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TMI Blog1978 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... TO was not drawn to the fact that there was a cash credit entry in the books of account for that year showing a deposit by Capt. Narendrasingh Motilal Bhandari to the tune of Rs. 1,59,700. The list of sundry creditors showed that a sum of Rs. 1,01,003-2-0 was due to him. The khata of the aforesaid Capt. Bhandari in the books of the petitioner was credited with various sums as representing cash deposits made between April 2, 1955, and November 7, 1955, totalling Rs. 1,64,700 on November 7, 1955, as detailed below : To Debits By credits Rs. Rs. 7-6-55 cash 5,000 2-4-55 cash 25,000 2-4-55 do. 16,000 4-4-55 do. 35,000 6-4-55 do. 15,000 7-4-55 do. 25,000 26-5-55 do. 4,000 28-5-55 do. 5,000 8-6-55 do. 9,000 29-6-55 do. 700 30-7-55 do. 2,000 22-8-55 do. 6,000 17-9-55 do. 2,000 24-10-55 do. 51,000 4-11-55 do. 2,000 7-11-55 do. 13,000 ------------- 1,64,700 ------------- The khata was debited with Rs. 5,000 alleged to have been repaid in cash on June 7, 1955, leaving a balance of Rs. 1,59,700 as on November 7, 1955. Thereafter, various alleged deposits amounting to Rs. 21,303-2-0 and alleged repayments totaling Rs. 80,000 are sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsion under which you signed them ? A. I was under financial difficulty and I did not want it to leak out, that is why he took undue advantage of my position ...... Q. When did you borrow the sum from Mr. Kapoor ? A. I do not exactly remember the date or I can say that it was some time in 1954-55 or 56." It, however, appears that the ITO, " A " Ward, Indore, reopened the assessment of Capt. Bhandari under s. 148 of the I.T. Act, 1961. During the course of the proceedings the petitioner was examined by the ITO. Though, at first, the petitioner asserted that he started borrowing money from Capt. Bhandari since 1953 and denied that he ever lent him money, during cross-examination he made the following statement : " Q.Have you ever advanced any money to Shri N.M. Bhandari in the year 1953-54 ? A. I do not remember anything about it. Q. Have you ever obtained a receipt for loan advanced to Shri N. M. Bhandari or Nandlal Bhandari and Sons (P.) Ltd., Indore, and Bhandari Iron and Steel Co., Indore ? A. If ever I advanced any loan, I must have taken a receipt." During his cross-examination he further stated : " Q. How the money used to be repaid to Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these facts should have come to the knowledge of the assessee. That, however, is a matter for the Board and the CIT, Madhya Pradesh, to investigate. The respondents, in their return, rightly assert that the petitioner is not entitled to know what transpired between the ITO and the higher authorities before the issuance of the notice. It is contended that the same was in the nature of preliminary inquiry before the starting of the reassessment proceedings. They contend that the legal requirements, namely, recording of reasons by the ITO, his report and sanction of the Board, were fully complied with. Shri K. A. Chitale learned counsel for the petitioner, contends that no prior sanction of the Board under s. 151 of the Act was obtained by the ITO on the basis of any order recording his reasons that it is a fit case for reopening the assessment of the petitioner for assessment year 1956-57 and for issuing of a notice under s. 148 to the petitioner. It is urged that the impugned notice dated March 29, 1973, issued by the ITO was not based on independent and unfettered exercise of his discretion but on the direction of the Board. The submission is that the authority, power and jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with in the instant case. In the facts and circumstances of the present case, it is amply clear that dud to the denial by the so-called lender, i.e., Capt. Bhandari, and the petitioner's inability to rebut it satisfactorily, the ITO had reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for the assessment year 1956-57 his income amounting to Rs. 1,59,700 chargeable to tax has escaped assessment. In view of this, it is futile to contend that the impugned notice by the ITO issued under s. 148(1) is liable to be struck down for the non-fulfilment of the conditions pre-requisite under s. 147(a) of the Act. Section 147(a) of the Act, so far as relevant, reads as follows : " 147. If- (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year,...... he may, subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of an income-tax authority cannot be controlled by the Board in a Particular case; but they can be so controlled to the extent that general directions are issued by the Board. (See Kanga and Palkhivala's Law and Practice of Income Tax, 7th edn., pp. 773, 774). In this case, it is amply clear that the ITO by his covering letter dated March 27, 1973, forwarded his report to the Board for according sanction to serve the petitioner with a notice under s. 148(1). The Board by its telegram dated March 28, 1973, accorded the requisite sanction under s. 151(1), being satisfied that this was a fit case for the issue of a notice under s. 148. After receipt of its sanction the ITO served the petitioner with the notice dated March 29, 1973, under s. 148(1), stating that he was Satisfied that income of the petitioner chargeable to tax for the assessment year 1956-57 has escaped assessment within the meaning of s. 147(a) of the Act. In the sequence of events, we fail to see how the Board could be charged with having made a direction to the ITO to issue a notice to the petitioner under s. 148, i.e., to dispose of a particular case in a particular manner contrary to prov. (a) to s. 119(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO under the dictates of the Board under s. 151(1) must, therefore, be rejected. Learned counsel for the petitioner next contends that there is a distinction between primary facts and inferential facts and the duty of the assessee extends only to disclosing primary facts fully and truly. When the assessee has disclosed all the primary facts he is under no obligation to point out the factual inference which might be drawn from those facts. It is stated that if an assessee discloses certain facts which are accepted as true by the ITO after inquiry and an assessment is made on that basis, the ITO is thereafter precluded from reopening the assessment even if subsequent information exposes the facts disclosed to be false. In support of this contention reliance is placed on Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC); Calcutta Credit Corporation Ltd. v. ITO [1971] 79 ITR 483 (Cal); Madhya Pradesh Industries Ltd. v. ITO [1965] 57 ITR 637 (SC); Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC); ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC). There is no quarre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law." The enunciation of law by the Supreme Court is binding on us. (See also the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation deals only with account books and other evidence which are produced before the ITO, but it does not cover the balance-sheet which the assessee is obliged to file along with the return. We do not think that it is necessary for us to go into this question. Similarly, it is not necessary for us to dilate on the contention of learned counsel for the petitioner that there was no material before the ITO on which he could have reason to believe that income chargeable to tax had escaped assessment for the assessment year 1956-57. We have dealt with the point at length and no useful purpose would be served by covering the ground over again. As already stated, the ITO in his report dated March 27, 1973, has stated that the denial of the so-called lender,i.e., Capt. Bhandari, and the failure of the petitioner to rebut it satisfactorily, was the reason for the formation of his belief. He has, furthermore, placed on record the material on which he had reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all the material facts, income chargeable to tax had escaped assessment for the year in question. Even assuming th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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