Income-tax---

----Reassessment---Failure to disclose material facts necessary for assessment---Material furnished by assessee---Duty of Income-tax Officer to draw correct inference ---Assessee furnishing details about commission payments and purchases---Original assessment completed accepting return furnished by assessee---Subsequent reassessment on the ground the commission payments and purchases were not genuine---Reassessment n valid.

After an assessee had disclosed material facts fully and truly, it is for the Income-tax Officer to draw a correct inference therefrom. If he had dram one inference at the time of original assessment, it is not open to him to say, the basis of some subsequent enquiry, that the material facts disclose originally were not disclosed fully and truly.

For the assessment year 1983-84, the assessee had furnished details asked for by the Income-tax Officer including details about commission payments. For the assessment year 1984-85, it tiled the list of names and addresses of persons from whom it had made purchases exceeding Rs.1 lak. The assessments were completed accepting the returns furnished by the assessee. Reassessment proceedings were started under section 147(a) of the Income-tax Act, 1961, on the ground that payments of commission made to were bogus and that purchases from D were partly bogus. On a writ petition quash the notices:

Held, that when the Income-tax Officer completed the assessment the necessary material was before him. The reassessment proceedings were n valid and were liable to be quashed.

C.I.T. v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC); 1T0 v. Madna Engineering Works Ltd.(1979) 118 1TR 1 (SC) and Nawabganj Sugar Mills Co. Ltd. v. C.I.T. (1980) 123 ITR 287 (Delhi) ref.

Soli Dastur, Jahangir Mistry and W. Menezes for Petitioner. Dr. V. Balasubramanian for Respondents.

JUDGMENT

By these two petitions under Article 226 of the Constitution of India the petitioner-company has challenged the jurisdiction of the Income-tax Officer to issue notices under section 148 read with section 147(a) of the Income Tax Act, 1961, for the assessment years 1983-84 and 1984-85.

The assessment for the assessment year 1983-84 was original completed under section 143(3) on October 31, 1985. The assessment for the assessment year 1984-85 was completed on March 23, 1987. The assessment G the assessment year 1983-84 was sought to be reopened on the ground that the commission of Rs. 18,38,928 claimed as payment made to M.S. Textile Bombay, was bogus. The assessment for the assessment year 1984-85 w sought to be reopened on the ground that the petitioner had claimed to have made purchases from Duro Novelties, Bombay, to the extent of Rs. 33,39,32 The purchases were partly not genuine. The case of the petitioner is that it had disclosed all material fats necessary for the assessments during the course of original assessment proceedings and, therefore, the Income-tax Officer could not have reopened the proceedings under section 147(a) of the Act. Reliance in this behalf was placed mainly on the two Supreme Court decisions in the cases of CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609 and ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1. Dr. Balasubramanian stated on behalf of the Department that the two decisions relied upon by learned counsel for the petitioner were not applicable in this case. In both those cases, the Income-tax Officer had, during the course of original assessment proceedings, accepted the petitioner's claim without making any inquiry and there was, thus no question of his drawing any inference. In order to explain his point he referred to and strongly relied upon the Delhi High Court decision in the case of Nawabganj Sugar Mills, Co. Ltd. v. CIT (1980) 123 ITR 287. A distinction was it is stated, drawn by the Delhi High Court in that case between full and true disclosure. In a case where the material facts disclosed were found to be bogus or not genuine, it could not be accepted that the material facts had been disclosed truly. According to the Delhi High Court, it was obligatory on the part of the assessee to disclose not only all material facts necessary for assessment but also to disclose all that material truly.

I have gone through and considered the Delhi High Court decision in the light of the two Supreme Court decisions relied upon by Shri Dastur for the I petitioner. It is true that in Burlop Dealers Ltd. (1971) 79 ITR 609, the Supreme Court has held that after an assessee has disclosed material facts fully and truly, it was for the Income-tax Officer to draw a correct inference therefrom. If he had drawn one inference at the lime of original assessment, it was not open to him to say, on the basis of some enquiry in a subsequent assessment proceeding, that the material facts disclosed originally were not disclosed fully and truly. In the subsequent decision in the case of Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC), this was further clarified. The question involved in that case pertained to Hundi loans. In the original assessment proceedings, the assessee had produced all Hundi on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest. The Supreme Court held that it was for the Income-tax Officer to investigate and determine whether those documents were genuine or not. The assessee could not he said to have failed to make a true and full disclosure of the material facts by not confessing before the Income-tax Officer that the Hundi and the entries in the books of account showing the payment of interest paid by it were bogus.

In Bulop Dealers Ltd.'s case (1971) 79 ITR OW (SC), the assessee-?company had disclosed a profit of Rs. 1,75,875 from a joint venture and claimed that half of it was paid to one R under an agreement dated October 7, 1948, for financing the transactions in the joint venture. The claim was accepted. In the subsequent year, the Income-tax Officer made further investigation and held that it was not a case of joint venture and, in fact, the assessee had earned the entire income from the so-called joint venture. The conclusion of the Income-tax Officer was upheld by the Tribunal and the High Court. It was on that basis that the assessment for the earlier year was sought to be reopened by the Income-tax Officer. Yet, the Supreme Court held that it could not be said that the assessee had not disclosed all material facts necessary for the assessment fully and truly.

In the present case, the petitioner furnished details asked for by the Income-tax Officer including details about the commission payments by letter dated July 18, 1985. For the assessment year 1984-85, it filed the list of names and addresses of persons from whom it had made purchases exceeding Rs.1 lakh by letter dated October 30,.1985. The assessments were completed long thereafter, i.e., on October 31, 1985, and March 23, 1987. Thus, when the Income-tax Officer completed the assessments, the necessary material was before him. In my judgment, the Supreme Court decisions relied upon by Shri Dastur are squarely applicable to the facts and circumstances of this case.

Accordingly, the notices issued in both the writ petitions are quashed. Rule issued by this Court is, accordingly, made absolute.

No order as to costs.

M.B.A./1591/T??????????????????????????????????????????????????????????????????????? Rule made absolute.