income-tax Officer Vs. Jotumal T. Thawani - Court Judgment

Excerpt:
1. in this appeal department objects to the cancellation of reopening of the case under section 147 and also to the deletion of additions made in the reassessment 2. the assessee is an individual and the previous year ended on 31-3-1978. originally, return of income showing a total income of rs. 80,900 was filed on 31-7-1978.copies of order-sheet endorsements kept on pages 6& 7 of the department's second compilation show that the assessee attended before the income- tax officer on 8-9-1978 and waived notice of hearing under section 143(2). some clarification was tendered by the assessee which was also noted in the order sheet endorsement dated 8-9-1978. the assessee again attended and tendered information in respect of some other point on 21-9-1978. he again attended on 22-9-1978 and.....

Judgment:
1. In this appeal department objects to the cancellation of reopening of the case under Section 147 and also to the deletion of additions made in the reassessment 2. The assessee is an individual and the previous year ended on 31-3-1978. Originally, return of income showing a total income of Rs. 80,900 was filed on 31-7-1978.Copies of order-sheet endorsements kept on pages 6& 7 of the department's second compilation show that the assessee attended before the Income- tax Officer on 8-9-1978 and waived notice of hearing under Section 143(2). Some clarification was tendered by the assessee which was also noted in the order sheet endorsement dated 8-9-1978. The assessee again attended and tendered information in respect of some other point on 21-9-1978. He again attended on 22-9-1978 and tendered yet another information and ultimately the Income-tax Officer passed order under Section 143(3) on 22-9-1978 on a total income of Rs. 80,900 (exactly the same as returned by the assessee). Continuing chronologically; the Income-tax officer issued notice under Section 154/155 in printed proforma in ITNS 8 (i.e.

Income-tax Non-Statutory forms series Form No. 8). The assessee replied vide letter dated 19-1-1980. Ultimately, the Income-tax Officer did not pass order under Section 154/155,buthe reopened the case under Section 147 and sent a notice under Section 148 dated 22-3-1980 calling upon the assessee to again file a return of income. That notice under Section 148 was duly served on the assessee on 10-4-1980. But the assessee filed return only on 10-2-1983 and of course under protest. In the meantime in December 1980 search and seizure operations under Section 132 had taken place on the assessee's premises and some other premises. Department has claimed that lot of incriminating papers and materials were found. On 30-3-1983, ultimately the Income-tax Officer completed assessment under Section 143(3) read with Section 147 on a total income of Rs. 67,72,177. The assessee filed an appeal before the Commissioner (Appeals) who mentioned it as heard on 27-5-1983 and passed appellate order of 30 pages, on 27th May, 1983 itself. The Commissioner (Appeals) upheld the assessee's objection against reopening. He proceeded to consider various items of additions on merits and allowed substantial reliefs. The department is in appeal objecting to the cancellation of the reassessment proceedings and also on the reliefs granted by the Commissioner (Appeals) on merits.

3. Naturally, taking up the aspect of reopening under Section 147 first, Sections 147 and 148 are important. We may first have a look on the relevant portions of Section 147.

(a) the Income-tax Officer has reason to believe that, by reason of omission or failure on the part of the assessee...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 he may, subject to the provisions of Sections 148 to 153, assess or re-assess such income....

Thus, for applicability of Section 147(a) to this case following conditions are required to be satisfied: (ii) there should be omission or failure on the part of the assessee to disclose fully or truly all material facts; 4. Taking up the conditions of escapement of income, it is common ground that the relevant item was of interest covered by a certificate of tax deducted at source from Sippy Films. That certificate was dated 23-3-1978 and stated in effect that out of a gross interest ofRs. 30,000 (for six months at the rate of 15% per annum on a sum of Rs. 4 lacs) tax deducted at source Rs. 3,000 (i.e. 10% of interest) was deducted at source and had been paid to the credit of Central Government on 18-3-1978. This certificate had been filed at the time of original assessment. Credit for tax deducted at source of the said sum of Rs. 3,000 was also claimed by the assessee and allowed by the Income-tax Officer against the gross tax liability of theassessee. So, the point was that though tax deducted at source Rs. 3,000 was claimed as tax paid by the assessee, the corresponding sum of interest of Rs. 30,000 was not returned by the assessee for taxation nor was taxed by the Income-tax Officer in A.Y. 1978-79 relevant to the previous year ending on 31-3-1978. We may further note that in response to the notice under Section 154 for rectification of mistake, the assessee had replied vide letter dated 19-1-1980 that the loan amount of Rs. 4 lakhs was due to the assessee from M/s. Sippy Films on 13-3-1978 but this amount was renewed for six months and interest of Rs. 30,000 was payable. Therein, the assessee further stated as follows: ...M/s. Sippy Films sent me cheque for Rs. 27,000 and also certificate for 10% deduction at source. The amount of 10% was paid to Reserve Bank of India. With the cheque of Rs. 27,000 a request was made by the Sippy Films...that we should present the cheque of Rs. 27,000 on or after 1-4-1978.... As such, I deposited the cheque of Rs. 27,000 towards interest received on 2-4-1978 and this amount is the income of assessment year 1979-80 adding Rs. 3,000 (10% deducted at source) making a total of Rs. 30,000...

Thus, the assessee's stand was that cheque for Rs. 27,000 was received by the assessee before 31-3-1978 but at the request of the debtor, it was presented by the assesseeto the Bank for clearance on 2-4-1978. As already mentioned, the assessee had claimed credit for tax deducted at source Rs. 3,000 on the basis of TDS certificate dated 23-3-1978.

Obviously, there was escapement of income in the original assessment order in two parts namely, (0 Rs. 3,000 for tax deducted at source for which credit was claimed and allowed because there is even a specific provision in Section 198 that the tax deduction at source was deemed to be income received; and also (ii) for Rs. 27,000 because the cheque had been admittedly received by the assessee before 31-3-1978 though presented to the Bank after 31-3-1978.

5. In regard to this condition of escapement of income, the assessee's contention was that the whole sum of Rs. 3Q.000 for interest was taxable in the succeeding year viz., 1979-80 and further that the assessee had returned that income accordingly in assessment year 1979-80. In our opinion, there is no substance in this contention of the assessee. The point is that notice under Section 148 was duly served on the assessee on 10-4-1980 while the return for assessment year 1979-80 was filed on 30th June, 1980, i.e., after more than 2 months of the service of notice under Section 148. So when the action under Section 147 read with Section 148 was taken, there stood on record the escapement of income. Filing of return subsequently for the succeeding year does not obliterate the existence of factum of escapement in March/April 1980. Further as already mentioned, there is clear-cut of escapement of income in two parts viz., Rs. 3,000 for tax deducted at source for which credit is claimed and allowed in assessment year 1978-79 and also for the balance of Rs. 27,000, the cheque was admittedly received before 31-3-1978.

6. Second condition to be satisfied is that of omission or failure on the part of the assessee to disclose fully or truly all material facts.

At the outset, we may mention that the satisfaction of this condition is to be seen upto the date of completion of original assessment which is 22-9-1978. So, the omission or failure on the part of the assessee has to be judged as it existed upto the date of original assessment order. The information contained in assessee's reply dated 19-1-1980 given in response to notice under Section 154/155 is, therefore, not helpful to the assessee, in this regard. The learned Advocate for the assessee, has very heavily relied on the typed contents of a fool-scap paper with the original return of income. Xerox copy of the same finds place on page 5 of the assessee's first compilation and for the sake of ready reference a xerox copy of that paper is madeannexure 'A' to this order. The contents thereof may be reproduced as follows: The interest earned is Rs. 53,700 whereas the tax deduction at source is Rs. 8,370 (this is because the cheque for Rs. 30,000 towards interest from Sippy Films was credited after 1-4-1979 and since they had issued the cheque for interest prior to 31 st March 1978 they deducted 10% and deposited in Reserve Bank of India and gave us the Certificate which we have claimed in this period).

Obviously, this contains two very serious factual errors of figure and date firstly, it says that cheque was for Rs. 30,000 and secondly, it says that it was credited after 1-4-1979. The fact of the matter is that the cheque was for Rs. 27,000 and it was credited after l-4-1978.Such serious errors of figure and date in the contents of that paper on which the assessee relied that there was no omission on his part to disclose fully and truly all material facts go to the route of the matter. The point is that the facts stated therein were not true.

On the basis of facts stated therein, the Income-tax Officer making the original assessment on 22-9-1978 could not have known that the assessee was talking of cheque of Rs. 27,000 which was deposited after 1-4-1978.

In this context, we may also mention that none of the order sheet endorsements (viz., 8-9-1978,21-9-1978 & 22-9-1978) mentions anything about this item of interest or tax deducted at source Rs. 3,000 or cheque Rs. 27,000. The point is that upto the date of completion of original assessment, the assessee had not disclosed anything about the receipt of cheque for Rs. 27,000 and deposit thereof in the bank after 1-4-1978. These were basic facls which were not disclosed. Some figures and dates were given in the foolscap paper referred to above but in material aspects, those figures and dates were not true. As already mentioned, even the explanation of the said sum of Rs. 30,000 being proposed to be offered for taxation in assessment year 1979-80 was tendered for the first time, in assessee's reply dated 19-1-1980; while the cut-off date for seeing the failure of the assessee to be disclosed fully and truly all material facts is 22-9-1978, i.e., the date of completion of original assessment. Till then even the basic facts of receipt of cheque for Rs. 27,000 and of depositing it in the bank after 1-4-1978 were not disclosed and nor was the assessee's intention disclosed that the said sums would be offered by him for taxation in the assessment year 1979-80. We may also mention that even from the relevant tax Deduction Certificate dated 23-3-1978 (issued by the debtor), it was not at all clear whether the debtor had merely credited the interest to assessee's account (in the debtor's books) or had paid to the assessee. Thus, even the version of the other party,viz., thedebtor did not disclose the basic fact of payment by him (i.e. the debtor) leaves alone the. basic fact of receipt by the assessee.

