1. Common questions of law and fact arise in Civil Writs Nos. 67 to 79 and they will be disposed of by this judgment.
2. The writ petitions have been filed to quash the several ntoices dated 23rd March, 1962, issued by respondent No. 3 under Section 34(1)(a) of the Indian Income-tax Act, 1922, for reopening assessments for the assessment years 1942-43 to 1953-54, and also for prohibiting the respondents fromproceeding further with assessment proceedings in pursuance of the aforesaid ntoices. The several letters under cover of which the several ntoices were sent, bear the date 23/24 March, 1962. The ntoices were, according to the respondents, sent in three sets--one set by registered acknowledgment due post to one address of the petitioners; antoher set also by registered acknowledgment due post to antoher address of the petitioners and the third sent by messenger. It is nto disputed that the ntoices which were sent by registered acknowledgment due post were received by the petitioners on 11th April, 1962, i.e., after the commencement of the Income-tax Act, 1961. In so far as the ntoices sent by messenger are concerned, the petitioners deny service thereof while it is the case of the respondents that these were served according to law by affixation on 30th March, 1962, i.e. before the commencement of the Income-tax Act, 1961.
3. The first petitioner is the assessed and it was assessed as a Hindu undivided family. The second petitioner is the present karta of this family. It is nto disputed that the first petitioner carried on extensive business, inter alia, as forest contractors and had considerable income from such business. The forest business was in respect of forests which were situate in Nepal. Contractors were employed by the petitioners for felling the trees, converting them into logs and floating them down a river in Nepal to reach Indian territory and for all this the contractors were paid what have been described as conversion charges.
4. The petitioners had, originally, filed their returns under Section 22(1) of Indian Income-tax Act, 1922, for all the assessment years from 1942-43 to 1953-54 and assessment orders were made by the Income-tax Officer which were finalized either in appeal to the Tribunal or by the Appellate Assistant Commissioner. With regard to the assessment years 1943-44 to 1949-50, the final assessments were made in pursuance of an agreement or settlement dated 18th October, 1954, arrived at between the petitioners and the Deputy Director of Inspection (Investigation), New Delhi.
5. There are two main items with respect to which it is the contention of the respondents that the petitioners did nto disclose fully and truly all material facts necessary for assessment in the assessment years in question. The first item is an item of deposits which stood in the names of Rana Anand Nar Singh, Rana Judh Nar Singh and Rana Ek Nar Singh of Nepal, hereinafter referred to as 'the Ranas', and the contention of the respondents, generally speaking, is that these deposits were nto deposits or loans as contended for by the petitioners but were merely the accepted secreted profits of the petitioners themselves. The second item is the item of conversion charges shown as expense relating to the business of the petitioners in respect of which the contention of the respondent is that the conversion charges shown in the returns and claimed by the petitioners were inflatedand these also represent to a large extent the secreted profits of the petitioners. On the toher hand, the contention of the petitioners is that the aforesaid three Ranas were really creditors of the petitioners and they advanced various loans to the petitioners from time to time on interest paying deposits. Further, it is the case of the petitioners that conversion charges which were payable to Rana Anand Nar Singh were nto wholly paid and the unpaid amount of the conversion charges were credited to him. The details of these deposits and conversion charges are given in paragraph 8 of the counter-affidavit of respondent No. 3 and this is what is stated :
'(a) Following cash credits appeared in the accounts of the three Ranas of Nepal, who were brtohers-in-law of Shri Dan Singh Bist, karta of the Hindu undivided family.
