Income-tax---

----Reassessment---Failure to disclose material facts necessary for assessment ---Amount shown as secured advances of CPWD, Ranchi, in assessment year 1986-87---Subsequent letters from CPWD and documents showing that amount had been recovered---Reassessment proceedings had been validly initiated---Indian Income Tax Act, 1961, S.147.

During the course of hearing of the petitioner's case for assessment year 1991-92, the Assessing Officer found that a sum of Rs.1,40,552 had been shown as secured advance of CPWD, which was being carried forward from the assessment year 1986-87. The enquiry in this regard, however, had revealed that the entire amount of Rs.1,40,552 had been realised by the CPWD through adjustment of the bills on March 31, 1986. A letter dated October 29, 1992, from the CPWD stated the advances had been recovered. The Income-tax Department made further queries from the Executive Engineer, CPWD, Ranchi Central Division, pursuant to which the Executive Engineer furnished details of payment and recoveries alongwith his 'letter, dated November 2, 1593. On the question whether the notice of the reassessment was valid;

Held, that in view of the contents of the letter of the Executive Engineer, CPWD, dated October 29, 1992 and November 2, 1992, supported by facts, figures and documents, it was, prima facie, difficult to accept the plea of full and true disclosure of material facts. In the return which the, petitioner filed on August 27, 1986, he showed the aforesaid amounts as secured advance. Merely because the petitioner produced its books of account before the Assessing Officer, it did not necessarily follow that there w, as full and true disclosure of all material facts within the meaning of section 147(a). The notice could also be justified under section 147(b). The amount which had allegedly escaped assessment was to the tune of Rs.1,40,552. In terms of section 149(1)(a)(ii) of the Act the notice under section 148 could be issued within seven years from the end of the relevant assessment year. The relevant assessment, year being 1986-87 issuance of notice on March 12, 1993, was well within the period of limitation.

CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Durga Sharan Udho Prasad v. CIT (1976) 103 ITR 270 (Pat.); Ganga Saran & Sons (P.) Ltd. v: ITO (1981) 130 ITR 1 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) and Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC) ref.

A Moitra for Petitioner

K.K. Jhunjhunwala for Respondents.

JUDGMENT

SACHCHIDANAND JHA, J.---The petitioner, which is a partnership firm, seeks quashing of the notice. dated March 12, 1993, under section 148 of the Income Tax Act, 1961 (in short, the Act), and restraint order against the Income-tax Officer, Ward- 11, Ranching, from making assess ment pursuant to notice, dated September 1, 1993, under section 142(1) of the Act. Copies of. the said two notices; dated March 12, 1993 and September 1, 1993, have been marked, respectively, Annexures-10 and 12 -to the writ petition.

It may be stated at the outset that at the time of admission of the case on October 6, 1993, no order of stay of the impugned notice or the proposed reassessment proceeding was passed. As a matter of fact, the application filed to that effect was rejected on December 15. 1994, with the observation that the final order (in the assessment proceeding) would be subject to the result of the writ petition. It was stated at the Bar that not only assessment order pursuant to the impugned notice was passed subject to the result of this case but the appeal preferred by the petitioner against the said order has also since been dismissed whereafter it has filed second appeal before the Income-tax Appellate Tribunal, Patna Bench, which is pending disposal. .

Counsel for the petitioner has rightly, if I may say so, pressed this writ petition even though the assessment order has been passed and the appeal has also been dismissed in the meantime, because those orders have been passed subject to the result of this case, and in the event of the impugned notices being struck down by this Court, the assessment order will automatically fail to the ground. However, in view of the pendency of the appeal before the Appellate Tribunal I propose to confine myself to the validity of the impugned notice under section 148 of the Act, which indeed is the scope of this writ petition; although counsel for the petitioner endeavoured to go into the facts of the case and assail the documents on the basis of which the assessment has been re-opened and notice has been issued. Any observation made hereinafter with respect to those documents should not be construed as opinion of this Court on the merit of the reassessment order.