7. Now coming to the third condition that the Income-tax Officer should have a reason to believe, the proposition is very simple. The belief existed as it was conveyed even in notice under Section 154 as the reason given therein vide page 13 of the assessee's first compilation was as follows: Interest of Rs. 30,000 received on 13-3-1978 not included in the original order.

As already mentioned, the Income-tax Officer did not pursue notice u/s.

154/155 after receipt of assessee's reply dt. 19-1 -1980 but proceeded to reopen the case under Section 147. Thus, all the three conditions prescribed in Section 147(a) are satisfied.

8. This brings us to Section 148 whose Sub-section (1) talks of issuance of notice by the Income-tax Officer and it is admittedly satisfied. Sub-sec. (2) of Section 148 reads as follows: 148. (2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.

So, the Income-tax Officer has to record reasons for issuing notice under Section 148. Those reasons dated 7-3-1980 are contained on page 8 of the second compilation furnished by the department. They are as follows: It is seen from the records that for A.Y. 1978-79 the assessee was assessed on an interest income of Rs. 53,700. From the certificate of deduction of tax from interest filed by the assessee in form No. 19A. It is seen that the assessee has claimed deduction oftaxofRs. 3,000 on Rs, 30,000 being the amount of interest on loan of Rs. 4,00,000 advanced to Sippy Films Ltd. However, the assessee was given credit on tax of Rs. 3,000 received on this very interest but the amount of Rs. 30,000 received by the assessee as interest on loan was inadvertently remained to be included to the total income during the A.Y. 1978-79. I, therefore, have reason to believe that income chargeable to tax for this year has escaped assessment. As such action under Section 14'7 is hereby initiated.

Thus, the condition of recording the reasons for reopening assessment under Section 147 is satisfied. The reasons recorded clearly refer to the item of interest of Rs. 30,000 on the loan of Rs. 4,00,000 to Sippy Films and also credit given for tax deducted at source Rs. 3,000. The learned Advocate for the assessee, very strongly, urged that in the reasons recorded, the charge of failure on the part of the assessee to disclose all material facts has not been brought out He. further emphasised that in the reasons recorded, the Income-tax Officer had himself mentioned that the said sum of Rs. 30,000 'received by the assessee as interest on loan was inadvertently remained to be included'. The learned Advocate (for the assessee) emphasis was on the word 'inadvertently'. There from he proceeded to argue that in reality, it was a case of inadvertent mistake rather than that of assessee's failure to disclose fully and truly all material facts.

9. We have given this aspect a very very careful consideration. There is no denying to the fact and perusal of the reasons recorded clearly brings out that drafting thereof is rather clumsy. All the same, the reasons recorded talk of the interest of Rs. 30,000 and also of tax deducted at source Rs. 3,000 for which the credit is given, The reasons recorded have to be read as a whole. Further, they need not be read as one reads an Act of Parliament. The point is that they are basically notings on the files and should be read in the context of prevailing practice and understanding in the relevant circles It is also to be remembered that the Income-tax Officer is not a very high officer in the departmental hierarchy and the draft for reasons recorded by him is not approved by any higher officer. Apart from this general aspect, there is one very important specific point relevant to this case. As already mentioned, the Income-tax Officer originally issued notice under Section 154/155 for rectification of mistake apparent from record. Originally, the Income tax Officer regarded it as a mistake apparent from the record which could subsequently be termed by him as an inadvertent mistake. It was, in this context that even in the reasons recorded dated 7-3-1980, he, perhaps used the word inadvertently. In other words, we are inclined to think that the Income-tax Officer in his reasons recorded dated 7-3-1980 used the word 'inadvertently' rather inadvertently (i.e., through his own inadvertence). We are therefore inclined to hold that all the conditions laid down for reopening under Section 147(a) are satisfied in this case.

10. We may now, quickly refer to the cases cited by the learned Advocate for the assessee for canvassing that reopening under Section 147 was not proper. The learned Advocate for the assessee pointed out that the department has not mentioned that reopening is under Section 147(a) or 147(6), but he would address his arguments, on both the clauses. He stated that since the department's burden under Sub-clause (b) was slightly of the two he would first address us on that provision. He emphsised that mere change of opinion on the basis of some material available on record does not justify reopening under Section 147(6). He urged that there should be some fresh information.

For this proposition, he relied primarily on the Supreme Court decision in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. He cited, in support of such propositions, the following cases also: Bankipur Club Ltd. v. CIT [1971] 82 ITR 831(SC), CIT v. Bai Savitagouri [1975] 100 ITR 680 (Bom.), CIT v. Killick Industries Ltd. Industries Ltd. [1980] 126 ITR 147 (Bom.), Mundra Salt & Chemical Industries v.Paramjit Singh [1982] 138 ITR 823 (Bom.), H. Noronha v. ITO [1982] 133 ITR 199 (Kar.) and Asa John Devinathan v. Addl. CIT [1980] 126 ITR 270 (Mad.).

He lastly cited in this context, the Bombay High Court decision in S.P.Divekarand A.P. Divekar v. CIT [1986] 157 ITR 629. In this regard, we need only mention that in our opinion, this case is more appropriately covered by Section 147(a) as already indicated hereinabove and, therefore, specific comments on the case law in respect of Section 147(6) are not required.

11. In regard to Section 147(a), the learned Advocate for theassessee relied on the Supreme Court decisions in (i) ITO s.Madnani Engg. Works Ltd. [1979] 118 ITR 1, (ii) CIT v.Burlop Dealers Ltd. [1971] 79 ITR 609 and (iii) Gemini Leather Stores v. ITO [1975] 100 ITR 1. He relied also on the Calcutta High Court decision in Calcutta Credit Corporation Ltd. v. ITO [1971] 79 ITR 483.Wehave very carefully studied the decisions cited. In the cases of Madnani Engg. Worts Ltd. (supra), Burlop Dealers Ltd. (supra) noted above at (i) & (ii) the relevant documents were produced before the department at the time of original assessment and it was held by the Supreme Court that there was no failure on the part of the asscssee to disclose fully and truly all material facts for the purposes of Section 147(a) merely because from those very documents, the department, wanted to draw a different inference inter alia by showing that the documents did not represent genuine transactions or agreement. In the case before us, we have already noted that up to the date of original assessment, i.e., 22-9-1978 the assessee had not even explained how he was taking credit for tax deducted at source Rs. 3,000 without treating the said sum of Rs. 3,000 as part of income and further, how the balance of Rs. 27,000 was being treated by him as income of subsequent year viz., financial year 1978-79 relevant to assessment year 1979-80. We further note that the main reliance is on the alleged disclosures contained in annexure 'A' to this order. We have already held that there were material mistakes and omissions in the contents of that paper. So, the disclosure even on basic facts was neither true nor complete. The above mentioned two decisions of the Supreme Court do not help the assessee. The Supreme Court decisions in Gemini Leather Stores' case (supra) does not come to the assessee's rescue, because in that case, the information had been collectedby the Income-tax Officer but through oversight it was not made use of in the original assessment order. Obviously in the case before us, there was no information collected by the Income-tax Officer which was left to be used in the original assessment order. The Calcutta High Court decision in Calcutta Credit Corpn. Ltd.' s case (supra) also does not help the assessee because in that case, primary facts were disclosed and the Hon'ble High Court held that it was the duty of the Income-tax Officer to make investigation, in the case before us, primary facts had not been disclosed truly and fully up to the date of original assessment, i.e., 22-9-1978 nowhere had the assessee stated that he had received a cheque for Rs. 27,000 towards the interest before 31-3-1978 but on debtor's request had chosen to deposit in the bank after 31-3-1978.

Thus, even the factum of receipt of Rs. 27,000 was not disclosed by the assessee. This was a primary fact and failure to disclose the same would justify action under Section 147(a). Even at the cost of repetition, we may mention that the contents of annexure A to this order do not help the assessee because in those contents there are errors and mistakes in respect of amounts as well as date.

12. We have, therefore, no hesitation in upholding the department's action under Section 147(a) in this case. On this point, we would reverse the order of the Commissioner (Appeals).

13. Before parting, we may also mention that reassessment completed on 30-3-1983. The Income-tax Officer has held that the said sum of Rs. 30,000 is taxable in assessment year 1978-79 vide his remarks at item No. (iv) in the computation of total income on page 20 of the reassessment order which is as follows: (iv) Interest income: The assessee has returned a sum of Rs. 32,885 under this head. This amount however, does not include a sum of Rs. 30,000 received by him on 1-3-1978 from M/s. Sippy Films on which tax of Rs. 3,000 was also deducted at source and credit for which the assessee also claimed in return of income under consideration.

However, the assessee failed to include said sum of Rs. 30,000 in his return ofincome for A. Y. 1978-79 on theplea that the cheque for the said amount was encashed in in the subsequent according period relevant for A.Y. 1979-80.

This action of the assessee is unwarranted inasmuch as the assessee follows cash system of accounting and as per practice in a mercantile community, the date of receipt of the cheque has to be counted as dateof receipt of the payment. Accordingly this amount is correctly taxable in the year under consideration and same is included in his income being the interest received on 13-3-1978, We need only mention that the said sum of Rs. 30,000 would be taxable in assessment year 1978-79 irrespective of the system of accounting, i.e., on mercantile basis as well as on cash basis.

14. This brings us to the department's ground of Appeal No. 8 which questions the deletion of addition of Rs. 1 lakh claimed as gift received from abroad under the foreign remittance scheme. The assessee claimed that through good offices of his near relation, one Mr.

Bahirwani, he received from Mr. Abdul Rahim Zarwani of Dubai through banking channels a gift of Rs. 1,00,000 in October 1977. The Income-tax Officer disbelieved this story and added back the said sum of Rs. 1,00,000. The Commissioner (Appeals) accepted the explanation given by the assessee and deleted the addition. On behalf of the department, the plea taken was that the assessee did not know even the donor.

Assessee's reply was that since it was at the behest of Mr. Bahirwani, this did not make any difference.

