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HIGH COURT OF CALCUTTA
K. L. RAY
LAKHMINI MEWAL DAS - Appellant
Versus
INCOME-TAX OFFICER, "J" WARD - Respondent
Matter 234 Of 1969
Decided On : FEBRUARY 20, 1970
INCOME TAX - Reassessment - Notice - Validity - Assessee's duty to disclose material facts - Subsequent discovery of false information - Jurisdiction of Income-tax Officer.
Fact of the Case:
The petitioner challenged the validity of a notice issued under Section 148 of the Income-tax Act, 1961, for reassessment of his income for the assessment year 1960-61. The petitioner claimed deduction of interest paid on hundi loans, which was allowed by the Income-tax Officer during the original assessment. Subsequently, the Income-tax Officer issued a notice for reassessment based on information that the hundi loans were not genuine.
Finding of the Court:
The court held that the assessee had fulfilled his obligation to disclose all material facts necessary for the assessment by providing a list of lenders, loan amounts, interest paid, confirmation letters, and discharged hundis. The subsequent discovery of false information by the Income-tax Officer did not amount to the assessee's failure to disclose material facts.
Issues: 1. Whether the assessee had failed to disclose fully and truly all material facts necessary for his assessment. 2. Whether the subsequent discovery of false information by the Income-tax Officer entitled him to reopen the assessment under Section 147 (a) of the Income-tax Act, 1961.
Ratio Decidendi: 1. The assessee's duty to disclose material facts is limited to providing all primary facts in his possession, including specific entries in account books, portions of documents, and other evidence that could have been discovered by the Income-tax Officer from the disclosed materials. 2. Mere production of books of account is not sufficient; the assessee must draw the Income-tax Officer's attention to specific entries or documents relied upon. 3. If the Income-tax Officer has accepted the assessee's explanation and made the assessment based on the disclosed materials, a subsequent change of opinion does not entitle him to reopen the assessment under Section 147 (a). 4. However, if the Income-tax Officer subsequently receives information that the assessee's income has escaped assessment due to false or incorrect information provided by the assessee, he may have reason to believe that the income escaped assessment due to the assessee's failure to disclose material facts, thus triggering the jurisdiction under Section 147 (b).
Final Decision: The court dismissed the assessee's petition, upholding the validity of the reassessment notice. The court found that the assessee had disclosed all material facts necessary for the assessment and that the subsequent discovery of false information by the Income-tax Officer did not amount to the assessee's failure to disclose material facts.
( 1 ) THIS application appears to be an offshoot of the alleged all India spurious hundi racket unearthed by the income-tax department. By this application the petitioner impugns a notice issued under Section 148 of the Income-tax Act, 1961, for reassessment of the petitioner's income for the assessment year 1960-61.
( 2 ) FOR the said assessment year, for which the petitioner's accounting year was the financial year ending on the 31st March, 1960, he was assessed under Section 23 (3) of the Income-tax Act, 1922, on a total income of Rs. 24,469, by Sri A. K. Chanda, the Income-tax Officer, "j" Ward VI, Calcutta, on 23rd October, 1962. In making the said assessment the Income-tax Officer allowed the petitioner's claim for deduction of a sum of Rs. 35,236, alleged to have been paid as interest on loans on hundis. A further claim for a credit of Rs. 20,157, on sale of old gold appearing in the petitioner's profit and loss account was disallowed, as the Income-tax Officer did not accept the sale of gold. It appears that at the time of the original assessment the petitioner had submitted to the Income-tax Officer the relevant balance-sheet and profit and loss account and also a list of the creditors to whom interest had been paid during the accounting year showing the amounts of such interest and a copy of the complete loan account of the various creditors, 65 in number, appearing in his books of account. This is established by producing certified copies of the aforesaid documents from the records of the income-tax department. It is also claimed in the petition and not disputed in the affidavit-in-opposition that at the time of the assessment various confirmation letters from the lenders as well as some of the discharged hundis were produced before the Income-tax Officer A notice purported to be under Section 148 of the Income-tax Act, 1961, dated the 24th March. 1969, and issued by the Income-tax Officer, "e" Ward, Hundi Circle, Calcutta, the respondent No. 2, herein, was served on the petitioner on the 26th March, 1969, that as the said Income-tax Officer had reason to believe that the petitioner's income chargeable to tax for the assessment year 1960-61 had escaped assessment, it was proposed to reassess the income for the said year and that the petitioner was required to submit his return within thirty days from the date of the service of the notice. The notice further mentioned that it was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, West Bengal I. By his letter dated the 15th April, 1969, the petitioner contended that the respondent No. 2 had no material for his belief that the petitioner's income had escaped assessment and further required the respondent to furnish him with the materials on which the said reason to believe was based. The petitioner also filed his return for the assessment year 1960-61, in response to the aforesaid notice under protest. As there was no compliance with his aforesaid letter this application was moved and this rule obtained from this court on 17th April, 1969, requiring the respondents to show cause why the impugned notice and all proceedings taken thereunder should not be quashed.
( 3 ) THE affidavit-in-opposition has been affirmed by one Santosh Kumar Banerjee, the present incumbent to the post of Income-tax Officer, "e", Hundi Circle, who had neither made the original assessment nor issued the impugned notice. His statements in the affidavit are necessarily based on the records of the assessment proceedings of the petitioner. The material on which the respondent No. 2 had reasons to believe that the petitioner's income for the assessment year 1960-61 had escaped assessment are stated in paragraph 7 of the said affidavit in the following terms:"i say that on subsequent investigation it was found that the alleged loans obtained by the petitioner on hundis were not genuine and some of the persons from which (?) the petitioner alleged
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