For the assessment year 1986-87 to which the dispute relates in this case, the petitioner filed its income-tax return on August 27, 1986, declaring its total income at Rs.2,26,040. The assessment was completed under section 143(3) of the Act on November 28, 1986. The relevant part of the order reads as follows:

"Return has been filed on August 27, 1986, showing total income of Rs.2,26,040., Form No. 13, was filed on July 4, 1986. Registration is allowed to continue for this year. Shri A: Moitra, A/R appeared in compliance with the statutory notices of hearing and produced books of account which have been examined. After discussion with the assessee's A/R the returned-income is accepted.

From Annexure-4 which contains copy of the notice, dated November 3, 1992, calling upon the petitioner to show cause why the assessment for the assessment years 1986-87 to 1990-91 be not reopened, it appears that during the course of hearing of the petitioner's case for the assessment year 1991-92, the Assessing Officer found that a sum of Rs.1,40,552 had been shown as secured advance of CPWD, Ranchi, which was being carried forward from the assessment year 1986-87. The enquiry in this regard, however; had revealed that the entire amount of Rs.1,40,552 had been realised by the CPWD through adjustment of the bills on March 31, 1986. The amount of Rs.1,40,552; therefore, could not have been shown as secured advance in the balance-sheets for the assessment years in question.

The petitioner appeared before the Assessing Officer through lawyer on November 30, 1992, and made a prayer to furnish copy of the reasons for the initiation of the impugned proceeding. The Assessing Officer furnished copy of the letter of the -Executive Engineer, CPWD. Ranchi Central Division, Ranchi, dated October 29, 1992. The petitioner objected to the correctness of the statements made by the Executive Engineer in the aforesaid letter, dated October 29, 1992, pointing out that the contents of the said letter were contradictory to the certificate granted by the same authority, i.e., Executive Engineer, CPWD, Ranchi Central Division, on October 8, 1986. which had been filed alongwith the return for the assessment year 186-87 and on the basis of which the aforesaid assessment order, dated November 28, 1986, had been passed. The petitioner also filed xerox copies of some of the bills to substantiate its point. The Assessing Officer, however, issued the impugned notice under section 148 of the Act on March 12, 1993. The petitioner on receipt of the notice again submitted its objection on April 7, 1993. The Assessing Officer apparently did not accept the contentions and issued notice under section 142(1) of the Act on September 1, 1993.

Mr. A. Moitra, learned counsel for the petitioner submitted that the petitioner had made a full and true disclosure of its income in its return which was supported by documents and the assessment order was passed after hearing and necessary enquiry under section -143(3) of the Act. Having disclosed the amount in question as secured advance .it cannot be said that it had concealed its income or furnished inaccurate particulars of the income for which a proceeding for reassessment could be initiated under section 147 of the Act. When it was pointed out that the reassessment proceeding is based on information received from the concerned Executive Engineer of CPWD under whom it was carrying on its contract business. Mr. Moitra submitted that the contents of the letter, dated October 29, 1992, are not correct. He, instead, placed reliance on the aforementioned certificate, dated October 8, 1986.

It is not possible, while considering the question of validity of the notice under section 148 of the Act, to go into the correctness or otherwise of the materials or information on the basis of which the assessment is sought to be reopened. We cannot assume, as Mr. Moitra wanted us to do, that the contents of the certificate, dated October 8, 1986, are factually correct and should be preferred to those of the letter, dated October 29, 1992.

Nevertheless, in fairness to Mr. Moitra but without intending to express opinion on the point, I would like to mention that from the certificate dated October 8, 1986, copy whereof has been marked Annexure-3 to the writ petition, it is not clear as to at what stage and for what purpose the same had been issued. The certificate, which is not addressed to any person, states that---

"P.K. Halder & Co., Hehal, Resal Ranchi-5, has been paid secured advance to the extent of amount as indicated against the following works and no recovery against these payments have been made by this office till April 14, 1986."

The letter dated October 29, 1992, copy whereof has been marked Annexure 6 to the writ petition, on the other hand, reads (so far as relevant) as follows:

"With reference to your letter No. above, it is intimated that P.K. Halder & Co., had taken secured advance of Rs.1,40,552 in two running bills as per details given below and these advances of Rs.1;40,552 had already been recovered from the firm in next R/A bills. No secured advance are outstanding against P.K. Halder & Co. It is further intimated that there is no provision of 'unsecured loan' to the contractor as shown by the assessee. except secured advance in this Department."