The learned Departmental Representative argued that the confirmations from the donor, Mr. Rastagar Zarwani and from the Bank of Oman Limited dated 7th December, 1983 were received after the date of the Commissioner (Appeals)'s order. It was further pleaded that in the bank documents, donor or remitter's name was Abdul Rahim Zarwani. While in the confirmation letter dated 7th Dec., 1983, the signatory was Rastagar Zarwani. The learned Departmental Representative therefore claimed that the ratio decidendi of the Tribunal's decision dated 27th July, 1982 in the cases of S/Shri Bharat Nariman, S/Shri Bharat Nariman, N.K. Gajwani, Ravi Nariman and Smt. KanchanNariman in ITA Nos.

571 (Bom.) of 1980, 572(Bom.) of 1980, 573 (Bom.) of 1980 and 574 (Bom.) of 1980 applies to the facts of this case and hence, the deletion allowed by the Commissioner (Appeals) was required to be reversed. As against this, the learned Advocate for the assessee relied very heavily on the Tribunal's decision dated 5th August, 1988 in the cases of six persons who were near relations of the assessee. He pointed out that in assessment year 1979-80, vide para 2 of the Tribunal's order cited above there were cash gifts received under foreign remittance scheme through banking channels as follows: He, therefore, argued that cash gifts worth about Rs. 37 lacs had already been accepted by the Tribunal as genuine and in quite a few of them, the donor Mr. Rastagar Zarwani was the same. In regard to the department's contention that letters dated 7-12-1983 had not been considered by the Income-tax Off icer or the Commissioner (Appeals), the learned Advocate for the assessee drew our attention to page 5 of the Tribunal's order cited above wherein the following position is recorded by the Tribunal:- ...However, the ITO also rejected these explanations on the reasoning that these explanations were not offered at the first instance and the gifts were made from Shri Rastagar Zarwani out of love and affection vide his declaration dated 7-12-1983...

He, therefore, pointed out similar letter dated 7-12-1983 had been considered by the Tribunal in its order dated 5th August, 1988 in the cases of near relations of the assessee and the Tribunal was pleased to hold that the gifts of about Rs. 37 lakhs were rightly held by the Commissioner (Appeals) as reasonably proved. It was therefore pleaded that the department has not made out any case for warranting a different decision on the gift of Rs. one lakh from the same person in assessee's case in this year. In our opinion, the plea taken by the learned Advocate for the assessee deserves to be accepted. The point is that on almost identical facts and circumstances, the Tribunal's decision is available in which gifts ofRs. 37 lakhs have been accepted as genuine and quite a few of those gifts are from the same donor Mr.

Rastagar Zarwani. The reasoning given in that order of the Tribunal would apply mutatis mutandis to this item of Rs. 1,00,000 also. On this point, therefore, we would reject the department's contentions and uphold the view taken by the Commissioner (Appeals).

15. Department's ground of Appeal No. 9 is directed against the deletion of Rs. 65,61,275 comprising of additions of undisclosed loans given and interest thereon. These additions pertain to the loans given in the respect of different pictures or movies and the position may be tabulated as follows:--------------------------------------------------------Sl. Name of the Principal Interest Total--------------------------------------------------------(i) (ii) (iii) (iv) (v)--------------------------------------------------------1. Shan 24,00,000 2,16,000 26,16,000(Sippy Films)3. Aashiq Hoon 1,00,000 10,000 1,10,000 Bhaharon ka5. Muqudar Ka 4,00,000 47,500 4,47,500 Sikandar9. Suhag 9,00,000 87,000 9,87,000 Total 60,75,000 4,86,273 65,61,275 16. General background of the dispute may be noted first. As already mentioned search and seizure operations under the IT Act were conducted at the premises of the assessee and some persons connected with the film industry. On the basis of some documents, particularly 'Lab letters' written by the film processing houses to the assessee, department held that the assessee had been given security in the form of some territories for the release of the above mentioned pictures and inferred that such secutity could have been given to the assessee only against the moneys forwarded as loans by the assessee to the respective producers. The department found that some of the Lab letters were in respect of territories against which the assessee had disclosed the loans given but there existed some other Lab letters (i.e. for other territories) in respect of which the assessee had not shown any loans.

It may be recalled that for incurring the expenditure of production of a film, the producer obtains loans from financiers and one of the securities furnished is in the form of 'Lab letters'. In the film trade certain territories are recognised and through the Lab letters the processing laboratory undertakes not to release the prints needed for a film being exhibited in that territory without a clearance from the financier, i.e., the creditor of the producer. Against this background, we can consider in greater detail the position of the picture 'Shan' in respect of which the addition is of Rs. 24 lakhs for loans. Otherwise also, it is a typical example of points in dispute.

17. This picture- 'Shan' was being produced by M/s. Sippy Films. Vide para9of the Commissioner (Appeals), the announcement of the picture was made on 14-9-1977. The Sippy Films had approached the assessee for loans. The assessee has admitted forwarding of three loans to M/s.

Sippy Films in respect of picture 'Shan' and the information is as follows:----------------------------------------------------Sl.

Territory Amount Date of Lab letter----------------------------------------------------(i) (ii) (iii) (iv) Thus, the assessee admits of having forwarded Rs. 44 lakhs as loan in this connection in the names of the assessee and the other family members. It is claimed that all the three items of loans are supported by respective agreements and almost all loans given as well as amounts received are by cheques. The copies of the corresponding agreements are also incorporated in the compilation furnished by the assessee and those agreements are dated 29-8-1977,4-9-1978 and 7-9-1979 for Lab letters indicated above dated 28-11-1977, 13-9-1978 and 17-9-1979 respectively. It is assessee's claim that whatever loans have been given by him and his family members in respect of this picture 'Shan' are represented only by the above mentioned three agreements and Lab letters. Thus, the assessee admits of having forwarded a loan of Rs. 44 lakhs only from the year 1977 to 1979 and actually datewise loans given in different names are typed and given showing that the assessee and his family members etc. gave on different dates a total sum of Rs. 44 lacs. Now, the dispute arises in this way that in the course of search and seizure proceedings, the department came across two more documents which according to the department were indicative of more loans having been given by the assessee which the department estimated at Rs. 24 lakhs. We may first note that as a prelude to the first admitted loan ofRs. 24 lacs against the Bombay territory, the assessee admitted the existence of a letter dt. 28-8-1977 from M/s. Sippy Films to the processing laboratory viz., Film Centre Laboratory. This is kept on page 52 of the assessee's compilation and it says in effect, that the writer viz. Sippy Films have made some financial arrangements with 'Shri Devidas J. Thawani & Others' and as a security for the Bombay territory a Lab letter may be issued. The corresponding Lab letter is on pages 54 to 57 of the assessee's compilation which is dated 28-11-1977 and is addressed to Shri Devidas J. Thawani. Both the documents naturally are for admittedly given loans. The department came across yet another letter dated 28-8-1977 from M/s. Sippy Films addressed to the same laboratory and almost in the same format which stated in effect that the writer viz., M/s. Sippy Films had entered into certain financial arrangements with "ShriJotumal T. Thawani' and as a security, Lab letter for the picture 'Shan' for the territory of Delhi and U.P. may be issued (vide pages 32 & 33 of the department's compilation). On pages 34 to 37, the department has kept the Lab letter itself (issued in pursuance of that letter) which is addressed to Shri Jotumal T. Thawani and is in respect of Delhi and UP. circuit. This Lab letter is also dated 28-11-1977. Thus, we have two letters from M/s.

Sippy Films dated 28-8-1977 addressed to the Film Centre Laboratory.

One is in respect of 'Shri Devidas J. Thawani and others' as financiers and refers to Bombay territory as security. The other letter is in the same format and of the same date viz., 28-8-1977 but mentions as financiers 'Shri Jotumal T. Thawani' and refers to Delhi and U.P.territory as security. Similarly, we have two Lab letters, both of the same date viz., 28-11-1977 almost in the same format. One is addressed to Shri Devidas J. Thawani and offers Bombay territory prints as security while the other is addressed to Shri Jotumal T. Thawani and offers Delhi and U.P. circuit prints as security. Now the assessee's case is that mere existence of two letters referring to Delhi and U.P.territory and naming Shri Jotumal T. Thawani does not represent any transaction beyond one represented by the other set of two letters dated 28-8-1977 and 28-11-1977 referring to Shri Devidas J. Thawani and Bombay territory. In support of this contention, the learned Advocate for the assessee has argued that for the Bombay territory loan given is supported also by a detailed agreement between the assessee and his family members as financiers and the producer in M/s. Sippy Films. That agreement has been kept on pages 58 to 71 of the assessee's compilation. The assessee's submission is that there does not exist any corresponding agreement in the context of other set of letters pertaining to Shri Jotumal T. Thawani as financier and for Delhi and U.P. circuit. The learned Advocate for the assessee has argued in great detail and has taken us through the portions of the Lab letter dated 28-11-1977 and agreement dated 29th August, 1977 to show that it is really an agreement which forms the basis of transaction and also offers adequate security to the financier. He pleaded that the Lab letter without corresponding agreement cannot and does not offer security for the loan in the eye of law and therefore merely on the basis of existence ofaLabletter.it cannot be inferred that the said Lab letter would have been obtained on forwarding of yet another loan. This plea has been accepted by the Commissioner (Appeals) and he has held that merely on the basis of that Lab letter inference of existence of another loan could not be reasonably drawn.

18. The learned Departmental Representative took us through paras 7 to 9 of the order of the Commissioner (Appeals) on pages 5 to 9 and tried to punch many holes therein. In particular, he drew our attention to the observation of the Commissioner (Appeals) that before him it was submitted on behalf of the assessee that theassessee was not allowed to examine the so-called Lab letters which were in Income-tax Officer's possession. The learned Departmental Representative took us through the instructions dated 28-3-1983 issued under Section 144B by the Inspecting Asstt. Commissioner (para 5 onwards) to show that the assessee had submitted explanation on the basis of existence of Lab letters. The learned Departmental Representative further attacked the order of the Commissioner (Appeals) by saying that the assessee's explanation of Lab letters for Delhi & U.P. territory having been obtained only as an additional security should not have been accepted by Commissioner (Appeals).

