Income‑tax‑‑‑

‑‑‑‑Re‑assessment‑‑‑Failure to disclose material facts‑‑‑Duty of assessee is to disclose primary facts‑‑‑Assessment completed on basis of particulars furnished by assessee‑‑‑Notice issued under 5.148 on account of failure to disclose material facts‑‑‑Amount received from Forest Utilization Officer shown under "current liability" in balance‑sheet‑‑‑No omission to disclose primary and material facts‑‑‑Re‑opening of assessment not justified‑‑‑Indian Income Tax, Act, 1961, Ss. 147, 1.48 & 151.

The Income‑tax Officer acquires jurisdiction to issue notice under section 148 of the income Tax Act, 1961, in respect of the assessment beyond the period of four years but within a period of eight years from the end of the relevant year when the Income‑tax Officer has reason to believe that income chargeable to tax has escaped assessment by reason of failure to file a return under section 139 for the assessment year or to disclose fully and truly the material facts necessary for that year. The obligation on the assessee is to make a true and full disclosure of the primary facts at the time of original assessment. Mere production of the account books or other evidence from which material facts could with due diligence have been uncovered by the Income‑tax Officer will not amount to full disclosure contemplated under the law. The duty of the assessee does not go beyond making a true and full disclosure of the primary facts. It is for the Assessing Officer to draw the right inference from the primary facts. It is not the liability of the assessee to suggest to the Assessing Officer as to what inference he should draw from the primary facts.

The petitioner‑company filed its audited profit and loss account, balance‑sheet and all other relevant documents and submitted its return showing a net loss of Rs.9,29,500. In the balance‑sheet alongwith the return an amount of Rs. 31,58,700 received from the Forest Utilisation Officer (F.U.O) was shown under the head "Current liability" as advance received from the Forest Utilisation Officer. The assessment was finalised on 'nil' income. The Assistant Commissioner of Income‑tax issued a letter asking the assessee to show cause as to why the assessment should not be re‑opened for failure to disclose certain material facts in respect of advances received from the F. U.0. The Deputy Commissioner of Income‑tax (Assessment) issued notice under section 148. The notice was quashed in a writ petition fled by the petitioner before the single Judge on the ground that the letter, dated February 8, 1989, and the notice under section 148 were not issued by the competent authority and that the assessee had furnished ail ‑material particulars necessary for assessment. On appeal against the order of the single Judge:

Held, (i) that in view of the Notification No.2(c) 1988‑89, dated June 14, 1988, issued from the office of the Commissioner of Income‑tax that the Authorised Officer mentioned in the said notice shall concurrently exercise all the powers and perform all functions assigned to or conferred on the Assessing Officer by or under the Income‑tax Act in respect of areas or in respect of persons or classes of persons and/or incomes or clauses of incomes, etc., the Assistant Commissioner of Income‑tax as well as the Deputy Commissioner of Income‑tax (Assessment), Special Range‑II were within their competence in issuing the notice in question.

(ii) That the company submitted the audited profit and loss account and balance‑sheet particulars and the unadjusted amount received from the F.U.O. was shown under the head "Current liability" and, hence, the finding of the single Judge that all primary and material facts were made available to the officer during the assessment could not be said to be erroneous. Accordingly, no interference was called for. The re‑assessment was not valid.

Naginimara Veneer and Saw Mills (Pvt.) v. Dy. CIT (1996) 219 ITR 527 affirmed.

Baijnath Hari Shanker v. CIT (1973) 91 ITR 208 (All.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CAIT v. Malayalam Plantations Ltd. (1978) 115 ITR 624 (Ker.); CIT v. Mahesh Chand (1993) 199 ITR 247 (All.); Girindranath Paul v. ITO (1975) 99 ITR 426 (Cal.); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Indo‑Aden Salt Manufacturing and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC); Jatindra Nath Sarmah v. ITO (1978) 113 ITR 898 (Gauhati); Kantamani Venkata Naryana & Sons v. ITO (First Addl.) (1967) 63 ITR 638 (SC); Muhammad Serajuddin & Brothers v. ITO (1980) 122 ITR 465 (Cal.); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC); Rajpal Brothers (P.) Ltd. v. CIT (1971) 80 ITR'463 (Born.); STO v. Uttareswari Rice Mills (1973) 89 1TR 6 (SC);(1972) 30 STC 567 (SC) and Zohar Siraj Lokhandwala v. M.G. Kamat (1994) 3,10 ITR 956 (Born.) ref.