Assessment YearAmount of fresh cash creditsInterest relatable to the ttoal credits of the RanasDebited to The P. & L. AccountTtoal Rs. Rs. Rs. 1942-43 1,00,000 2,495 1,02,495 1943-44 7,00,000 14,803 7,14,803 1944-45 10,00,000 31,633 10,31,633 1945-46 3,75,000 51,083 4,26,083 1946-47 2,30,000 1,17,363 3,47,366 1947-48 4,00,000 1,24,333 5,24,333 1948-49 4,00,000 1,20,000 1,20,000 1949-50 4,00,000 1,26,000 1,26,000 1950-51 4,00,000 1,26,000 1,26,000 1951-52 4,00,000 1,26,000 1,26,000 1952-53 4,00,000 1,26,000 1,26,000 1953-54 4,00,000 1,26,000 1,26,000 Ttoal 28,05,000 10,91,713 39,96,713 (b) In addition to the cash credits and interest thereon mentioned above, the assessed Hindu undivided family had credited the account of Rana Anand Nar Singh on account of expenses alleged to have been incurred in connection with its timber business. Credits appearing in this account were as under :
Assessment YearAccounting YearCredit Balance at the End ofAccount Year Rs.1950-511949-50Financial YearNil1951-521950-51&quto;17233741952-531951-52&quto;27262711953-541952-53&quto;2415108 6. There is no dispute that these deposits were discussed by the income-tax authorities in question with reference to the assessment years relating to this petition. Nto only that, the income-tax authorities even disallowed the claim of the petitioners with reference to certain deposits while, ultimately, the conversion charges as claimed by the petitioners were allowed. It will be enough if a reference is made in this judgment only to the agreement or settlement, dated 18th October, 1954, which was arrived at between the petitioners and the Deputy Director of Inspection (Investigation), New Delhi, with reference to the assessment years 1943-44 to 1949-50. Investigation was made b'y the aforesaid Deputy Director of Inspection (Investigation) into the probable suppression of profits and the following terms of settlement were arrived at which were given effect to by the various income-tax authorities:
'1. For the various assessment years 1943-44 to 1948-49, the business profits will be computed by adding the following amounts as extra sale proceeds of timber sold to the public.
Rs1943-441106201944-451421251945-461364031946-47991351947-48627421948-4987856 2. The additions made in the above assessments, since set aside by the Appellate Assistant Commissioner on account of deposit, interest and deposits, inflation in conversion charges and sale of gold will be excluded.
3. The following losses falling to the share of Rana Anand Nar Singh Rana and allowed by the Income-tax Officer in the respective assessments shall be disallowed:
1944-45 : Behran Ghat branch, Rs. 35,398; 1945-46 : Behran Ghat branches. 38,081. 4. As a result of these changes and after making certain toher adjustments, e.g., a mistake of under-ttoaling made in the assessment order to the extent of Rs. 1,07,714 the profits liable to excess profits tax, ttoal income liable to income-tax and super-tax and the taxes payable will be as per the enclosed schedule.
5. For the assessment year 1949-50 the present assessment will be revised by deleting there from the disallowances of conversion charges, interest on deposits and by substituting Rs. 2,42,594 for suppression of sales as against Rs. 2,75,000. The revised figures are given in the schedule.
These figures disclose a business profits tax liability of Rs. 20,367 for the C.A.P. ending 31st March, 1949, and the assessed agrees nto to raise any technical objection regarding time-limit against this assessment.
A penalty of Rs. 1 lakh will be imposed under Section 28(1)(c) for the assessment year 1949-50 but no penal interest should be charged for any year.
The assessment for 1949-50 pending in appeal before the Appellate Assistant Commissioner will be gto set aside and completed afresh or modified accordingly.
6. The sum of Rs. 1 lakh fixed as penalty will be paid within 15 days of the passing of the necessary order under Section 28. So also, the business profits tax demand will be paid within 15 days of the assessment order.
7. The excess profits tax demand as per the schedule will be paid by 20th March, 1955.
8. The balance of the outstanding taxes, after giving credit for all the previous payments by, and refund due to, the assessed shall be paid by him in two equal Installments falling due on 20th March, 1956, and 20th March, 1957.'
6. It is, thereforee, obvious that the income-tax authorities had gone into the validity or toherwise of the claims of the petitioners with reference to deposits, interest on deposits, and inflation of conversion charges.
7. It is also nto disputed that the statements of these Ranas were recorded by the income-tax authorities with reference, inter alia, to deposits and conversion charges. The case of the petitioner is that these statements were recorded with reference to the assessment years from 1943-44 to 1949-50 which were the subject-matter of the settlement whereas it is urged on behalf of the respondents that these statements were in respect of one particular assessment year only. Whatever it be, there is no doubt that the income-tax authorities, while making the various assessments, took into consideration all material facts which were made available to them in coming to the conclusion that they did with respect to the deposits and the conversion charges.