19. As already indicated, the learned Advocate for the assesseehas argued in great detail to say that there were only three transactions of loans given on the picture 'Shan' and it cannot be inferred merely on the basis of Lab letters that there was yet another transaction of loan. He reiterated the plea that the Lab letters in respect of Delhi & UP territory was taken only as an additional security because the loan advanced was very substantial. We may mention that the learned Departmental Representative as well as the learned Advocate for the assessee have referred us also to the statement of loans given shown atRs. 44 lakhs from 14-6-1977 to 18-10-1979. In particular, the learned Departmental Representative's point was that upto the date of request from M/s. Sippy Films to the Film Centre viz., 28-8-1977 a sum of hardly Rs. 4,05,000 had been forwarded as per the date-wise statement of the loans given and at that time there could not be any necessity of seeking additional security on the plea that very huge amounts were required to be given as loans. The learned Advocate for the assessee has disputed this position also and has pointed out that upto the date of Lab letter dated 28-1 l-1977,a sum of Rs. 28 lakhs had already been given even as per that statement of loans from 24-6-1977 to 18-10-1979.

20. We have very carefully considered the rival submissions. At the outset, we may mention that there is no escape for the assessee from the existence of two sets of letters dated 28-8-1977 and Lab letters dated 28-11-1977 out of which the assessee admits loan given in respect of only one set. The departmental Representative is right in mentioning that upto the date of letter from M/s. Sippy Films to Film Centre Laboratory viz., 28-8-1977 only a sum of Rs. 4,05,000 had been forwarded as per the details furnished for the admitted loan. Copy of that letter dated 28-8-1977 referring to the financial arrangement with Shri Jotumal T. Thawani is referred to in the corresponding Lab letter for Delhi and UP circuit and that Lab letter bears authentication by and on behalf of the assessee, on one hand and and on behalf of M/s.

Sippy Films, on the other hand with the remark 'we agree and confirm the above'. Proceeding on this premise, we have to consider what are the probabilities. As already mentioned, one set of letters dated 28-8-1977 and Lab letter dated 28-11-1977 is showing Shri Devidas J.Thawani & Others financiers and refers to the Bombay territory as security. Almost exactly similar letter and Lab letter by the same writers bearing the identical dates viz., 28-8-1977 and 28-11-1977 exist but they show Shri Jotumal T. Thawani as financier (as against Shri Devidas J. Thawani & Others in the first set) and Delhi & UP circuit (as against Bombay territory) as security. In the admitted loan of Rs. 44 lacs from 24-6-1977 to 18-10-1979, there are names of various family members but for Shri Jotumal T. Thawani there is only one item of Rs. 4 lacs and that too on 14-9-1977. We have already referred to loan of Rs. 4 lacs by the assessee to M/s. Sippy Films in connection with the interest income of Rs. 30,000 in the context of validity of re-assessment proceedings and it is important to note that even this item of Rs. 4 lacs shown as given on 14-9-1977 is obviously after the date of original letter dated 28-8-1977 from M/s. Sippy Films to Film Centre Laboratory. The assessee's explanation is that the second set of letter dated 28-8-1977 and Lab letter dated 28-11-1977 for Shri Jotumal T. Thawani as financier and Delhi & UP circuit as security constitute merely an additional security, for the loan covered by first set of letter dated 28-8-1977 and Lab letter dated 28-11-1977 does not cut any ice because the disclosed loans and corresponding letter dated 28-8-1977 and Lab letter dated 28-11 -1977 are not. for Shri Jotumal T.Thawani but for Shri Devidas J. Thawani & Others. As already mentioned, in the total loan of Rs. 44 lacs, there is a sum of Rs. 4 lacs only shown as given by Shri Jotumal T. Thawani in the disclosed and admitted transactions. When arrangement is entered into for forwarding of Rs. 44 lacs and originally, Rs. 24 lacs by Shri Devidas J. Thawani & Others, it is not clear how the additional security was furnished for Delhi & UP territory in the name of Shri Jotumal T. Thawani. Further, in none of the documents, there is any mention of Delhi and UP territory having been given as additional security for the admitted loan given in respect of Bombay territory. In our opinion, there is not much of substance in yet another argument of the learned Advocate for the assessee that in any court of law, the assessee could not have recovered any money merely on the existence of Lab letter. The point is that we are not examining whether the security in the form of Lab letters was really enforceable in a Civil Court but we are examining whether the persons concerned in the trade would have regarded the Lab letter as reasonably constituting security for the loan. Department's inability to find an agreement between the financier and the producer pertaining to Delhi and UP circuit does not prove that the said agreement did not exist at any time. The Lab letter is dated 28-11-1977 and operations under Section 132 are carried out more than three years later, i.e., on 9-12-1980. The agreement pertaining to Bombay territory was available and it referred to transactions through bank accounts and post-dated cheques. If the assessee had given really some loan in cash, as the department alleges, pertaining to the Lab letter of Delhi and UP circuit naturally it would not mention or refer to transactions through bank. Hence, taking totality of circumstances into account and on proper appreciation of the evidence put on record, we hold that the existence of letter dated 28-8-1977 and Lab letter dated 28-11-1977 pertaining to Shri Jotumal T. Thawani as financier and UP & Delhi territory as security, on the facts and in the circumstances of the case, gives rise to reasonable inference of the existence of financing by the assessee other than admitted in the name of Shri Devidas J.Thawani & Others since, the financier for this set of papers is shown Shri Jotumal T. Thawani - the assessee himself, there is no problem about fixing the entity in whose hands the amounts should be considered - naturally, it is the financier specified in the Lab letter namely the assessee himself.

21. This leaves the question of fixing the quantum of loan. We hold that on the facts and in the circumstances of the case, the assessee has not been given a reasonable opportunity of being heard in regard to the fixation of quantum of loan. It would be reasonable to restore the matter of fixation of quantum of loan for UP and Delhi territory as security to the file of the assessing officer for readjudication after giving the assessee a reasonable opportunity of being heard.

22. As per the chart given at the end of para 15 on page 16 (supra) the next item is of Rs. 4,00,000 in respect of picture 'Chakravyuha'. The relevant papers are kept on pages 40 to 45 of the department's compilation. It has been discussed by the Commissioner (Appeals) in paras 12 & 13 of his order and the decision favourable to the assessee is given by him in para 36. The dispute again is in regard to the existence of Lab letter. The assessee admitted loan of Rs. 9,25,000 in the names of family members of the assessee in respect of East Bengal and overseas territories. The department came across again a letter dated 1-6-1977 from the producers M/s. Asha Art International to the processing laboratory M/s. Film Centre and also Lab letter dated 1-6-1977 addressed to the assessee - Shri Jotumal T. Thawani. In this item also, it is important to note that the Lab letter kept on pages 41 to 45 of the department's compilation is duly authenticated on behalf of the assessee with the remark'we agree and confirm the above'. In this particular case, there is yet another document which is Jetter dated 23-6-1979 written on behalf of the assessee to M/s. Film Centre which is in the following terms: Please cancel the confirmation letter issued by you and you are free to deliver the release prints of the above picture to the producers.

The reasoning given here-in-above in the context of picture 'Shan' would apply mutatis mutandis to this item also and if anything with greater force because there is, on record, assessee's letter dated 23-6-1979 releasing M/s. Film Centre from the responsibility of the confirmation letter in the form of Lab letter dated 1st June 1977.

Herein also, however, the quantification of amount to be added needs further processing and opportunity of being heard to the assessee. So, on the lines indicated in para 21 in regard to the picture 'Shan', we would direct the assessing officei to adopt proper basis of estimating the amount after giving the assessee a reasonable opportunity of being heard.

23. Item No. 3 in the chart given on page 16 is that of Rs. 1,00,000 in respect of 'Aashiq Hoon Baharon Ka'. Relevant papers are kept on pages 46 to 50 of the department's compilation and the Commissioner (Appeals) has discussed it in paras 14 and 15 of his order and given a decision in para 37. Again there is a letter from the producers to the processing laboratory and then there is also a Lab letter both dated 8-8-1977 and both mentioning Shri Jotumal Thawani as financier. The Lab letter dated 8-8-1977 is duly authenticated on behalf of the assessee with the remark 'we agree and confirm the above'. Therefore, the reasoning given here-in-above would apply matatis mutandis to this item also. We would uphold the department's plea that reasonable inference of some advance may be drawn against the assessee in respect of this item but for quantification, all the same, we would again restore the matter to the file of the assessing officer for adopting proper basis of his estimate after giving a reasonable opportunity of being heard to the assessee.

24. Next item in the chart is of Rs. 2,00,000 in respect of picture 'Swami'. Relevant papers are kept on pages 51 to 56 of the Department's compilation. The Commissioner (Appeals) has discussed the rival contentions in paras 16 and 17 of his order and has given a decision in para 38. We find that on pages 51 and 51-A of the department's compilation, there are letters from the producers viz., M/s.

Jayasarathy Combine to M/s. Film Centre in respect of picture 'Swami' for Bengal Eastern circuit on one hand and Delhi - UP circuit on the other. The Lab letter on pages 52 to 55 of the department's compilation is dated July 22,1977 and appears to be a common one for territories of Delhi - UP and Bengal circuit but that Lab letter is not signed or confirmed by the assessee. All the same, on page 56 there is a letter dated 18-10-1977 from the assessee to M/s. Film Centre in the following terms: Please deliver the release prints for the above territories as per instructions of the producers & oblige.

Thus, the existence of some arrangement in respect of picture 'Swami' for Delhi-UP and Bengal circuit stands admitted by the assessee in view of the letter dated 18-10-1977. For this item, we would uphold the department's contention that the existence of reasonable inference of some money having been forwarded by the assessee but for quantification of the same, we would restore the matter to the file of the assessing officer for doing the needful as indicated above in respect of other pictures and items.

25. Item No. 5 in the chart of para 15 on page 16 of our order is that of Rs. 4 lacs for the picture 'Muqudar Ka Sikandar'. The Commissioner (Appeals) has discussed it in paras 18 and 19 of his order and has taken a decision in favour of the assessee in para 39 of his order.

