TARUN CHATTERJEE,J. - (1.) THE subject-matter of this appeal is the judgment and/or order passed by a learned Judge of this Court on a writ petition which was moved in this Court for setting aside the notices dt. 16th June, 1980, issued under S. 148 of the IT Act, 1961, for the asst. yrs. 1973-74 and 1974-75 by the ITO, J. Ward, District-IV(i), and the order being Order No. Re-open/1/81/WS-X/227, dt. 6th June, 1980, passed by the CIT, West Bengal-10, and for other incidental reliefs. The reason for issuing the notices under S. 148 has disclosed in para. 6 of the affidavit-in-opposition. The reason was that the writ petitioner had claimed deduction on the interest paid on loans from one Shri Asit Kr. Saha for the assessment years in question. During the assessment proceedings in respect of subsequent years, the IT authorities obtained materials suggesting that Sri Asit Kr. Saha was a fictitious person. Therefore, the ITO was of the view that the loan shown as having been obtained from Sri Asit Kr. Saha as well as interest claimed by the writ petitioner to have been paid on such loans had escaped assessment for the failure on the part of the assessee to disclose fully and truly all material facts in the return at the time of the original assessments. The notices issued by the ITO being the respondent No. 1 were challenged on the following grounds : (1) The ITO could have no reason to believe that any income had escaped assessment, although the reasons recorded by the ITO had shown that "cash credit" in the name of Shri Asit Kr. Saha and interest thereon had escaped assessment. (2) The previous ITO having held that the loans in question were genuine, the plea of the ITO issuing the impugned notices under S. 148 was a mere change of opinion with regard to an inference which did not justify initiation of a proceeding under S. 147 of the Act. (3) The basis of the conclusion of the ITO was contrary to the records, namely, that the confirmation of the loan in the assessment years in question had not been subject to proper verification. According to Mr. Dutta, in fact there had been a proper verification at the time of assessment for the years in question. Mr. Dutta submitted that the primary facts having been disclosed by the assessee, it could not be stated that the assessee had not made a full disclosure of material facts.
(2.) THE submissions of Mr. Dutta, appearing for the assessee/appellant were hotly contested by Mr. R.C. Prasad, learned counsel for the Revenue. According to Mr. Prasad, the judgment under appeal has been passed in accordance with the settled proposition of law and, therefore, no interference can be made with the said judgment in this appeal. Having heard the learned advocates for the parties and considering the relevant submissions of the learned counsel for the parties and the materials on record, we are of the view that in the facts and circumstances of the case and in view of the settled law now, the learned Trial Judge erred in refusing to quash the notices issued under S. 147 r/w S. 148 of the Act. Reasons are as follows : Before we consider the relevant submissions of the learned counsel for the parties, it is necessary for us to reproduce ss. 147 and 148 of the Act which are as follows : Sec. 147.-if- (a) the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under S. 139 for any assessment year to the ITO 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; (b) Notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the ITO 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 ss. 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. Explanation 1 : For the purposes of this section, the following shall also deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where income chargeable to tax has been assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made, the subject of excessive relief under this Act or under the Indian IT Act, 1922, or (d) where excessive loss or depreciation allowance has been commuted. Explanation 2 : Production before the ITO of all account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure within the meaning of this section. Sec. 148.-"Before making the assessment, reassessment or recomputation under S. 147, the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 139 and the provisions of this Act shall, so far as may be, accordingly as if the notice were a notice issued under that sub-s. (2). The ITO shall before issuing any notice under this section, record his reasons for doing so." From a plain reading of S. 147, it is found that cl. (a) of S. 147 of the Act clearly confers jurisdiction to the ITO or the AO only if the ITO has reason to believe that by reasons of the omission or failure on the part of an assessee to make a return under S. 139 for any assessment year or to disclose fully or truly all the material facts necessary for his assessment for that year, income chargeable to tax escaped assessment for that year. The expression "material facts necessary for assessment" was interpreted by the Supreme Court to mean "primary facts" as distinguished from inferences, factual or legal, which may properly