8. By 1955, the amount due to the Ranas was to the tune of 47 lakhs of rupees by way of deposits, interest on deposits and balance of conversion charges. It was on 10th May, 1955, that a sale deed was executed by the petitioners in favor of Rana Nar Singh and his brtoher, Rana Lav Nar Singh, for a consideration of Rs. 47,10,000. The property conveyed by the sale deed was, according to the petitioners, 'valuable' agricultural and forest lands as also buildings and equipments, kolhus and crushers, etc., appurtenant thereto. The land that was sold measured about 8,000 and odd nalies. It is alleged by the respondents that some time thereafter specific information came to the ntoice of the Income-tax Officer via theMinister for Home Affairs and the Directorate of Inspection (Investigation). This information wad that a bogus sale deed was executed in favor of the Nepalese relations of the then karta of petitioner No. 1 ' with a view to convert concealed income of the petitioner No. 1, to the tune of Rs. 47/10,000 earned between the years 1940 to 1954, into the capital of the petitioner No. 1......in respect of property which did nto exceed Rs. 40,000 in valueand which property was till then (December, 1961) under the possession of the petitioners 'and that' the income from the said property did nto exceed Rs. 2,000 from the tenants and Rs. 100 per year from the land under personal possession of the petitioners.' Thereupon, enquiries were conducted into the allegations as a result of which the Income-tax Officer was led to believe that the credits appearing in the names of the Ranas were nto genuine. It is further alleged that the result of the enquiries showed that the land which was the subject-matter of the sale deed was 3,531 nalies; that the price worked out to Rs. 1,339 per nali or Rs. 26,610 per acre; that the prevalent rate of sale in the area was about Rs. 100 per nali ; that several toher sale deeds had been executed by the petitioners at about that time at prices varying from Rs. 31 to Rs. 100 per nali or Rs. 620 to Rs. 2,000 per acre and that the lands alleged to have been sold could nto be ascertained and the vendees had nto entered into possession till then. It is on the basis of these facts gathered from the information and the enquiries, that the Income-tax Officer had reason to believe that the income of petitioner No. 1 had escaped assessment or had been under-assessed and that the credits in the names of the Ranas were false. Further enquiries were made from the vendees themselves by a letter dated 9/10th October, 1961, from the Income-tax Officer to Rana Nar Singh in which a request was made to furnish particulars of the properties purchased, annual income from these properties, mode of payment of the consideration and the name of the recipient of the consideration. Rana Nar Singh replied to this letter by his own letter, dated 15th December, 1961. He confirmed that he and his brtoher, Rana Lav Nar Singh, purchased the property consisting of several farms, villages, house structures and machinery, etc., from the petitioners. The particulars asked for were supplied in these words :
'1. Complete description of particulars of properties purchased by us have been mentioned in detail in the sale deed dated 10th May, 1955.
1. Annual income has been varying according to season, area cultivated, yield of crop and working, etc.
2. Rs. 10,000 (Rupees ten thousand only) was paid in cash to thesellers in India as earnest money for the purchase of the propertied. Therest was paid in cash in Kathmandu and/or by adjustment in runningaccount to Rana Anand Nar Simha, Judh Nar Sim ha and Ek Nar Simhain payment of their outstandings against the sellers as per details given hereunder:
Rs.Rana Anand Nar Simha37 LakhRana Judh Nar Simha5 LakhRana Ek Nar Simha5 Lakh Formal receipts were obtained from these parties and sent to Thakur Dan Singh Mohan Singh Bist of Nainital before the properties sold out to us were mutated in our names as stipulated in the sale deed.'
9. The first and main contention is with reference to the jurisdiction of the Income-tax Officer in issuing and the validity of the ntoices issued by him under Section 34(1)(a) and it is contended that the Income-tax Officer had no reason to believe that by reason of the failure on the part of the assessed to disclose all material facts necessary for making the assessment, any income had escaped assessment; that the proposed enquiry was roving enquiry and his belief was a mere pretence.
10. Before I deal with this contention, I would like to mention the toher contentions that were sought to be raised on behalf of the petitioners on which we have nto heard the parties. These contentions are:
(1) That a ntoice under Section 34 cannto be issued where there is an agreed assessment and the only remedy of the revenue is by way of suit to set aside the agreement. This contention is based upon the aforesaid agreement or settlement dated 18th October, 1945, relating to assessment years 1943-44 to 1949-50 to which I have referred above.
(2) A ntoice under Section 34 must nto only be issued but also be served on the assessed before 31st March, 1962, to apply Section 34(1)(a) of the Indian Income-tax Act, 1922. For this contention, the petitioners relied upon the fact that the ntoices served by registered acknowledgment due post were served upon them on 11th April, 1962, and they denied the service by affixation as alleged by the respondents.