Relevant papers are contained on pages 57, 58 and 59 of the department's compilation and the lien relates to the territory of Delhi and UP. Again, the financial arrangement mentioned is in the name of Shri Jotumal T. Thawani. The assessee admitted an advance of Rs. 8,00,000 by some of his family members to the concerned producer against the lien of Bombay and Bengal territories and claimed that Delhi-UP territory was given to the assessee as additional security in view of the large amounts advanced by the family members. Thus, this is also a case similar to the case of picture 'Shan'. The Lab letter dated 16-6-1977 bears an endorsement on behalf of the assessee with usual remark 'we agree and confirm the above' and on page 59 of the department's compilation there is a letter dated 22-9-1978 from the assessee to the processing laboratory calling upon the processing laboratory to cancel the confirmation letter issued by them for Delhi-UP territory and making them free to deliver the prints as per the instructions of the producers. The reasoning given by us in the context of picture 'Shan' would apply matatis mutandis to this item also. So, in principle, the department is hereby held to be entitled to make an addition for the advance given by the assessee for Delhi-UP territory in respect of this picture 'Muqudar Ka Sikandar'. However, for the quantification, the assessee has to be given yet another opportunity and reasonable basis to be indicated by the assessing officer. For that purpose, the matter is restored to the file of the assessing officer for readjudication afresh.

26. Next item in our chart on page 16 is that of Rs. 1,00,000 for 'Khoon Ki Pukar' or alternative name 'Amrit'. The Commissioner (Appeals) has mentioned it in para 20 of his order and has decided in favour of the assessee in para 40 of his order. Relevant papers are kept on pages 60 and 61 of the department's compilation, the Lab letter dated June 17, 1977 is on behalf of the assessee and it is duly authenticated by the signature under the usual remark 'we agree and confirm the above. The assessee admits, having been given advance of Rs. 2 lacs but none in respect of lien for Bengal territory which is covered by the Lab letter dated June 17, 1977 on page 61 of the department's compilation. The reasoning given in the context of picture 'Shan' applies mutatis mutandis to this item also. We would uphold the department's right to make addition but for quantification thereof, we would restore the matter to the file of the assessing officer as for other items above.

27. Coming to the picture 'Aafat' relevant papers are kept on pages 62, 63 & 64 of the department's compilation. There is a letter dated April 19, 1977 from the processing laboratory to the assessee confirming that they would not deliver the prints of the picture 'Aafat' for the territory of Bombay without collecting a sum ofRs. 75,000 on assessee's behalf, or getting a clearance letter from the assessee. On page 63, there is assessee's letter dated 1st June, 1977 addressed to the processing laboratory which gives the backgrond of the letter dated 19th April, 1977 from the processing laboratory, which is mentioned above and then in the end says as follows: I record that I have no claim against the said M/s. Gurudutt Film Combine in respect of the amount of Rs. 75,000 or any part thereof and that you need not recover any amount from them on my behalf.

It was submitted on behalf of the assessee, that merely on the basis of these two documents, it cannot be reasonably inferred that the sum of Rs. 75,000 or any sum at all was forwarded by the assessee to the producers M/s. Gurudutt Film Combine in respect of Bombay territory. We have considered the submissions and we find that for this particular case, there is not even the usual Lab letter existing and further time gap between these two letters not even two months, i.e., the security is created on April 19,1977 and it is released on 1st June, 1977. It does not reasonably prove the giving of loan by the assessee to M/s.

Gurudutt Film Combine. Apart from this aspect of the facts on record there is another aspect of the principle of accountancy. The point is that hereinafter we are going to hold that an attempt should be made for telescoping of all the transactions of loans to be treated as un-explained and interest thereon. In such telescoping, the sum of Rs. 75,000 for this month and half would not make any effective difference for addition. For this reason also, we would exclude from the computation, this sum of Rs. 75,000 as well as interest thereon.

28. This brings us to the picture 'Yaarana' or 'Yaar Mera'. Relevant papers in the form of Lab letters and letter correspondence are contained on pages 65 to 78 of the department's compilation and then on pages 79 to 139, there are some other papers connected with this very item which are sought to be relied upon by the department. The Commissioner (Appeals) has discussed this in paras 21 and 22 of his order and has given a decision in favour of the assessee in para 42.

Relevant facts are that M/s. A.K. Movies were making a picture 'Yaar Mera' or'Yaarana'. One Mr. A.K. Nadiadwala was one of the main persons of the producers of M/s. A.K. Movies. Another picture named 'Karishma' was also being produced by M/s. Pushpa Productions and therein also Mr.

A.K. Nadiadwala and his family members had interest. The assessee admitted an advance of Rs. 15 lacs in respect of picture 'Karishma' but did not admit any money in respect of picture 'Yaarana'. Now, the department has relied on letters dated 4-7-1977 and 23-11-1977 kept on pages 65 to 70 of the department's compilation written by M/s. A.K.Movies to the processing laboratory M/s. Film Centre Laboratory requesting the Film Centre Laboratory to give security to the assessee - Shri Jotumal T. Thawani in respect of release of prints for different territories of that film 'Yaarana'. Then on pages 71 to 74, there is xerox copy of a typed letter dated July 6,1977 which is in respect of Delhi-UP and Bombay territory of that film and there is another letter dated December 6,1977 in respect of other territories for that film. It is very important to note that none of these two letters is authenticated by or on behalf of the assessee. Thus, assessee's involvement or admission in regard to any financial arrangement in the context of picture 'Yaar Mera' or 'Yaarana' is not proved by his letters. The assessee is not a signatory or a confirming party to any one of them. Department's reliance thereupon turns on letters exchanged between the assessee's Advocates M/s. Madhukar Miinim & Co. and the Advocate of M/s. A.K. Movies viz., Shri C.B. Wadhava. That was in connection with some criminal proceedings which were subsequently withdrawn and the papers are of the year 1981. The department has estimated Rs. 15 lacs as loan forwarded by the assessee, in respect of this picture'Yaarana'or 'Yaar Mera'but there is no basis for the same.

Now, the first and foremost thing is that these letters are exchanged between the Advocates of the parties for making claims and counter-claims as well as allegations and counter-allegations. On page 4 of the letter dated 15th July, 1981 of assessee's Advocates M/s.

Madhukar Munim & Co. there is mention of Shri Jotumal T. Thawani and family members having advanced certain amounts for the said picture 'Yaarana' and then talks of requirement of Rs. 15 lacs sometime in July/ August 1978 for the new picture 'Karishma'. In that letter on page 6, there is mention of Rs. 2,21,000 as given by the assessee to M/s. A.K. Movies and M/s. Pushpa Pictures for the picture 'Yaarana'.

Then, this figureofRs. 2,21,000 is again mentioned on page 13 of that letter kept on page 109 of the Department's compilation. The other Advocate has denied all those allegations. The point is that even the assessee's Advocate does not talk of Rs. 15 lacs having been given for the picture'Yaarana' he talks of Rs. 2,21,000 having been given for the picture 'Yaarana'. Still more important thing is that there are no dates available for the said sumofRs. 2,21,000 allegedly given by the assessee had his family members in respect of picture 'Yaarana'. As already mentioned, the Advocate of theother party denies even this allegation of receipt of Rs. 2,21,000. The department tried to place reliance on some papers seized from the office of Shri A.K. Nadiadwala.

Xerox copies are kept on pages 87 to 96 of the department's compilation. The learned Advocate for the assessee pointed out that these papers had not been relied on by the department and were not disclosed to the assessee at any earlier stage and further, if they are relied upon, the assessee should be given an opportunity of seeing them and controverting the inference drawn by the department. The learned Advocate for the assessee further argued that actually those extracts from some registers of Shri A.K. Nadiadwala do not support the department's case at all. On careful consideration, we would hold that the department has not at all made out a case of any money having been forwarded in respect of picture 'Yaarana' as there is no document authenticated or accepted or signed by the assessee. The allegations and counter allegations as well as claims and counter-claims even in the letters exchanged between the Advocates of the assessee and the producers do not support or indicate the forwarding of Rs. 15 lacs in respect of picture 'Yaarana'. There is a mention of Rs. 2,21,000 having already been forwarded but for that there is no indication of any date, so, the whole thing is very uncertain and on this basis, it has to be held that the department has not made out a case for making any addition in respect of this picture'Yaar Mera' or Yaarana'in this year.

The whole addition in regard to the picture 'Yaarana' deserves to be deleted. We do so.

29. Last item is that of Rs. 9,00,000 in respect of picture 'Suhag'.

Relevant papers are kept on pages 38 and 39 of the department's compilation. On page 38 is the letter dated 1st Sept., 1977 from the producers M/s. Suresh Desai and Associates to the processing laboratory M/s. The Famous Cine Laboratory indicating some financial arrangements with Shri Jotumal T. Thawani, the assessee for Bengal (Eastern circuit) and assurance should be given that release prints of the said picture should not hand over without receiving the confirmation of the assessee. On page 39, there is another very simple letter from the processing laboratory to the assessee confirming that the release prints of the picture 'Suhag' would not be given by the laboratory without receiving a written confirmation from the assessee. The Commissioner (Appeals) has discussed this in paras 10 and 11 of his order and has allowed relief in para 35 of the appellate order. The Income-tax Officer has sought to make it as a protective addition and has referred to the addition of Rs. 20 lacs made in assessment year 1979-80, vide para 6 on page 7 of the assessment order. The Commissioner (Appeals) has held that the addition cannot be made merely on the basis of Lab letter. On careful consideration, we find that the respect of this item, addition of Rs. 9 lacs cannot be sustained in assessment year 1978-79. First and foremost thing is that producer's letter dated 1st Sept., 1977 to the processing laboratory M/s. The Famous Cine Laboratory does not bear acceptance or authentication on behalf of the assessee. Secondly, even the paper kept on page 39 of the department's compilation is merely a small letter from the processing laboratory to the assessee saying that they would not release prints in respect of eastern circuit without confirmation of the assessee. Now, this brief letter is not the same thing as usual and detailed Lab letter which bears the signature of the assessee for having been accepted and confirms the position narrated in the different Lab letter(s). For these two specific reasons and without expressing any opinion, on merits, of addition of Rs. 20 lacs in respect of this picture 'Suhag' made in assessment year 1979-80, we would hold that the department was not at all justified in making an addition of Rs. 9 lacs in this year. This addition is straightaway deleted.