G.K. Joshi, U. Bhuyan and U. Chakravarty for Appellants.

R. Gogoi, S. Saikia and A. Dutta for Respondent.

JUDGMENT

D.N. CHOWDHURY, J.‑‑‑The appeal by the Revenue has arisen out of and is directed against the judgment and order of the learned single Judge, dated March 8, 1996 (see (1996) 219 ITR 527), whereby the learned single Judge allowed the writ petition by quashing the proceeding against the respondents under section 148 for the Income‑tax Act, 1961. In the aforesaid proceeding the controversy pertained to the assessment for the year 1985‑86. The writ petitioner‑company (respondent herein) submitted its return showing a.net loss of Rs. 9,29,500. The company also filed its audited profit and loss account and the balance‑sheet and all other relevant documents. In the balance‑sheet alongwith the return, the petitioner‑company showed an amount of Rs. 31,58,700 received from the Forest Utilisation Officer (hereinafter referred to as "F.U.O"), under the head "Current liability" as advance received from the F.U.O. In the course of the assessment proceeding, the Assessing Officer issued notice on the company in exercise of power under sections 142(1) and 143(2)(b) of the Act. In response to the same, the Chief Executive of the petitioner‑company appeared before the Assessing Authority from time to time and produced the books of account, etc., to complete the assessment. The Assessing Officer finalised the assessment for the year 1985‑86 and by an order, dated January 27, 1988, made assessment for the year 1985‑86 and showing the income as nil. The petitioner‑company preferred an appeal before the Commissioner of Income tax (Appeals) questioning certain addition and disallowance of various claims. The Commissioner of Income‑tax (Appeals) by its order, dated October 28, 1988, upheld the order of assessment except on the point of qualification of admissible "investment allowances". The Assistant Commissioner of Income‑tax, Special Circle‑II, appellant No.2 herein by its letter, dated February 8, 1989 (Annexure 3), intimated the petitioner company that there had been no disclosure of certain material fact in respect of advance received from F.U.O. and, therefore, the said officer had reason to believe that the petitioner‑company had suppressed stock of railway sleepers for the accounting year ending June 30, 1984, and sale of railway sleepers during the accounting year ending June 30, 1985. By the above letter, the respondent‑company was asked to show cause as to why the assessment for the year 1985‑86 should not be reopened and/or why the profit from the sale of sleepers should not be added to the return of income submitted for the assessment year 1986‑87. The company contended that the above letter was misconceived, untenable and uncalled for, so much so, that the company made available all ‑the relevant materials before the authority alongwith the returns of income and, therefore, there could not be any reason or basis for issuance of the aforesaid notice, dated February 8, 1989. The company also contended that the said letter was issued for making a fishing and roving enquiry as to re‑examine the facts already on record, with a view to change its opinion on the strength of facts which were already made available. The company also stated that the said officer was not the Assessing Authority at the relevant time. The company received another notice, dated March, 30/31, 1989 (Annexure 5) from the Deputy Commissioner of Income‑tax (Assessment) Special Range‑II (Appellant No. l). The above notice was issued in exercise of power under section 148 of the Act in respect of the assessment year 1985‑86 indicating thereby the proposed re‑assessment proceeding, the company questioned the legality and validity of the said notice. The company by its objection in writing informed, the authority that all material facts were produced before the authority and also denied that the company had escaped assessment under sections 142(1) and 143(2) of the Act. The petitioner thereafter moved the Court by way of civil rule questioning the legality and validity of the impugned acts.