(3) That the satisfaction of the Central Board of Revenue or the Commissioner of Income-tax was obtained mala fide and without disclosing to them the facts that assessment for the year 1942-43 had been examined by the Tribunal who made no addition for undisclosed income; that assessments for the years 1943-44 to 1949-50 were under agreement for settlement with the Deputy Director of Inspection and assessments for 1950-51 to 1953-54 were made on the finding that the conversion charges claimed were reasonable. It is further contended that the petitioners had a right to look into the report of the Income-tax Officer which was made to the Central Board of Revenue and the Commissioner of Income-tax for obtaining their satisfaction.
(4) That the satisfaction of the Central Board of Revenue and of the Commissioner of Income-tax was accorded without any application of mind and was void.
(5) That the satisfaction of the Central Board of Revenue and the Commissioner of Income-tax bad nto been authenticated by the person authorised in that behalf.
(6) That the facts of the case fell within the purview of Section 34(1)(b) of the 1922 Act and the ntoices were, thereforee, barred by time.
(7) That the Income-tax Officer was acting in pursuance of Section 297(2)(d)(i) and (if) of the 1961 Act and these provisions were ultra virus and violated Article 14 of the Constitution and being provisions of a saving statute could nto affect substantive rights.
11. I may further mention that respondent No. 3 has raised two objections in the nature of preliminary objections. The first objection is that the writ petitions are belated and the second objection is that there are adequate and effective remedies by way of appeal, etc., and, thereforee, this court should decline to interfere on petitions filed under Article 226 of the Constitution. No arguments were, however, addressed to us by Mr. Narasa Raju or Mr. A.N. Kirpal, learned counsel appearing for the respondents, when we called upon the respondents to reply to the first contention.
12. Coming back to the first and the only contention with which we are dealing, the broad facts are that the amounts of deposits standing to the credit of the Ranas and the amount of conversion charges standing to the credit of Rana Anand Nar Singh were disclosed as such to the Income-tax Officer during the assessment proceedings for each assessment year in question; all the material that was available with the petitioners was disclosed ; the Ranas were examined; on the facts disclosed, the contention of the petitioners was that the amounts standing to the credit of the three Ranas or to the credit of Rana Anand Nar Singh represented deposits or loans and credit on account of conversion charges remaining payable to Rana Anand Nar Singh ; there was no non-disclosure of these incomings into the books of the petitioners but the contention raised was that they did nto constitute the income of the petitioners; the contention of the Income-tax Officer was that these credits on account of deposits or conversion charges were false credits and were in reality and truth the income of the petitioners subject to tax; these respective contentions were urged before the authorities and were adjudicated upon; there were proceedings and enquiries were held to decide the respective contentions and the respective contentions were determined by adjudication with respect to assessment years 1942-43 and 1950-51 to 1953-54 and with respect to assessment years 1943-44 to 1949-50 by agreement or settlement.
13. In so far as these writs are concerned, for the application of Clause (a) of Sub-section (1) of Section 34 of the 1922 Act, it is necessary that, (a) the Income-tax Officer should have had reason to believe that (b) the assessed has omitted or failed to disclose fully and truly all material facts necessary for his assessment as a result of which (c) income ... chargeable to Income-tax has escaped assessment or has been under-assessed.
14. From the language employed it is clear that Clause (a) of Sub-section (1) of Section 34 contemplates a case of deliberate omission or failure on the part of an assessed in making a full and true disclosure as to all material facts necessary for the assessment while Clause (b) of Section 34(1) covers cases of errors or omissions resulting in escapement, etc., ntowithstanding a full and true disclosure of all material facts necessary for the assessment.
15. It follows from the language employed in Clause (a) that the disclosure is to be with regard to material facts and, thereforee, must necessarily be in respect of such facts which exist at all material times between the filing of the return and the order of assessment. A material fact which is nto in existence right up to the time of assessment cannto possibly be disclosed. thereforee, a fact which comes into existence subsequent to the making of the assessment cannto, in my view, be a material fact within the purview of Clause (a) of Section 34(1).
