case, the Income-tax Officer sought to reopen an assessment under section 147. The reasons recorded by the Income-tax Officer which were placed before the Commissioner for obtaining sanction were, inter alia, that a number of hundi loans had been recorded in the books of account of the assessee in the names of various lenders. The loans were accepted as genuine in the original assessment. Subsequently, information was obtained that the lenders indulged in the business of granting bogus accommodation and that some of them confessed that the loans shown to have been given to the assessee were bogus. On these facts, it was held by a Division Bench of this court that there was sufficient material in the hands of the. Income-tax Officer on the basis of which he could come to a reasonable belief that the income of the assessee had escaped assessment by reason of failure on his part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the credit. On a reference, the decision of the Tribunal was affirmed by Division Bench of the Delhi High Court which held that the assessment could be reopened tinder section 147 on the assumption that the creditor was a non-existent entity. (f) Biswanath Pasari v. ITO [1985] 154 ITR 419 (Cal): In this case., initiation of proceedings for reassessment by notice issued under section 148 was challenged in a writ petition in this court. The learned judge on the facts of the case held that there were materials before the Income-tax Officer on which he could validly initiate proceedings for reassessment. The grounds on which the reassessment was initiated in this case do not appear from the judgment and as such this decision is not of assistance in the case before us. The learned advocate for the assessee contended to the contrary. He submitted that the Tribunal has found that the grounds on the basis of which the Income-tax Officer concerned initiated the reassessment proceedings were inadequate. On the materials before the Income-tax Officer, his belief that the income of the assessee had escaped assessment on account of his failure to disclose fully and truly all material fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to disclose the primary or material facts necessary for the assessment. It was held that the conditions necessary for issue of the notice under section 148 were not satisfied and the notice was declared to be invalid. (c) Madanlal Jindal v. ITO [1973] 92 ITR 546 (Cal): In this case, the wife of the assessee claimed to be a partner in a firm. The Income-tax Officer dealing with the assessment of the said firm passed an order where the Wife of the assessee was treated as a benamidar of the assessee. Thereafter, the Income-tax Officer who was dealing with the firm wrote letter to the Income-tax Officer dealing with the assessee informing the latter of the order which has been passed in respect of the assessee's wife relating to the firm, requested the latter to note that the income of the wife of the assessee of her share of the income of the firm should be clubbed in the hands of the assessee and to reopen the assessment of the assessee. The assessment of the assessee for the relevant assessment year which had been completed was sought to be reopened under section 147. The assessee challenged the proceedings by a writ petition. It was held by a learned judge of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held that the conditions precedent for reopening of the assessment had not been fulfilled and the proceedings were quashed. The decision of the first court was confirmed on appeal by a Division Bench. (e) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC): In this case, the reasons recorded for reopening of an assessment under section 147 on the basis of which the sanction of the Commissioner was sought were, inter alia, as follows (p. 441): " There are hundi loan credits in the names of Narayansing Nandalal, D. K. Naraindas, Bhagwandas Srichand, etc., who are known name-lenders, and also hundi loan credit in the name, Mohansingh Kanyalal, who has since confessed he was doing only name-lending. In the original assessment, these credits were not investigated in detail. As the information regarding the bogus nature of these credits is since known, action under section 147(a) is called for to reopen the assessment and assess these credits as the undisclosed income of the assessee... " On these facts, it was held by the Supreme Court on an appeal from decision of the Full Bench of this court that the grounds as recorded could not have led to the formation of the belief by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings were challenged by way of a writ petition. The petition was dismissed in the first court but was allowed on an appeal by a Division Bench. On further appeal, the Supreme Court affirmed the decision of the Division Bench. The Supreme Court held that the assessee had disclosed all material facts at the time of the original assessment. The Supreme Court held further that the Income-tax Officer did not disclose any material on the basis of which he could contend that he had come to hold the belief that any taxable income of the assessee had escaped assessment. On question No. 2, learned advocate for the assessee cited the following decisions: (a) C. Vasantlal Co. v. CIT [1962] 45 ITR 206 : This decision of the Supreme Court was cited for the following observation (p. 209): "The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry, But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it ........" (b) STO v. Uttareswari Rice Mills [1973] 89 ITR 6 (SC): I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the assessee on the basis of the aforesaid letters of the Income-tax Officers of Howrah and Hissar. It appears to us that the Income-tax Officer concerned did not apply his mind independently and followed the suggestion. We also note that the Tribunal has found as a fact that only one of the notices under section 131 came back unserved. No further steps were taken by the Income-tax Officer to produce the other creditors at the reassessment proceedings. It stands admitted by the Revenue that the materials before the Income-tax Officer on the basis of which he proposed to reassess were never disclosed to the assessee. Apart from cross-examination, the assessee was not able to consider nor make any representation against the same. The confessions of the creditors were kept out of the knowledge of the assessee. From the decisions which have been cited before us, it appears that the law is settled that whether the Income-tax Officer had sufficient materials to come to a reasonable belief that income of any assessee had escaped assessment on account of the assessee's failure to disclose all material facts truly or fully will depend on the facts and circumstances of each case. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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