From the counter-affidavit it appears on receipt of the said letter dated October 29, 1992, the Income-tax Department made further queries from the Executive Engineer, CPWD, Ranchi Central Division, Pursuant to which the Executive Engineer furnished details of payment and recoveries alongwith his letter, dated November 2, 1993, copy'. whereof has been marked Annexure A to the counter-affidavit. It was only thereafter that the show-cause notice, dated November 3, 1992. (supra), was issued to the petitioner. vide Annexure-4 to the petition.

It would thus, appear that the contents of the certificate dated October 8, 1986, on the one hand, and the two letters, dated October 29, 1992 and November 2, 1992, on the other, are diametrically opposite to each other.

In writ jurisdiction the High Court does not sit as a Court of Appeal and in the writ petition arising out of notice under section 148 of the Act it is not supposed to go into the sufficiency or otherwise or the question -of correctness of the materials leading to the notice: The Court has merely to see whether there was any material before the Assessing Officer on the basis of which he came to form a reasonable belief that income had , escaped assessment.

Section 147 of the Act as it stood at the relevant time read as follows:

"147. Income escaping assessment.--If--

(a) the Assessing 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 Assessing 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, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or, the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year) ....

Explanation 2.---Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section. "

Mr. Moitra submitted that the petitioner having furnished the material facts and shown the amount in question as. secured advance in the return, it was for the Assessing Officer to make enquiries. Having satisfied himself as to the correctness of the return and made the assessment under section 143(3) he could not re-open the assessment. In view of the contents of the letter of the Executive Engineer, CPWD, dated October 29, 1992 and November 2, 1992, supported by facts, figures and .documents, it is, prima facie, difficult to accept the plea of full and true disclosure of material facts. If the contents of the said letters of the Executive Engineer, dated October 29, 1992, and November 2, 1992, are correct it would follow that the amount of Rs.57,638 and Rs.82,914 (apart from another sum of Rs.54,190) had been adjusted against the second running account bill and the sixth running account bill on March 31, 1986, in full and final satisfaction of the bills. In the return which the petitioner filed on August 27, 1986, however, he showed the aforesaid amounts as secured advance. Merely because, as alleged the petitioner produced its books of account before the Assessing Officer, it does not necessarily follow that there was full and true disclosure of all material facts within the meaning of section 147(a) of the Act. This is what Explanation 2 to section 147 provides. .

The notice can also be justified under section 147(b) of the Act. Clause (b), as noticed above, empowers the Assessing Officer to reassess the income which he reasonably believes to have escaped assessment for the particular assessment year even in cases where there has been no omission on the part of the assessee to either file a return under section 139 or to make true and full disclosure of all material facts if he is in possession of some information and on the basis of which he forms such belief.

Mr. Moitra submitted that if this Court were to hold that the reassessment was under section 147(b), the show-cause notice would be barred by limitation as per the provisions by section 149 as it stood at the relevant time before its amendment by the Direct Tax Laws (Amendment) . Act, 1987, with effect from April 1, 1989.

In view of the observations in the earlier paragraphs it cannot be definitely said that there was full and true disclosure of material facts and, in any view, it is for the Assessing Officer to go into the related questions at the stage of reassessment proceedings in the presence of the assessee. It is, therefore, not possible to interfere with the notice on the ground of limitation.

Mr. Moitra then contended that in any case notice under section 148 can be issued in terms of the amended provisions of section 149 after four years, as in the present case, only if the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs.50,000 or more for that year. He submitted that in the impugned notice the amount of income which has allegedly escaped assessment has not been disclosed.

The submission is like a cry of desperation and has to be summarily rejected. The notice has been issued in the prescribed form, and in so far as the amount is concerned it is clear from the documents on the basis of which the Assessing Officer formed the opinion as well as show-cause notice admittedly served on the petitioner, that the amount which had allegedly escaped assessment was to the tune of Rs.1,40,552. In terms of section 149(1)(a)(ii) of the Act the notice under section 148 could be issued within seven years from the end of the relevant assessment year. The relevant assessment year being 1986-87 issuance of notice on March 12, 1993, was well within the period of limitation.