16. Assessments are made in pursuance of Section 23 of the 1922 Act. Under Sub-section (1), the Income-tax Officer may accept a return as filed and make an assessment accordingly or he may, as authorised by Sub-section (2) require the assessed to produce evidence. On the date fixed for assessment such evidence is heard and such toher evidence as the Income-tax Officer may require is produced and then the Income-tax Officer makes an order of assessment under Sub-section (3). The scheme of this section, thereforee, contemplates a full-fledged inquiry providing for the production of evidence and a hearing and the purpose of such an inquiry is to determine the validity of the contentions that may be raised by the assessed with reference to the material which is placed before the Income-tax Officer. If, in spite of this hearing, a mistake appears in the order of assessment, power has been given to the income-tax authorities by Section 35, to rectify the mistake. But if the case does nto fall under Section 35, resort can be had to Clause (b) of Sub-section (1) of Section 34 if any income has escaped assessment or has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief or excessive loss or depreciation allowance has been computed.
17. Material facts as contemplated by Clause (a) of Sub-section (1) of Section 34 must nto only be existing up to the time of assessment but it must also be a case where such material facts have nto been disclosed fully and truly. A mere erroneous decision by the authorities based uponerroneous inferences drawn from the material facts will nto by itself bring a case within the purview of Clause (a). This clause requires a disclosure of only such material facts as are necessary for assessment for a particular year. This clause has been interpreted on more than one occasion by the Supreme Court. The leading case on the subject is the case of Calcutta Discount Co. Ltd., : [1961]41ITR191(SC) . The facts of this case were that the assessed realised profits by the sale of shares in the assessment years 1942-43, 1943-44 and 1944-45, which were nto assessed to tax. The amounts had been shown as incomings of the company but it was contended that these amounts were nto assessable to tax. This contention was accepted by the Income-tax Officer when he made the initial assessment. Later, proceedings under Section 34 were initiated on the allegations that the result of the company's trading from year to year showed that it had been systematically carrying on a trade in the sale of investments and that as such the company had failed to disclose the true intention behind the sale of shares. It was further averred that in the assessments for the years 1945-46 and 1946-47 profits earned by the sale of shares were included in the ttoal assessable income of the company upon the finding that it was in fact carrying on the business of selling shares contrary to its earlier representations. Two points clearly emerge from these facts, (1) that there was a disclosure with a contention that the incoming was nto assessable as income and (2) there was an acceptance of that contention in the original assessment proceedings. Upon writs being filed for quashing the ntoices issued under Section 34 and upon the matter coming before the Supreme Court it was held by the majority that:
'It was the duty of the assessed-company to disclose all the facts which had a bearing on the question ; but whether the assessed had the intention to make a business profit as distinguished from the intention to change the form of the investments was really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances. The law did nto require the assessed to state the conclusion that could reasonably be drawn from the primary facts. The question of the assessed's intention was an inferential fact and so the assessed omission to state its 'true intentions behind the sale of shares' could nto be considered to be a failure or omission to disclose any material fact within the meaning of Section 34.' 18. thereforee, so long as the material facts existing right up to the time of assessment are disclosed, there cannto be a case for invoking Section 34(1)(a) merely because the assessed has raised a wrong contention which has been accepted. Inferences or conclusions that can reasonably be drawn from the primary facts are nto to be stated by the assessed. It is important to ntoice that this decision was given ntowithstanding the fact that in the assessmentyears 1945-46 and 1946-47, the contention of the assessed with regard to the nature of these receipts was nto accepted and it was held that the assessed was in fact carrying on the business of selling shares contrary to its earlier representations. The case has been followed in all subsequent cases whether of the Supreme Court or of the various High Courts. The next case of the Supreme Court which was cited is reported as S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) . The principles which were settled in Calcutta Discount Company's case were reaffirmed. This, was a case in which the assessed did nto file any return nor did he comply with the ntoice issued under Sub-sections (2) and (4) of Section 22 of the 1922 Act with respect to the assessment year 1951-52. The Income-tax Officer completed the assessment on such material as was available to him and assessed the income at Rs. 36,069. Subsequently, while making assessment for the assessment year 1955-56, the assessed filed a wealth statement from which it appeared that the assessed had made investments of Rs. 39,000 during the assessment year 1951-52. Bank accounts were also produced and from a scrutiny of the wealth statement and the bank account and from the extensive nature of the business carried on by the assessed, the Income-tax Officer entertained a belief that the income of the year 1951-52 had been under-assessed and he issued a ntoice under Section 34(1)(a). This, thereforee, was a clear case of non-disclosure and the Supreme Court came to the conclusion that the proceedings for reassessment initiated under Section 34(1)(a) could nto be challenged.