The respondent entered appearance and submitted its affidavit. The learned single Judge on consideration of the materials on record held that the return of income was duly submitted by the company alongwith .the audited profit and loss account, balance‑sheet and other documents and particulars. The unadjusted amount of advance received from the F.U.O. was specifically shown at Rs.31,58,700 under the head "Current liability" as "advance received from the Forest Utilisation Officer". The Assessing Authority prior to completion of the assessment, issued notice to the petitioner under sections 142(1) and 143(2) of the Act, pursuant to which books of account of the petitioner‑company had been produced before the Assessing Authority. The Assessing Authority went through the same. The Chief Executive Officer of the company also personally appeared and explained to the Assessing Authority all the relevant facts and circumstances. The company also produced the records before the F.U.O. On examination of the materials on record the learned single Judge came to a positive conclusion that the assessee had furnished all the materials necessary for assessment and, therefore, the impugned notices as enjoined in Annexure 5, was unsustainable and quashed. The learned single Judge also found fault on the part of the authority so much so, according to the learned single Judge the power to issue notice under section 147 of the Act is given to the Income‑tax Ricer. According to the learned single Judge, the office of the Income‑tax Officer is defined under section 2(25) of the Act. The learned single Judge on that count also held that the impugned letter, dated February 8, 1989 (Annexure 3), and the notice dated March 30/31, 1989 were not issued by the competent authority and accordingly quashed the aforesaid two notices.

In this appeal, the Revenue questioning the legality and correctness of the judgment of the learned single Judge contended that the learned single Judge in arriving at the finding that the assessee had furnished all material facts necessary for making the assessment, failed to take into consideration the material facts that were not disclosed by the assessee, namely, (a) that the petitioner‑company was supplying sleepers to the F.U.O. under the agreement executed with the said authority; (b) that the petitioner‑company did not file a copy of the aforesaid agreement before the Assessing Officer; (c) that the petitioner‑company was receiving advance payments from the F.U.O. against advance bills; (d) that such advance bills were not recorded in the books of account though the petitioner‑company was following the mercantile systems 'of accounting; (3) that the petitioner‑company was getting mobilisation advance from the F.U.O. on the basis of such advance; (f) that the norm of procedure of the F.U.O. was to grant advance on actual verification of stock of sleepers and on the basis of passing certificate passed by him on physical verification of such stock but the said norm or procedure was relaxed in the case of the petitioner‑company and the F.U.O. was granting advance on the basis of the‑credibility of the company against advance bills;(g) that the petitioner‑company did not disclose the details for advance amount received from the F. U.O. from time to time and the stock of sleepers supplied against such advance except disclosing the closing balance of the advance account and the closing stock of sleepers as on June 30, 1984,

The appellants further questioned the findings of the learned single Judge as to the competence of the authority for initiation of the proceeding.

Assailing the finding of the learned single Judge as to the power and competence of the Assistant Commissioner of Income‑tax, Special Circle II, vis‑a‑vis the power of the Deputy Commissioner of Income‑tax (Assessment), Special Range‑II, pertaining to the issuance of notice. Mr. G.K. Joshi, learned senior counsel for the Revenue, submitted that the said finding of the learned single Judge is per se unsustainable under the law. Mr. Joshi learned senior counsel, in support of his contention referred to the scheme of the income‑tax and drew our attention, more particularly to section 2(7A), section 2(25) and subsection (1) and subsection (2) of section 120 of the Act. Mr.Joshi, learned senior counsel further drew our attention to Notification No. 2(C) of 1988‑89, dated 14th June, 1988, issued from the office of the Commissioner of Income‑tax, NER, Shillong, that the Authorised Officer mentioned in the said notice shall concurrently exercise all the powers and performs all functions assigned to or conferred on the Assessing Officer by or under the Act in respect of areas or in respect of persons or classes of persons and/or incomes or classes of income, etc.

Mr. R. Gogoi, learned senior counsel for the respondents fairly conceded to the submission of the Revenue as to the competence of the authority. On consideration of the statutory provision read with the notification and all other aspects of the matter, we are of the view that the Assistant Commissioner of Income‑tax as well as the Deputy Commissioner of Income‑tax (Assessment), Special Range‑II. were within their competence in issuing the impugned notice, therefore, the finding of the learned

single Judge to that extent is not sustainable and, therefore, the same is set aside.