30. In the preceding paras, while dealing with the specific items of addition for respective pictures, we have not mentioned anything about the addition made for interest mentioned in column (iv) of the chart given at the end of para 15 on page 16 of this order. The reason is obvious; firstly the principal amount itself is to be refixed by the Income-tax Officer wherever we have upheld in principle, the department's right to make additions; secondly the rate of interest put should also be quantified after giving the assessee a reasonable opportunity of being heard and after indicating reasonable basis.

Similar would be the remark in regard to the period for which interest has to be computed.

31. There is yet another aspect which we should mention in slightly greater detail though it has been recorded in para 26 in the context of addition of Rs. 75,000 for the picture 'Aafat'. That is the aspect of telescoping. The point is that it is not a case of cash credits appearing in different names. It is basically a case of department alleging investmentor utilisation of funds by the assessee. Therefore, earliar in point of time, if a reasonable inference can be drawn of some money having been received back, the same should be considered as available for being forwarded subsequently in point of time. The Income-tax Officer would bear this aspect also in mind and take a decision appropriately after giving the assessee a reasonable opportunity of being heard.

(a) On the question of validity of reopening under Section 147, the decision of the Commissioner (Appeals) is reversed and it is hereby held that reopening under Section 147 was validly done.

(b) Deletion of addition of Rs. 1 lakh for gift received from abroad is approved and the department's ground of appeal in that regard is rejected.

(c) Out of additions made for loans given for different pictures, loans totalling Rs. 24,75,000 (Rs. 75,000 for Aafat, Rs. 15,00,000 for Yaarana and Rs. 9,00,000 for Suhagat Sl. Nos. 7, 8 & 9 of the chart given on page 16 of the order) cannot be made. Those items and corresponding interest of those items have been rightly deleted by the Commissioner (Appeals).

(d) In respect of remaining items of Rs. 36 lacs pertaining to the items at SI. Nos. 1 to 6 of the chart on page 16 of this order, the department's right to make additions is upheld but for quantification of respective amounts, the matter is restored to the file of the assessing officer. Similarly, quantum of interest to be added is also to be re-adjudicated upon by the assessing officer.

Further, the assessing officer should consider the aspect of telescoping of these different items as indicated above.

33. For statistical purposes, department's appeal is treated as partly allowed.

1. Having read the order of my learned brother, the Accountant Member and being not able to persuade myself to his reasoning and conclusions, I am appending to his proposed order my note of dissent.

2. Originally assessment in the case of the assessee was framed under Section 143(3) of the Income-tax Act, 1961 on 22-9-1978 and the assessment order reads as under:- 'Return declaring total income at Rs. 80,900 was filed on 31-7-1978.

The assessee attended and waived notice under Section 143(2). The sources of income declared are (1) proprietary business of purchase and sale of stationery and printing material and oil water colour, Artist brushes & instruments etc. (2) income from house property (3) interest and (4) refund of annuity deposit. The assessee has declared income from business of Rs. 1,72,502 being 11% profit on total sales of Rs. 15,58,200. He stated that he does not maintain regular books of account. He has furnished details of telephone bills details salary, commission and rent etc. In the statement filed along with the return of net wealth the assessee has declared the closing stock at Rs. 10,09 (figure incomplete) which was valued at cost.

After discussion the total income is computed as under :Interest on securities Rs. 1,755Annuity Deposit refund Rs. 1,319 Rs. 34,204 Rs. 92,415u/s 80-L as per statement Rs. 2,355 Rs. 11,513Total income Rs. 80,902Rounded off to Rs. 80,900 Assessed accordingly. Issue D.N. after giving credit for TDS of Rs. 8,774 and advance tax of Rs. 31,132 paid as per challans on file. The assessee paid CDS of Rs. 6,100 on 16-3-1978 as per certificate from Canara Bank, A.R Street, Branch, while late by one day. Issue show-cause notice u/s 10(3) of CDS Act, 1974 for late payment of CDS.The a received a gift of Rs. 1,00,000 from Shri Abdul Rahim Zarwani, Dubai through Bank of India as per certificate of Foreign Inward Certificate No. 35895 dt. 18-10-1977. A Note is kept on the order sheet dt. 22-9-78 about it.

Subsequently, the above assessment stood reopened and 'extract of the reasons for reopening the assessment' for 1978-79 recorded by ITO, B-I Ward, on 7-3-1980 reads as under:- 'It is seen from the records that for A.Y. 78-79 the assessee was assessed on an interest income of Rs. 53,700, from the certificate of deduction of tax from interest filed by the assessee in form No. 19 A. It is seen that the assessee has claimed deduction of tax of Rs. 3,000 on Rs. 30,000 being the amount of interest on loan of Rs. 4,00,000 advanced to Sippy Films Ltd. However the assessee was given credit on tax of Rs. 3,000 received at this verying interest. The amount of Rs. 30,000 received by the assessee has interest on loan was inadvertently remained to be included to the total income during the A.Y. 78-79. I, therefore, have reason to believe that income chargeable to tax for this year has escaped assessment. As such action u/s 147 is hereby initiated.

The assessee claims to have filed with the return of income filed on 31st July 1978 the following note:- 'The interest earned is Rs. 53,700 whereas the tax deduction at source is Rs. 8,370 (This is because the cheque for Rs. 30,000 towards interest from Sippy Films was credited after 1-4-79 and since they had issued the cheque for interest prior to 31st March 78 they deducted 10% to deposited in Reserve Bank of India and gave us the Certificate which we have claimed in this period) Subsequently, the Income-tax Officer served on the assessee a notice under Section 154 of the Income-tax Act, 1961, which reads as under: - The assessment order under Section 143(3) for the assessment year 78-79 made on 22-9-78 requires to be amended as there is a mistake apparent from the record within the meaning of Section 154/155 of the Income-tax Act, 1961. The rectification of the mistake, as per details given below will have the effect of enhancing the assessment/reducing the refund/increasing your liability and if you are to be heard, you are requested to appear in person or by an authorised representative in my office on 19-1-80 at 11 -00 a.m. If, however, you intend sending a written reply to this notice and do not wish to be heard in person, you are requested to ensure that your reply reaches me on or before the date mentioned above.

The assessee rejoined the issue with the Income-tax Officer on the subject matter of invoking of Section 154 of the Act in the following terms:- ' I am in receipt of your notice under Section 154 dated nil and in reply I state as under: First of all I may mention that interest amount of Rs. 30,000 is not earned by me during A/Y 78-79 and therefore the question of not including in the order does not arise. Even though the facts were explained by me when I last met you, I again clear this giving you the correct facts.

On 13-3-78 loan amount of Rs. 4,00,000 (Rs. four lacs) given toM/s.

Sippy Films Bombay was due. This amount was renewed for 6 months and interest of Rs. 30,000 was payable to me by M/s. Sippy Films. M/s.

Sippy Films sent me cheque of Rs. 27,000 and also Certificate for 10% deduction at source. The amount of 10% they paid to Reserve Bank of India. With the cheque of Rs. 27,000 a request was made by M/s.

Sippy Films that they have to liquidate their overdraft with bank on 31-3-78 and we should present the cheque ofRs. 27,000 on or after 1-4-78. Since the request was from my customer I could not refuse as more so if I force the payment and deposit the cheque I knew it will be dishonoured spoiling my relations with M/s. Sippy Films from whom I have to receive large amount of Rs. 4,00,000 and on the other hand reputation of M/s. Sippy Films with bank will be spoiled. As such I deposited the cheque of Rs. 27,000 towards interest received on 2-4-78 and this amount is the income for A.Y. 1979-80 adding Rs. 3,000 - 10% deducted at source making a total of Rs. 30,000 I have not to claim any deduction as certificate of Rs. 3,000. I have submitted with return for A.Y. 1978-79 and will give full credit of Rs. 30,000 earned in return for A.Y. 1979-80.

Now I explain as to why I claimed Rs. 3,000 as deduction during A.Y. 1978-79. As the certificate was dated making it valid for A.Y. 1978-79 I had to claim it for this assessment year only.

Now since the full amount of Rs. 30,000 is as income without claiming deduction for the A.Y. 1979-80 and at the same time, I have satisfied my customer. I hope you will be kindly agree with my method when department is not at a loss.

Notice under Section 148 was dated 22-3-1980 and is in the following terms:- 'Whereas I have reason to believe that...your income the income of...income chargeable to tax for the assessment year 1978-1979 has in respect of which you are assessable escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961.

I therefore propose to re-assess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income ...in respect of the income of which you are assessable for the said assessment year.

This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax City V, Bombay....

This has been received by the assessee on 10th April 1980. Reassessment order under Section 143(3) read with Section 147 of the Income-tax Act, 1961 was passed on 30th March 1983. The assessed income was taken at Rs. 67,72,177. This reassessment order speaks of that the assessee is a resident individual and the method of accounting employed is 'cash'.

3. With the above feedback of the case, we have to examine the applicability of Section 147 of the Act.

(a) the Income-tax 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 Income-tax 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 Income-tax 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 (hereafter in Sections 148 to 153 referred to as the relevant assessment year).

Explanation 1: For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed.

Explanation 2: Production before the Income-tax Officer of account books or other evidence from which material evidence could with due deligcnce have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.' 5. Under Clause (a) of the above Section 147, the already completed assessment could be reopened if the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment for the reasoning of failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for assessee's assessment for any year.

Under Clause (b) already completed assessment could be reopened, notwithstanding the fact that there has been no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessee's assessment for any year, if in consequence of information in his possession the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment.

Now, on the facts and in the circumstances of the case mentioned above and particularly in the face of 'cash' system of accounting as is revealed by the reassessment order, can it be said that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment; which facts have to be examined along with and within the ambit of 'reasons for reopening assessment' reproduced above. The answer is pure and simple in the negative, i.e. that there is no failure or omission on the part of the assessee either to disclose fully or truly all material facts necessary for his assessment for the assessment year under appeal inasmuch as the assessee has since placed all facts truly and correctly and in full before the Income-tax Officer when the original assessment was made.

