BADAL CHOUDHURY Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE subject-matter of this appeal is the judgment and/or order passed by a learned Judge of this Court on a writ petition which was moved in this Court for setting aside the notices dt. 16th June, 1980, issued under S. 148 of the IT Act, 1961, for the asst. yrs. 1973-74 and 1974-75 by the ITO, J. Ward, District-IV(i), and the order being Order No. Re-open/1/81/WS-X/227, dt. 6th June, 1980, passed by the CIT, West Bengal-10, and for other incidental reliefs. The reason for issuing the notices under S. 148 has disclosed in para. 6 of the affidavit-in-opposition. The reason was that the writ petitioner had claimed deduction on the interest paid on loans from one Shri Asit Kr. Saha for the assessment years in question. During the assessment proceedings in respect of subsequent years, the IT authorities obtained materials suggesting that Sri Asit Kr. Saha was a fictitious person. Therefore, the ITO was of the view that the loan shown as having been obtained from Sri Asit Kr. Saha as well as interest claimed by the writ petitioner to have been paid on such loans had escaped assessment for the failure on the part of the assessee to disclose fully and truly all material facts in the return at the time of the original assessments. The notices issued by the ITO being the respondent No. 1 were challenged on the following grounds :

(2.) THE submissions of Mr. Dutta, appearing for the assessee/appellant were hotly contested by Mr. R.C. Prasad, learned counsel for the Revenue. According to Mr. Prasad, the judgment under appeal has been passed in accordance with the settled proposition of law and, therefore, no interference can be made with the said judgment in this appeal.

(3.) FROM the observation of the Supreme Court, it is, therefore, clear that the assessee was not under any obligation to inform the ITO that the entries in his books of accounts are false. In the case of CIT vs. Karam Thappa & Bros. (P) Ltd. (sic), the Supreme Court considered the following facts for the purpose of deciding the validity of the notices issued under S. 148 of the Act. For the asst. yr. 1965-66, there were three cash credit entries dt. 22nd Aug., 1964, from Meghraj Durichand, Associated Commercial Asscn. (P) Ltd. and Lakshmi Narayan Antaram, the first two being for a sum of Rs. 30,000 each and the last one for a sum of Rs. 40,000. The aforesaid three amounts mentioned in the notice were found in the assessee's accounts by the ITO who examined the same in course of the assessment proceedings. He called upon the assessee to substantiate the genuineness of the transaction and the assessee had produced material to support the same. The ITO accepted the documents produced and treated all the three transactions to be genuine and on that footing he completed the assessment. Therefore, the primary facts were before the ITO at the time of the regular assessment and he called upon the assessee to explain to his satisfaction that the entries were genuine and on the basis of materials provided by the assessee satisfaction was reached. It was then open to the ITO to make further proof before completing the assessment if he was of the view that the material provided by the assessee was not sufficient for him to be satisfied that the assessee's information was correct. Upon the aforesaid facts, the Supreme Court in the aforesaid decision following the decision of the Supreme Court earlier in the case of Calcutta Discount Company Ltd. vs. ITO (supra) held that S. 147(a) of the Act did not apply to the facts of that case as the alleged escapement of income from assessment had not been resulted from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Accordingly, the said notice under S. 148 of the Act was quashed by the Supreme Court in the aforesaid decision. Following the aforesaid decision of the Supreme Court a Division Bench of the Madhya Pradesh High Court in the case of Dinesh Kr. Gordhanadas vs. CIT (1983) 140 ITR 211 (MP) : TC 51R.842 held that when primary facts were already before the ITO and after some routine enquiry the ITO assessed the income on the basis of such information, it was not open for him to invoke the provisions of S. 147(a) of the IT Act, 1961, and reopen the assessment even though he may have to notice facts mentioned in the return by the other side. In that decision also the Madhya Pradesh High Court held that when the assessee had disclosed all material facts and even if the ITO was of the view that such disclosure was not genuine it was for the ITO to make necessary enquiries and draw proper inference as to whether the transaction of loan on which payment of interest was disclosed by the assessee was a genuine transaction of loan or not. After doing so, it cannot be said that the assessee had not fully and truly disclosed all material facts necessary to assess the arrear, when all the primary facts were disclosed by the assessee to the ITO, and the ITO had failed to hold further enquiry in respect of the disclosures made by the assessee merely because in any subsequent assessment proceeding, the AO discredited the testimony of someone and happened to come to a conclusion that there was in fact no loan advanced by her to the assessee on which interest could have been paid by him, it cannot be held that the ITO acquired jurisdiction to initiate action under cl. (a) of S. 147 of the Act. In the aforesaid situation, the Madhya Pradesh High Court held :