Mr. Joshi, learned senior counsel for the Revenue, referring us to the provisions of sections 147 and 148 of the Act submitted that a notice cannot be vitiated for non‑mentioning and also submitted that the impugned notices were issued by the Revenue, Mr. Joshi, learned senior counsel, submitted that mere production of books of account and balance‑sheet before the Assessing Officer was not sufficient in the absence of true and full disclosure of all material facts. Mr. Joshi, learned senior counsel, has submitted that if the same materials for assessment was rooted in the materials on record which the assessee could only lay bare but failed to do so, in that event also, there may be a case of omission or failure to make a full and true disclosure. On the other hand, where merely the matter rests on an interpretation of evidence by the Income‑tax Officer from whom nothing was concealed and to whom everything was uncovered in that situation only the assessee could not be subject to the rigour of sections 147 and 148 of the Act, Mr. Joshi, learned senior counsel, further submitted that non‑disclosure of any fact whi.ch cwzld have a material bearing on the question of assessment would undoubtedly confer power on the Income‑tax Officer to assume the jurisdiction under sections 147 and 148 of the Act. Learned senior counsel, Mr. Joshi, also submitted that the season for issuance of notice need not be stated in the notice itself. It all depends on the facts and circumstances which have had material bearing on the issue. Mr. Joshi, learned senior counsel, in support of his contention referred to (Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); S. Narayananappa v. CIT (1967) 63 ITR 219 (SC); Kantamani Venkata Narayana & Sons v. ITO (First Additional) (1967) 63 ITR 638 (SC); Indo‑Aden Salt Manufacturing and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Rajpal Brothers (P.) Ltd. V. CIT (1971) 80 ITR 463 (Bom.); CAIT v. Malayalam Plantations Ltd. (1978) 115 ITR 624 (Ker.); Zohar Siraj Lokhandwala v. M.G.Kamat (1994) 210 ITR 956 (Bom.); Girindranath Paul v. ITO (1975) 99 ITR 426 (Cal.); Baijnath Hari Shanker v. CIT (1973) 91 ITR 208 (All); Muhammed Serajuddin & Brothers v. ITO (1980) 122 ITR 465 (Cal.); Jatindra Nath Sarmah v. ITO (1978) 113 ITR 898 (Gauhati); STO v. Uttareswari Rice Mills (1973) 89 ITR 6 (SC) and CIT v. Mahesh Chand (1993) 199 ITR 247 (All).

Mr. Ranjan Gogoi, learned senior counsel appearing on behalf of the respondent‑company, pointedly referred to the materials on record and submitted that the materials on record did not justify for holding a requisite belief of the assessing authority for assuming jurisdiction under section 148 of the Act. Mr. Gogoi, learned senior counsel, after referring to the factual matrix, submitted that there was. no omission on the part of the respondent company in disclosing truly the correct income or any other, material information required for computation of the correct taxable income, Mr. Gogoi, learned senior counsel, has submitted that the return of income filed by. the petitioner‑company for the assessment year in question was accompanied by the profit and loss account and all other particulars showing truly and fully all materials and primary facts necessary for assessment of the income of the respondent company for the assessment year in question. The unadjusted amount of advance received from the F.U.O. was duly shown at Rs.31,58,700 under the head "Current liability" as advance received from the F.U.O. The Assessing Officer on thorough scrutiny of investigation of books of account including the account of F.U.O. and after full investigation into all relevant facts of the case and upon due satisfaction with regard to the correctness of income disclosed in the return and details furnished by the petitioner‑company, appellant No.2 assessed the income of the petitioner company for the assessment year in question and passed assessment order on January 27, 1988, under section 143(3) of the Act. Mr. Gogoi, learned senior counsel, submitted that there was no change of primary facts necessary for assessment and all materials of primary facts having been truly disclosed by the company and the purported re‑assessment proceeding was sought to be initiated on a mere change of opinion not contemplated or authorised by the Act. Mr. Gogoi, learned senior counsel, in the course of his arguments further referred to the order of the Income‑tax Appellate Tribunal, dated September 20, 1996, on an appeal by the Revenue whereby the learned Appellate Tribunal dismissed the appeal of the Revenue and thereby upheld the order, dated June 13, 1996, passed by the Commissioner of Income‑tax (Appeals,) Mr. Gogoi, referring to the above order submitted that the finding arrived at by the Commissioner in its order, dated June 13, 1996, to the effect that the advance released by the F.U.O. were meant to be in the nature of a mobilisation advance and not against ready stock, which was ultimately sustained by the learned Tribunal and the same had attained the finality in law. Mr. Gogoi, learned senior counsel, referred to the aforesaid orders supporting the ultimate conclusion of the learned Single Judge.