The assessee has disclosed the factum of receipt of Rs. 30,000 interest fromSippy Films Ltd., which amount stood credited in assessee's bank account in the accounting period not relevant to assessment year under appeal but relevant to the subsequent assessment year.

That apart, there is no subsequent information with the Income-tax Officer whereby the Income-tax Officer has had the reasons to believe and which information was, to repeat, subsequent one, to the making of the original assessment, that assessee's income has escaped assessment.

6. The assessee, as the re-assessment order reveals, has a cash system of accounting and in this view of the matter, there was no escapement of income vis-a-vis amount ofRs. 30,000 received by the assessee as interest from Sippy Films Ltd. because, as mentioned earlier, the receipt was in the accounting period relevant to the subsequent assessment year, viz. 1979-80. Yet that apart, the reasons for reopening have been recorded on 7-3-1980. Notice under Section 148 is dated 22-3-1980, having been received by the assessee on 10-4-1980.

Action under Section 154 of the Act was contemplated by'insuance of notice and the date of hearing fixed was 19-1-1980. In view of this reasoning also, facts of assessee's case did not attract provisions of Section 147 of the Act.

Section 154 of the Act deals with the subject matter,'rectification of mistakes'. It provides that, 'with a view to rectifying any mistakes apparent from the record....

A mistake apparent from record is a mistake floating on the surface and is a mistake, which glares you and stares you in the eyes. Section 154 could be invoked only when all the facts full and correct and true were on the file and if that be the position, then within the meaning of Section 147, there cannot be said to be any omission or lapse on the part of the assessee to disclose fully and truly all material facts necessary forassessee's assessment, much less that there was any subsequent information in the possession of the Income-tax Officer.

Section 147, on these facts, could not have been applied, since the facts of the case did not attract that section.

7. Now remains the aspect of deduction of TDS and the claim of the assessee to that effect. Under Section 198 of the Act, 'tax deducted' is income received. This section provides that all sums deducted in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D and Section 195 shall, for the purpose of computing the income of an assessee be deemed to be income received.

8. The assessee has a'cash'system of accounting and in this view of the matter, when the interest has been credited to assessee's account not in the accounting period relevant to assessment year under appeal but in the accounting period relevant to the assessment year 1979-80, the assessee could not have claimed deduction of TDS under Section 194 of the Act because of the above reasoning inasmuch as TDS has to be linked and allowed as deduction along with the receipt of income.

Simply because the assessee has claimed TDS erroneously, not in accordance with the provisions of the Act, it does not stand to reason to hold that there has been escapement of income.Mould Padamapat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 at page 339, has observed that it must be remembered that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law but that is not a correct statement. There is no such maxim known to the law. There is no presumption in this country that every person knows the law and it would be contrary to common sense and reason if it were so. It is impossible to know all the statutory law and not very possible to know all the common law. The fact is that there is not and never has been a presumption that everyone knows the law.

The assessee placed his cards truly, correctly, fully and honestly and with all the bona fides with the Assessing Officer, which included receipt of interested the TDS. The assessee's system of accounting is 'cash'. And in this context of this system of accounting, it was incumbent on the part of the Assessing Officer to have allowed correct deduction of TDS to the assessee and not as claimed. The Assessing Officer is statutorily obliged to frame the assessment in accordance with the provisions of the Act. The assessee is obliged under the provisions of the Act to disclose the facts fully and correctly and in full details, which he did.

That apart, as mentioned above, Income-tax Act being a very complex one, everybody, for that purpose even the experts, cannot be said to know the intricate provisions, more so when there are amendments and amendments very of ten. The Central Board of Direct Taxes, vide letter F. No. 8 1/27/65-IT(B), dated 18-5-1965, item 448 - Administrative instructions for guidance, of Income-tax Officers on matters pertaining to assessment-, has, inter alia, instructed the Assessing Officers to advise theassessees on matters pertaining to the assessment in the following terms:- (1) The Board have issued instructions from time to time in regard to the attitude which the Officers of the Department should adopt in dealing with assessees in matters affecting their interests and convenience. It appears that these instructions are not being uniformly followed.

(2) Complaints are still being received that while Income-tax Officers are prompt in making assessments likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to assessees under the Act. Dilatoriness or indifference in dealing with refund claims (either under Section 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs.

(3) Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers Should- (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.

(5) While officers should, when requested, freely advise assessees the way in which entries should be made in various forms, they should not themselves make any in them on their behalf. Where such advise is given, it should be clearly explained to them that they are responsible for the entries made in any form and that they cannot be allowed to plead that they were made under official instructions. This equally applies to the Public Relation Officers.

(6) The intention of this circular is not that tax due should not be charged or that any favour should be shown to-anybody in the matter of assessment, or that where investigations are called for, they should not be made. Whatever the legitimate tax it must be assessed and must be collected. The purpose of this circular is merely to emphasise that we should not take advantage of an assessee's ignorance to collect more tax out of him than is legitimately due from him.' In view of the above administrative instructions, the assessee having placed his cards bona fidely, truly and fully disclosing all the facts for his assessment in the return and at the time of assessment, it was for the Income-tax Officer also to guide him as to the claim for TDS whether tenable or not in relation to assessment year under appeal, particularly when the method of accounting employed by the assessee was 'cash'.

10. On the facts and in the circumstances of the assessee's case, the above documentary evidence as also the factual one point out to irrefutable inference and conclusion that facts of the assessee's case did not attract either Clause (a) or Clause (b) of Section 147 of the Act and in this view of the matter, on my part, I will cancel the reassessment made in the case of the assessee as also the order of the learned first appellate authority, with consequences flowing out of above findings to follow. Since I have cancelled the reassessment made in the case of the assessee, I am not discussing the additions on merits as also the legal contentions raised before the Bench on behalf of the parties concerning merits.

Since there is a difference of opinion vis-a-vis conclusions arrived at in lTA No. 4902/Bom./1983 in the case of Income-tax Officer, Central Cir. XXX v. Jotumal T. Thawdhi, involving assessment year 1978-79, we are of the opinion that the following point of difference is required to be referred to the Third Member and for the purpose we direct that the file be put up to the Hon'ble President, Point of difference: Whether, on the facts and in the circumstances of the case, Section 147 of the Act was applicable or not 1. This is a matter that came to me as a Third Member under Section 255(4) of the Income-tax Act, 1961 owing to a difference of opinion between the Members of the Bombay Bench 'B', who heard this appeal in the first instance. The Members have differed on the point: Whether, on the facts and in the circumstances of the case, Section 147 of the Act was applicable or not 2. Though the point of difference mentions only Section 147 without any specification as to whether it is Section 147(a) or Section 147(Z?) which was in dispute, both the parties before me agreed that it was only Section 147(a) that was in the contemplation of the Members.

Though as a Third Member, my jurisdiction is limited to the point of difference of opinion referred to me, I go by the consent that it was the application of Section 147(a) that was in dispute.

3. The assessee in this appeal is an individual and for the year under appeal 1978-79, filed a return on 31-7-1978 disclosing a total income of Rs. 80,900. This return was accompanied by a note to the following effect: The interest earned is Rs. 53,700 whereas the tax deduction at source is Rs. 8,370 (This is because the cheque for Rs. 30,000 towards interest from Sippy Films was credited after 1-4-79 and since they had issued the cheque for interest prior to 31st March 1978 they deducted 10% & deposited in Reserve Bank of India and gave us the Certificate which we have claimed in this period.).

The assessee appeared before the Income-tax Officer on 8-9-1978.

Waiving the notice of hearing under Section 143(2) gave some clarifications which the Income-tax Officer required and again attended on 21-9-1978 and also on 22-9-1978. The assessment was finally completed under Section 143(3) on 22-9-1978 accepting the total income as returned.

4. Thereafter the Income-tax Officer issued a notice under Section 154 purporting to rectify a mistake said to have crept in the assessment.

The notice read as under: The assessment order under Section 143(3) for the assessment year 78-79 made on 22-9-78 requires to be amended as there is a mistake apparent from the record within the meaning of Section 154/155 of the Income-tax Act, 1961. The rectification of the mistake, as per details given below will have the effect of enhancing the assessment/reducing the refund/increasing your liability and if you wish to be heard, you are requested to appear in person or by an authorised representative in my office on 19-1-80 at 11-00 a.m. If, however, you intend send in a written reply to this notice and do not wish to be heard in person, you are requested ensure that your reply reaches me on or before the date mentioned above.

This notice was issued sometime in January, 1980. In response to this notice the assessee replied on 19-1-1980 explaining the circumstances under which the interest was not included and also stating how it could not be included and that how the return filed without including the interest was not only proper and just but also legal. The reply given by the assessee was quoted in full in the order of the learned Judicial Member at page 4, which I am not reproducing here except to state the above gist of that letter. After the receipt of this reply, the Income-tax Officer dropped the proceedings under Section 154.

5. But on 22-3-1980, the Income-tax Officer initiated proceedings under Section 148 again to include the very same sum of Rs. 30,000. This notice was received by the assessee on 10-4-1980. On 30-3-1983 the Income-tax Officer completed the assessment including the sum of Rs. 30,000 in the total income of the assessee along with some other additions, with which I am not concerned in this reference as Third Member. It was the reopening of assessment under Section 147 that was in issue in this matter and it is therefore very pertinent to reproduce the observations made by the Income-tax Officer in the assessment order in this regard:- The assessee has also raised preliminary objection to the issue of notice under Section 148 and submitted that he did not conceal any particulars of his income nor there is any fresh information in possession the department to warrant issue notice under Section 148.