19. The facts on which reliance is placed by the respondents to make out a case of non-disclosure under Section 34(1)(a) are, firstly, the sale deed dated 10th May, 1955, executed by the then karta of petitioner No. 1 and petitioner No. 2 in favor of Rana Nar Singh and his brtoher, Rana Lav Nar Singh, for a consideration of Rs. 47,10,000 after all assessments for the assessment years 1942-43 to 1949-50 had been completed and, secondly, the inquiries with respect to the value of the lands which were the subject-matter of this sale deed conducted in the year 1961 onwards. Btoh these facts obviously were non-existent right up to the time of the original assessments. thereforee, they were incapable of disclosures at the relevant time and, for that reason, it is contended by the petitioner that Clause (a) of Sub-section (1) of Section 34 cannto be invoked.
20. To meet this argument it is first contended by the respondents thatthere may be a case where a material fact comes into existence after theorder of assessment and yet it may relate back to the time between thefiling of the return and the order of assessment. For example, supposinga document is executed by the assessed himself after the order of assessmentcontaining a clear and categorical admission that the incomings shown inthe return had nto in fact represented genuine deposits or loans or cash credits but represented the income of the assessed. In such a case, it is contended, even though the fact in the shape of the document containing the admission comes into existence after the order of assessment, it relates back to the period between the filing of the return and the making of the order of assessment because it would then be a fact existing at that time thereby rendering the disclosure neither full nor true. It may be so. But even assuming that such a subsequent fact, if I may call it that, is a material fact, it must be taken at its face value and it would be permissible to raise an inference from that and describe such inference as a material fact as contemplated by Section 34(1)(a).
21. Now, if taken at its face value, the sale deed is in support of the assessed's case rather than destructive of it because the sale deed confirms that the amounts standing to the credit of the three Ranas represent either deposits or loans or the unpaid amounts of the conversion charges. The Income-tax Officer even made inquiries from the vendees, who it may be mentioned were different from the Ranas, and the vendees confirmed the sale-deed and also confirmed that they had paid the amount of Rs. 47,00,000 to the Ranas as stated in the sale deed and obtained receipts thereforee. These facts cannto by any stretch of language make the sale deed ex facie a bogus document. The Income-tax Officer wants to go further in these cases and, upon the basis of the consideration mentioned in the sale-deed; the fact that only Rs. 10,000 were paid to the petitioners while Rs. 47,00,000 are stated to have been paid to the three Ranas and the value, arrived at by him as a result of his own subsequent enquiries, of the land which was the subject-matter of the sale deed, he wants to contend as an inference or conclusion that the sale deed is bogus and the credits shown in previous years were income. thereforee, the Income-tax Officer wants to equate his inference or conclusion from subsequent facts and enquiries to material or primary facts within the meaning of Clause (a). This, in my opinion, cannto be done.
22. This sale deed would have been a material fact if it had been executed at any time prior to the assessment because then its disclosure either in the return or at the time of assessment would have been necessary for the assessment for that year as the credits standing in the names of the Ranas would have to be adjusted. Its non-disclosure at the time of assessment would certainly amount to a disclosure which is neither full nor true, if the assessed does nto show an adjustment of the aforesaid credit entries. If such a sale deed is produced in the relevant assessment year, it is open to the Income-tax Officer to hold that it represents a bogus or sham transaction and he may arrive at this conclusion or inference after or even without holding an inquiry such as is contemplated by Section 23(3). This conclusion will be aninference and ntohing more. On the toher hand, he may, after or without such an inquiry, come to a conclusion that the sale deed represents a genuine transaction and make an assessment accordingly. A different inference or conclusion at a later time whether it is arrived at upon the facts disclosed or on fresh facts gathered as a result of a further inquiry will nto justify action under Section 34(1)(a) if the fresh facts are nto primary facts which existed at the time of assessment and which the assessed was under duty to disclose.