The root of the matter is whether there were facts from which it could be believed that there was failure or omission to disclose fully or truly material facts necessary for assessment resulting in seepage of tax from assessment for the year in question. Under the law, the assessee owes a duty to disclose fully and truly all the primary facts necessary for assessment. Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) followed by the Supreme Court in S. Narayanappa v. CIT (1967) 63 ITR 219 and ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC).

Sections 147. and 148 of the Act deal with income escaping assessment and issuance of notice where income escaped assessment. Section 151 relates to sanction for issuance of notice. On a perusal of the scheme of the above provisions it appears that the Income=tax Officer acquired jurisdiction to issue notice under section 148 in respect of the assessment beyond the period of four years but within a period of eight years from the end of the relevant year when the Income‑tax Officer has reason to believe that income chargeable to tax has escaped assessment and has reason to believe that such income has eluded assessment by reason of failure to make a return under section 139 for the assessment year or to disclose fully or truly the materials facts necessary for that year. Both the aforesaid conditions must be present to confer jurisdiction on the Income‑tax Officer. It is equally obligatory for the Income‑tax Officer to record his reason before initiating a proceeding under section 148(2). Needless to state that the obligation on the assessee is to make a true and full discloser of the primary facts at the time of original assessment. Mere production of the account book or other evidence from which material facts could with due diligence have been uncovered by the Income‑tax Officer will not amount to full disclosure contemplated under the law. The duty of the assessee does not go beyond making a true and full disclosure of the primary facts. If the assessee has made a true and full disclosure of the primary facts his obligation ends there. It is for the Assessing Officer to draw right inference from the primary facts. It is not the liability of the assessee to suggest to the Assessing Officer as to what inference he should draw from the primary facts. Where the Assessing Officer drew an inference which later on turned out to be erroneous, mere change of opinion with regard to that inference could not justify initiation of action for re‑opening assessment. The rational or causes governing the formation of belief as enjoined by section 147(a) of the Act must have nexus to the question of escapement of the income of the assessee from assessment for the failure or omission to disclose fully and truly all material facts. If there exist reasonable ground for the Income‑tax Officer to form the above belief that by itself would be adequate to arm him with the jurisdiction to issue such notice. Whether the reasons are adequate or sufficient is not a subject‑matter for the Court to investigate. Adequacy of the grounds that induce the Income‑tax Officer to act is not an issue that can be judicially reviewed. It will, however, be open for the assessee to state, and contend that the concerned Assessing Officer did not hold the belief that there had been some unknown disclosure. The factum of existence of the belief can be questioned by the assessee but not the adequacy of the grounds of such belief. The said belief must not be a mere pretence but it must be based on good faith. It is always open to the Court to examine whether the grounds for formation of belief have rational bearing on the formation of belief. In the instant case, the company filed its return of income for the assessment year 1985‑86 corresponding to the accounting year June, 1984. The company submitted that audited profit and loss account and balance‑sheet particulars. The unadjusted amount received from the F:U.O. was‑ cited at Rs.31,58,700 under the head "Current liability" as advance received from the F.U.O. The order sheet, dated March 30, 1989, whereby the Assessing Officer decided to issue notice under section 148 on formation of opinion under section 147(a) also recounted the above facts. The Assessing Officer in the said order also mentioned that the assessee was asked to show‑cause as per letter, dated February 8, 1989, as to why proceedings under section 148 would not be initiated for failure to disclose full quantity and value of stock mentioned in the order. The learned Single Judge has addressed his mind to the necessary facts and found that was no failure on the part of the assessee to disclose all the material necessary for making assessment.

On a perusal of the materials on record the alleged nexus sought to be built up by the Revenue for re‑opening the assessment, in our view appears to be nebulous. The finding of the learned Single Judge that all primary or material facts were made available to the officer during the assessment cannot be said to be erroneous. In the circumstances, notices issued to the respondent‑assessee under section 147 cannot be sustained. The learned single Judge was justified in his conclusion in favour of the respondent/writ. petitioner. We, therefore, decline to interfere in the appeal. In the circumstances, we do not find any merit in the appeal and accordingly the appeal stands dismissed. There shall. however, be no order

MBA./637/FCAppeal dismissed.