In this connection it may be stated that the assessee received interest income ofRs. 30,000 on 13-3-1978 from M/s. Sippy Films on which tax of Rs. 3,000 was also deducted at source. The assessee also claimed credit for the tax deducted at source in the assessment for the A.Y. 1978-79. However, he did not include the said sum of Rs, 30,000 in his original return of income for the period ending 31-3-1978 relevant for A.Y. 1978-79on the plea that the said cheque of Rs. 30,000 was encashed after 31-3-1978 at the request of M/s Sipply Films. This action of the assessee is un-warranted specially when he follows cash system of accounting. In the circumstances the sum ofRs. 30,000 ought to have been included in return of income of the period ending 31-3-78 relevant for A.Y. 1978-79. Thus there had been failure on the part of the? assessee to disclose fully and truly all the relevant particulars in so far as the original income of return is concerned. Thus notice under Section 148 has been validly issued and consequent the assessee's objection to the issuance of notice under Section 148 is over-ruled.

6. Against this decision of the Income-tax Officer, an appeal was filed before the Commissioner (A). The contentions taken up before the Commissioner (A) were that all the necessary particulars, which are material for making a proper assessment, were furnished to the Income-tax Officer at the time of filing of the return in the accompanying note, that there was no information with-held by theassessee which had a material bearing on the making of the assessment and that as per the ruling of the Supreme Court in the case of Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 for reopening of the assessment information must be received subsequent to the original assessment and as no information was received subsequent to the original assessment, the reopening of assessment under Section 147 was bad in law. It was the Income-tax Officer, who on the information supplied by the assessee considered that the amount of Rs. 30,000 was not taxable and that was not due to the failure of the assessee to furnish any material fact. Therefore Section 147(a) had no application at all. It was only a change of opinion on the part of the Income-tax Officer, that was responsible for the issue of notice under Section 147(a), which was not permissible in law.

7. The Commissioner (A) after referring to all the facts mentioned by the assessee and after going through the record and laying emphasis on the fact that the Income-tax Officer failed to take action under Section 154 having found that there was no mistake apparent from the record restored to Section 147 even though there was no failure on the part of the assessee to disclose any material fact necessary for making a proper assessment categorically held that neither Section 147(a) nor the provisions of Section 147(6) were applicable. He also held that there was no material either on record or outside the record, on which the Income-tax Officer could rely for reopening the assessment under Section 147(a) or under Section 147(6). It was against this conclusion reached by the Commissioner (A) that the department filed a second appeal before the Income-tax Appellate Tribunal, which came up for hearing before Bombay Bench 'B'.

8. The learned Accountant Member after adverting to all the facts and after an exhaustive discussion, came to the conclusion that the action initiated by the Income-tax Officer under Section 147(a) was good in law and it should be upheld. He was of the opinion that the contents of annexure 'A' to the return filed by the assessee could not come to the rescue of the assessee because that did not give all the necessary facts to make a proper assessment. He found certain discrepancies between the contents of the note and the contents of the Tax Deduction Certificate filed by the assessee before the Income-tax Officer claiming deduction of tax deducted at source of Rs. 3,000. His order is very exhaustive and lucid.

9. But the learned Judicial Member had come to a different conclusion.

As I mentioned earlier after referring to the entire correspondence that took place between the assessee and the Income-tax Officer, he held that having regard to the cash system of accounting employed by the assessee, there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for making a proper assessment. According to him, the assessee had disclosed the factum of receipt of interest of Rs. 30,000 from M/s Sippy Films, which amount was credited to the assessee's bank account but without the accounting period and also explained the circumstances under which that sum could not be included in the assessment, which are very relevant and it was on a consideration of these submissions, the Income-tax Officer decided by applying his mind not to tax the sum of Rs. 30,000. Subsequently no information came into the possession of the Income-tax Officer whereby it could be said that the Income-tax Officer could have reason to believe that income liable to tax had escaped assessment. It was only a change in opinion. He also laid emphasis on the fact that when proceedings under Section 154 failed, it could not be said there was any mistake apparent from the record and therefore there could not be any non-disclosure of any material fact by theassessee. He also referred to the claim made by the assessee for tax deducted at source and held that simply because the assessee claimed the tax deducted at source erroneously, it did not mean that there was escapement of income. In this connection he made a reference to a circular issued by the Central Board of Direct Taxes on 18-5-1965 whereunder the Board issued administrative instructions for the guidance of the Income-tax Officers and in particular advised the assessing officers to advise the assessees on matters pertaining to law. In particular it directed the Income-tax Officers not to take advantage of ignorance of the assessees as to their rights and pointed out that it was one of their duties to assist the taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard it directed the Income-tax Officers to take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief was due to the taxpayer pointing out that that attitude would, in the long run, benefit the department for it would inspire confidence in him and that he may be sure of getting a square deal from the department. When such was the attitude of the Central Board of Direct Taxes and when such should be the attitude of the assessing officer, merely because a wrong claim was made for tax deducted at source, that should not have been interpreted as a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He therefore cancelled the assessment made under Section 147.

10. That is how the difference of opinion arose between the Members and the following point of difference was referred to me for my opinion : Whether, on the facts and in the circumstances of the case, Section 147 of the Act was applicable or not 11. I have gone through the entire record and also considered the arguments addressed to me at sufficient length by the learned Departmental Representative Shri A.A. Makhija andby the learned counsel for the assessee Shri G.C. Sharma. The facts in this case are in a very short compass i.e., whether the assessee had disclosed all the material facts necessary for making a proper assessment fully and truly. The Income-tax Officer's suspicion that the assessee had not disclosed the facts fully and truly arose because of the claim made for the tax deducted at source of Rs. 3,000. He was of the opinion that when the assessee made a claim for the tax deducted at source, the income relatable thereto should have been included in the assessment.

Non-inclusion of the sum of Rs. 30,000 relatable to the tax deducted at source on the plea that the cheque thought received in this assessment year, was encashed in the subsequent assessment year was not proper. It was for this reason that he brought this sum to tax by reopening the assessment under Section 147. But the fact to be ascertained is when did the Income-tax Officer come to know that the assessee had received the cheque for Rs. 30,000 in this assessment year but encashed it in the subsequent assessment year. It is in this context that the note that accompanied the return becomes relevant. This note clearly pointed out that the interest earned was Rs. 53,700 where as the tax deducted at source was Rs. 8,370. The note then proceeded to explain how the tax deducted at source was Rs. 8,370 when the interest earned was only Rs. 53,700 because the tax deducted at source was always 10% and calculated on the basis of 10%, the total interest should have been Rs. 83,700 as against which the assessee had shown only Rs. 53,700 leaving a balance of Rs. 30,000, which was the disputed amount. It was in respect of this disputed amount, the note explained that the difference of Rs. 30,000 came because the cheque for Rs. 30,000 towards interest from M/s Sippy Films was credited after 1-4-79 although they have issued the cheque for interest prior to 31-3-1978 and deducted 10% towards tax and deposited the same in the Reserve Bank of India and gave the certificate. In this note the assessee had clearly pointed out that the cheque of Rs. 30,000 from M/s Sippy Films was received prior to 31-3-1978, that the cheque was encashed after 1-4-1979, the tax was deducted on the sum of Rs. 30,000 at 10% and that amount was deposited in the Reserve Bank of India, that a certificate about the tax deducted at source was given to the assessee and that the assessee claimed the lax deducted at source in this year and that the sum of Rs. 30,000 was not disclosed as it was encashed in the subsequent year. Whether the sum is taxable in this year or in subsequent year is beside the point but all the necessary facts to enable the Income-tax Officer to come to a proper conclusion were or were not furnished is the question. It is only on these facts that the Income-tax Officer decided not to include the sum of Rs. 30,000 in the original assessment and it was only on these facts that the Income-tax Officer proposed the rectification of assessment under Section 154 and eventually dropped it having found that there was no mistake committed in the assessment and again it was on these facts that the proposal to reopen the assessment was made to bring to tax the sum of Rs. 30,000 under Section 147(a). If these are the facts which are necessary for making an assessment under Section 147(a), there should be failure on the part of the assessee to disclose any one of these facts at the time of making the assessment. None of the facts, which are material to make the assessment remained undisclosed or with-held by the assessee, the Income-tax Officer might not have properly instructed himself about the legal position arising out of these facts, but yet came to a conscious conclusion that the sum of Rs. 30,000 was not taxable. Thereafter he changed his mind and came to a different conclusion that on the same set of facts the sum of Rs. 30,000 had become taxable. Thus far from there being any failure on the part of the assessee to disclose fully and truly all the material facts for making a proper assessment, there was a failure on the part of the Income-tax Officer to properly instruct himself about the legal position. On the facts of this case, I cannot subscribe to the view that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for making a proper assessment and the assessing officer did not have in his possession any material, as a consequence of any information subsequent to the making of the assessment, to believe that income chargeable to tax had escaped assessment. If at all there is any failure, that was the failure on the part of the Income-tax Officer to come to a proper conclusion on the basis of the facts furnished by the assessee. It is also to be noted that when the Income-tax Officer issued a notice under Section 154 and subsequently dropped the proceedings, it meant that there was no mistake apparent from the record, which also meant that the non-inclusion of the sum of Rs. 30,0p0 in the assessment made originally was treated as a mistake apparent from the record, though later dropped. This also lends support to the view that there was no failure on the part of the assessee to disclose all material facts necessary for making a proper assessment. It is very pertinent to note that in the assessment order, the Income-tax Officer did not pointout any facts, which according to him was material and which the assessee had failed to disclose. This was therefore a clear case of change of opinion, for which the provisions of Section 147(a) are not available.

I therefore agree with the view expressed by the learned Judicial Member and hold that the assessee had disclosed all the material facts necessary for making a proper assessment and to the facts of this case Section 147 of the Act was not applicable. In this view of the matter, which I thought could be decided on the basis of the facts on record, I have not made any reference to the case law referred to by the counsel before me. It is to be remembered that the issue before the Tribunal as well as before me was not whether the sum of Rs. 30,000 was includible in the assessment for the assessment year 1978-79 but the issue was whether the assessee had disclosed fully and truly all material facts necessary for making a proper assessment so that the provisions of Section 147could be invoked. It is to this point that we addressed ourselves and came to the conclusion that there was no failure on the part of the assessee in any manner to disclose the material facts fully and truly.

12. The matter will now go before the regular Bench for disposing of the appeal in accordance with the opinion of the majority.