23. Mr. Narasa Raju, learned counsel appearing for the respondents, then contended that even if it may be said in the present case that a full disclosure was made, there was a failure to make a 'true' disclosure and for this contention he relies upon the words 'fully and truly' as appearing in Clause (a). On account of the use of the word 'truly'--it is his contention--it is the obligation of the assessed even in a case of full disclosure to indicate the true nature of the incomings and, thereforee, in the instant case since the assessed failed to say that the deposits, loans and cash credits appearing in the names of the three Ranas were really the income of the firm, he has been guilty of a disclosure which is nto true even if it may be full. In toher words, the argument goes to this extent that in every case where a contention raised by the assessed with regard to the nature of the incoming has been accepted in the original order of assessment, it is open later on to invoke Section 34(1)(a) for the purpose of reassessment if the Income-tax Officer comes to the conclusion that the assessed's contention should nto have been accepted. This argument cannto be accepted in view of the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd., because if this argument were correct, then there was no reason why a writ should have been issued in that case upon the Income-tax Officer coming to a conclusion in the subsequent assessment proceedings that the said company had always been carrying on the business of sale of shares regularly.
24. Mr. Narasa Raju, however, relies upon a decision of the Andhra Pradesh High Court in Sowdagar Ahmad Khan v. Income-tax Officer, Nellore, [1967] 66 I.T.R. 55, which, according to him, has been approved by the Supreme Court in its decision dated 21st November, 1967, in Civil Appeals 265-271 of 1967. The report of the judgment of Andhra Pradesh High Court does nto give the material facts which were nto disclosed by the assessed. All that is stated in the judgment is that in the course of the assessment for the year 1957-58, the assessing authority detected that several cash credits in the names of the petitioner's near relations appeared to be bogus and, thereforee, he issued ntoices under Section 34(1)(a) with respect to the assessments forthe assessment years 1943-44 to 1949-50, because further investigation led him to believe that there was concealment of income and that the petitioner had nto disclosed fully and truly all the material facts. The main argument in this case really centered round the questions whether it was Section 34(1A) or Section 34(1)(a) which was applicable and whether the previous decision of the assessing authority was nto binding. The facts, however, do appear in the judgment of the Supreme Court in appeal. It is stated in this judgment that:
'In the course of assessment proceedings for the assessment year 1957-58, the Income-tax Officer found that the assessed had a current account in the Imperial Bank of India in the name of his father-in-law till the latter's death. This fact came to the ntoice of the Income-tax Officer when the assessed was asked to explain a cash credit of Rs. 40,000 found in the assessment year 1950-51. Similarly, a sum of Rs. 70,000 was advanced by the assessed to Jagamani Pictures on January 9, 1946, which the assessed failed to disclose in the course of the assessment proceedings for the relevant assessment year. When later on Jagamani Pictures could nto meet this debt, the assessed gto their distribution rights in lieu of the amount advanced and exploited the films. It was also detected by the Income-tax Officer that in the relevant returns the assessed had nto shown income from property in the names of his sons, wife and daughter, though many of the properties were purchased by him in their names.' 25. It is obvious from a mere recital of these facts that this was a clear case of non-disclosure of what I may call existing material facts during the assessment years 1943-44 to 1949-50 and that was the reason why the Andhra Pradesh High Court and, on appeal, the Supreme Court repelled the contentions which had been raised on behalf of the assessed. This case throws farther light upon the duty of the assessed in respect of the disclosure of material facts. It is observed:
'..... .that the assessed does nto discharge his duty to disclose fullyand truly material facts necessary for the assessment of the relevant year by merely producing the books of account or toher evidence. He has to bring to the ntoice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant.' 26. The duty of the assessed with reference to a true disclosure has nto been stated to be that he must go further and state that the particular items in the books of account or documents which are relevant represent bogus transaction.
27. Applying these principles to the facts of the case before me, the belief at which the Income-tax Officer has arrived is no more than an inference or a conclusion from subsequent facts. Such inferences drawn from the factof the execution of the sale deed or its recitals or from the facts elicited as a result of subsequent enquiries relating to the market value of the lands which were the subject-matter of the sale deed cannto, in my opinion, amount to material facts which should have been disclosed as required by Section 34(1)(a). One of the conditions precedent to the issue of a ntoice under Section 34(1)(a) is, thereforee, nto satisfied and the ntoices are, thereforee, without jurisdiction.
28. In the result, these writs are allowed, the impugned ntoices dated 23rd March, 1962, issued under Section 34(1)(a) for reassessment proceedings relating to assessment years 1942-43 to 1953-54 are quashed and the respondents are restrained by a writ of mandamus from taking any further proceedings in pursuance thereof. The petitioners will have their costs of these petitions. As there was a common hearing, counsel's fee for all the petitions is fixed at Rs. 250.