Mr. Moitra then contended that under section 151 of the Act, where assessment had been made under section 143(3), notice could be issued under section 148 only with the sanction of the Chief Commissioner or the Commissioner of Income-tax. While dealing with the relevant averments of the petitioner in this regard in paragraphs 28 and 29 of the writ petition the respondents have asserted in paragraph 20 of the counter-affidavit that the Commissioner of Income-tax, Ranchi, had given his sanction after due application of mind. The submission of Mr. Moitra in this regard also is accordingly rejected.

Before I conclude I must notice the decisions which were relied upon by Mr. Moitra in support of his contentions. His firstly placed reliance on CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC). In that case -the Supreme Court following its earlier decision in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191, held that the assessee was under no obligation to disclose his own inferences arising from certain facts; his obligation was merely to disclose primary facts relevant to the assessment. However, in the same paragraph the Court further observed that mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1) of the Indian Income-tax Act, 1922, corresponding to section 147(a) of the Income Tax Act, 1961, as it stood at the relevant time.

To the same effect is the decision of this Court is Durga Sharan Udho Prasad v. CIT (1976) 103 ITR 270, which was the second decision relied upon by Mr. Moitra.

The decision is ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) and Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR 1 (SC), are also of no avail to the petitioner. While interpreting the expression "has reason to believe" occurring in section 147(a) of the Act, as it stood at the relevant time their Lordships held that although the Court could not investigate into the adequacy or sufficiency of the reasons which have weighed with-the Assessing Officer in coming to the belief, there must be some nexus or live link between the material coming to the notice of the Assessing Officer and the formation of his belief. If there is no rational and intelligible nexus between the reasons and the belief, the belief cannot be said to be reasonable. On the facts of the case the Supreme Court held that there was no failure to disclose the material facts and the Assessing Officer, therefore, had no jurisdiction to reopen the assessment.

None of the above-noted decision, I am afraid, is of any avail to the petitioner. The assessment in the present case has been reopened on the basis of information coming to the notice of the Assessing Officer suggesting that income chargeable to tax had escaped- assessment for the relevant assessment year. If the statements made in the letters of the Executive Engineer, CPWD, Ranchi Central Division, dated October 29, 1992, and November 3, 1992, and the documents annexed thereto are factually correct it can also be said that there was no full and true disclosure of material facts. No doubt the assessee is not obliged to disclose his inferences, but he certainly is under obligation to state the correct facts. The petitioner filed the certificate of the Executive Engineer, CPWD, in support of his statement in the return which have been found to be incorrect. In these facts, formation of the belief on the basis of information coming to the notice of the Assessing Officer cannot be said to be unreasonable.

In the case of Phool Chand Bajrand Lal's case (1993) 203 ITR 456 (SC), the assessee claimed to have borrowed a loan of Rs.50,000 from a Calcautta Company on May 19, 1962. Entry to that effect was made in the books of account on May 25, 1962. The loan was shown to have been raised in cash and returned in cash in 1968. However, the interest thereon had been paid during the assessment years 1963-64 to 1968-69 cheque or bank draft. The appellant produced a confirmatory letter from the company which had allegedly lent money to it. The Income-tax Officer, Azamgarh, completed the assessment accepting the genuineness of the loan and allowing deduction of the interest. Thereafter, upon enquiry, he learned from the Income-tax Officer, Calcutta, that the managing director of the company in question had made a confession to him to the effect that the company was only a name-lender and it had never advanced any loan to any person and this was accepted in the assessment of that company for the assessment years in question. On receipt of the aforesaid letter, the Income-tax Officer, Azamgarh, issued notice for proposed reassessment. The Supreme Court held that as the Income-tax Officer came to possess fresh materials which showed prima facie that the claim of the assessee was bogus, he was entitled to start reassessment proceedings. It was observed that where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of the original proceedings could not be said to be a disclosure of "true" and "full" facts. The Assessing Officer in such a case has, therefore, jurisdiction to reopen the concluded assessment.

The present case, in the facts and circumstances, in my opinion, comes within the parameters of section 147 of the Act; the notice under section 148 and the subsequent notice under section 142(2) of the Act, therefore, do not require any interference.

In the result, I do not find any merit in this writ petition and the same is accordingly dismissed. I would make no order as to costs.

AFTAB ALAM, J.---I agree.

M.B.A./17/FC

Petition dismissed.