9911796707
TMI Blog1982 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of the various creditors from whom it had borrowed during the accounting year in question. The return filed by the assessee showed a net loss of Rs. 1,27,903. But it was assessed under s. 143(3) of the Act by the ITO, Ward-A, Monghyr (Munger), determining the net loss at Rs. 76,494. A true copy of the assessment order has been annexed as annex. 1. Before the ITO, in the course of assessment proceedings, the petitioner duly submitted copies of the profit and loss account, balance-sheet, interest account, etc., and had also produced the books of account and other documents in support of the income returned. Further, in support of the loss including the impugned one and on which interest was also paid, the petitioner also filed confirmation letters front the various creditors. Most of the loans that remained unpaid during the year also appeared in the balance-sheet duly filed and examined by the ITO. Copies of the profit and loss account, balance-sheet and interest account have been enclosed as annexs. 2, 3, and 4, respectively. Assessment was completed after enquiry. The ITO accepted the transactions of the petitioner with B.I.C. shares as part of the business in share dealing, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter, the impugned notice under s. 148 dated 22nd February, 1982, was issued by respondent No. 2 to the petitioner. It has been asserted in the petition as also contended vehemently by learned counsel appearing for the petitioner at the time of argument that from the facts stated above it is apparent that respondent No. 2 had no reason to believe as contemplated under s. 147(a) that any income had escaped assessment, much less by reason of the failure on the part of the assessee to disclose fully land truly all material facts necessary for assessment. It has further been asserted that it was only due to a mere change of opinion of the ITO with regard to the nature of the losses (as to whether they were capital or revenue) sustained by the petitioner in his dealing with the B.I.C. shares that had impelled the ITO to issue the notice under s. 148. This, it was contended, was not justiciable in law since the petitioner had placed all the primary facts before the ITO and he had drawn his inference, after having carefully examined the entries in the books of account, and after being satisfied that the petitioner was dealing in share business. In a nutshell, the validity of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er it was a case of under assessment or assessment at too low a rate, or an assessment which has been made the subject of excessive relief or the allowing of excessive loss or depreciation, it is stated " a case of under-assessment ", Item 11 of this form is " reasons for the belief that the income has escaped assessment ". Against this item is mentioned " attached herewith ", air then against item 12, which runs as: Whether the Commissioner/Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of notice under section. 148. " The answer is in a stamped form: " Yes. The Board is satisfied Thereafter is the signature of the Under Secretary on behalf of the CBDT. As has already been stated before, the notice under, s. 148 of the Act has been issued for the purpose of reassessment under s 147(a). From the notice, it appears that the reopening of the assessment is sought to be made on two grounds: (i) that the loss of Rs. 13,788, which was allowed as a deductible loss for the purpose of earning revenue, was, in fact, not revenue loss but a capital loss; and (ii) that investment in purchase of the B.I.C. shares was made by borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn or to disclose fully and truly all material facts. Then only can the question of the ITO, having reason to believe, that there has been escapement of assessment of any income by reason of such failure on the part of the assessee, be gone into. It may be that at times the reason to believe may be inter-linked with the failure on the part of the assessee to act according to his part of the statutory obligation. None the less, the question of reason to believe can crop up only when there has been failure on the part of the assessee either factually or by virtue of the deeming clause embodied in the explanations. It is also well settled that the expression " material facts " used in cl. (a) refer only to primary facts. The duty of the assessee is only to disclose the primary facts. No obligation has been cast upon the assessee also to indicate what factual or legal inference should properly be drawn from those primary facts. In the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), decided by the Supreme Court, the assessee had disclosed all primary facts regarding sale of shares. The Supreme Court held that action under cl. (a) could not be initiated for the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had produced all the relevant accounts and documents necessary for completing the assessment and it was under no obligation to inform the officer about the true nature of the transactions. The Tribunal and the High Court having rejected the Department's application, on a further appeal to the Supreme Court, it was held that the assessee had disclosed its books of account and evidence from which material facts could be discovered. It was under no obligation to inform the ITO about the possible inference that may have been raised against it. It was for the officer to raise such an inference and if lie had not done so in the original assessment the income could not be brought to tax under cl. (a). In the instant case also, a perusal of both the counter-affidavit and the reasons recorded by the ITO shows merely a change of opinion with regard to the nature of the losses incurred. It has not been stated, in spite of the petitioner's assertion to that effect, that the petitioner had not submitted its relevant evidence and the books of account with regard to the transactions about B.I.C. shares. Indeed, respondent No. 2 could not be in a position to contradict this assertion of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook to the reasons recorded by the ITO, respondent No. 2, as sent to the CBDT, respondent No. 1. It is worthwhile taking an extract from the report of respondent No. 2 himself The DDI (Special Investigation) Special Cell in its report for the assessment year 1964-65 has furnished the above list of renowned bogus name-lenders. Since these creditors are renowned bogus name-lenders, the genuineness of the credit are, therefore, very much doubted and has to be examined afresh." This is the only foundation for the reason to believe as recorded by the ITO. In our considered view this can be no reason to believe on the part of the ITO that the transactions were not genuine in nature. All that is said is that the creditors were renowned bogus name-lenders and that the genuineness of the credits was doubtful and, therefore, it had to be examined afresh. It would be worthwhile to say that the report referred to by the ITO is in relation to the assessment year 1964-65, absolutely unconnected with the assessment of the petitioner, whereas, the present case is in connection with the assessment year 1965-66. Apart from that in the case of Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,", lie must have some prima facie grounds before him for taking action under section 148." The Supreme Court has also emphasised the words: " Hence proper investigation regarding these loans is necessary ". It was held that all that was said in the report was that there was a case for investigation as to the truth of the alleged transactions, which was not the same thing as saying that there were reasons to issue notice under s. 148. The facts and ratio of the Supreme Court judgment in Chhugamal Rajpal's case [1971] 79 ITR 603 (SC), are on all fours with the present case. Here also all that the ITO says is that the matter needs to be examined afresh. The grounds given for such fresh investigation have been given out to be that the credits were said to have been obtained from the famous namelenders of the Calcutta market. It has not even been said that the transactions in question were bogus-even prima facie. The ITO, respondent No. 2, thus, had no reason to believe that income had escaped assessment on account of the petitioner's failure either to make a return or to have concealed any material fact. A similar question arose before the Supreme Court in the case of Madnani Engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the formation of the belief contemplated by s. 147(a) of the Act must have a rational connection with, or relevant bearing to, the formation of the belief. And rational connection postulates that there must be a direct nexus or live link between the material coining to the notice of the ITO and formation of his belief that there has been an escapement of income. It has been stressed by the Supreme Court that we have to bear in mind that it is not any and every material, however vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment; even on the facts of that case, the Supreme Court dismissed the Department's appeal and decided the case in favour of the assessee. The other cases relied upon by the learned counsel for the Department must be confined to the special facts and features of those cases. In view of the principle well settled by the Supreme Court and in view of some of the decisions to which we have referred earlier, there is no escape from the assumption on the facts of the present case that the ITO, respondent No. 2, would have had no reason to believe wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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