1976 Supreme(Cal) 335

High Court Of Calcutta
A. K. SEN, M. N. ROY
INCOME-TAX OFFICER - Appellant
Versus
MAHADEO LAL TULSIAN - Respondent
Appealfromoriginalorder 1086  Of  1974
Decided On : 09/21/1976

The Income-tax Officer can initiate reassessment proceedings under Section 147(a) of the Income-tax Act, 1961, only if he has a bona fide belief that the assessee has escaped assessment due to omission or failure to disclose fully and truly all material facts necessary for assessment.

Headnote:

INCOME TAX - Reassessment - Section 147(a) - Belief of Income-tax Officer - Bona fide belief - Materials for belief - Satisfaction of Commissioner - Section 151(2) - True and full disclosure of facts - Change of opinion - Escapement of assessment.

Fact of the Case:

The assessee, a partner in a hardware store, was assessed to income tax for the assessment year 1961-62. At the assessment, the assessee filed copies of their accounts, including the profit and loss account, balance sheet, and loan account. The Income-tax Officer accepted the loans as genuine and granted credit for the interest alleged to have been paid on such loans. On March 30, 1970, the successor Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961, proposing to reassess the income for the said year on the ground that he had reason to believe that the assessee's income chargeable to tax for the assessment year 1961-62 had escaped assessment within the meaning of Section 147 of the Act. The assessee challenged the validity of the notice and the reassessment proceedings in a writ petition.

Finding of the Court:

The court held that the Income-tax Officer had formed a bona fide belief that the loans were not genuine and that a part of the assessee's income had escaped assessment due to untrue disclosure of facts. The court found that the materials on which the belief was based were reasonable and justified the belief. The court also held that the Commissioner of Income-tax had arrived at a bona fide satisfaction under Section 151(2) of the Act.

Issues: 1. Whether the Income-tax Officer had formed a bona fide belief that the loans were not genuine and that a part of the assessee's income had escaped assessment due to untrue disclosure of facts? 2. Whether the materials on which the belief was based were reasonable and justified the belief? 3. Whether the Commissioner of Income-tax had arrived at a bona fide satisfaction under Section 151(2) of the Act?

Ratio Decidendi: 1. The Income-tax Officer acquires jurisdiction to proceed under Section 147(a) read with Section 148 of the Act only where he arrives at a positive conclusion that he has reason to believe that by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment, any part of his income, profits or gains chargeable to income-tax has escaped assessment. 2. The belief being that of the Income-tax Officer, it is not open to the assessee to dispute the propriety thereof by disputing the sufficiency of the reasons, though it is always open to the assessee to claim that there exists no belief or that the belief is not at all a bona fide one. 3. To bring it within Section 147(a) escapement of the assessment must, however, always be due to the assessee's omission or failure either to make a return or to disclose fully and truly all material facts necessary for his assessment. 4. If the assessee has discharged his obligation and has submitted a return and has also made a full and true disclosure of all material facts but even then if there had been any escapement of assessment due to any error, omission or failure on the part of the Income-tax Officer making the assessment, such escapement of assessment could be no ground for initiation of a proceeding under Section 147(a) of the Act. 5. Similarly, where the assessee has discharged his obligations, as aforesaid, and has been subjected to an assessment, any change of opinion by a successor-Income-tax Officer taking a different view of the law or making a different inference from facts disclosed, which leads the Income-tax Officer to conclude that there had been an escapement of assessment, would not also furnish any ground for initiation of a proceeding under Section 147(a) of the said Act.

Final Decision: The appeal was allowed. The judgment and order passed by the learned judge were set aside. The writ petition of the respondent failed and was dismissed. The rule obtained by him was discharged.