be drawn from the primary facts. In Calcutta Discount Company Ltd. vs. ITO (1961) 41 ITR 191 (SC) : TC 51R.779, the Supreme Court held that while the assessee was bound to disclose truly and fully all primary facts, the assessee was under no obligation to point out the factual inference which might be drawn from these facts. The Supreme Court observed at pp. 200 to 201 as follows : "There can be no doubt that the duty of disclosing all the material facts relevant to the decision of the counsel before the assessing authority lies on the assessee. There is no doubt about the aforesaid principle laid down by the Supreme Court in the aforesaid decision once all the primary facts and before the assessing authority. But he requires any further assistance by way of disclosure. It is for him to decide what inferences had ultimately been drawn. It is not for somebody else for loss the assessee to tell the assessing authority what inferences whether of facts or law should be drawn." Therefore, from the aforesaid principle as laid down by the Supreme Court in the aforesaid decision, the expression "material facts necessary for assessment" would mean "primary facts" which should be disclosed by the assessee before the assessing authority at the time of assessment. Therefore, it can easily be concluded that while the duty of the assessee is that he should disclose fully and truly all primary relevant facts, but it does not extend beyond this. In the case of Calcutta Discount Company (supra), the Supreme Court also observed as follows : "From this observation it follows that the "material facts" which the assessee required to disclose at the time of assessment are the primary facts material and necessary for the purpose of his assessment. The assessee is under no obligation of further informing the ITO that some of the entries in his account books and the balance sheet are false. It is for the ITO to scrutinise the accounts of the assessee and after informing as to their correctness to make the assessment. It is true that as stated in Expln. 2 of S. 147 of the Act, mere production before the ITO of the account books or other evidence from which material evidence could with due diligence, have been discovered by the ITO, will not necessarily amount to disclosure within the meaning of that section. But, in the present case, the ITO at the time of the original assessment specifically required the assessee to prove the cash credits standing in the name of the forms including the five forms mentioned in the earlier part. This judgment and petition satisfied the ITO about the genuineness of those accounts..... It is thus apparent that the ITO has changed his opinion on account of subsequent information which has come to his possession. It was the duty of the ITO making the assessment year in 1964 to hold the enquiry and find genuineness or otherwise of the case credits. He in fact, hold the enquiry by asking the petitioner firm to prove the genuineness of those cash credits. It is not open to him to commence proceedings for reassessment under S. 148 of the Act on a changed opinion in such circumstances."
(3.) FROM the observation of the Supreme Court, it is, therefore, clear that the assessee was not under any obligation to inform the ITO that the entries in his books of accounts are false. In the case of CIT vs. Karam Thappa & Bros. (P) Ltd. (sic), the Supreme Court considered the following facts for the purpose of deciding the validity of the notices issued under S. 148 of the Act. For the asst. yr. 1965-66, there were three cash credit entries dt. 22nd Aug., 1964, from Meghraj Durichand, Associated Commercial Asscn. (P) Ltd. and Lakshmi Narayan Antaram, the first two being for a sum of Rs. 30,000 each and the last one for a sum of Rs. 40,000. The aforesaid three amounts mentioned in the notice were found in the assessee's accounts by the ITO who examined the same in course of the assessment proceedings. He called upon the assessee to substantiate the genuineness of the transaction and the assessee had produced material to support the same. The ITO accepted the documents produced and treated all the three transactions to be genuine and on that footing he completed the assessment. Therefore, the primary facts were before the ITO at the time of the regular assessment and he called upon the assessee to explain to his satisfaction that the entries were genuine and on the basis of materials provided by the assessee satisfaction was reached. It was then open to the ITO to make further proof before completing the assessment if he was of the view that the material provided by the assessee was not sufficient for him to be satisfied that the assessee's information was correct. Upon the aforesaid facts, the Supreme Court in the aforesaid decision following the decision of the Supreme Court earlier in the case of Calcutta Discount Company Ltd. vs. ITO (supra) held that S. 147(a) of the Act did not apply to the facts of that case as the alleged escapement of income from assessment had not been resulted from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Accordingly, the said notice under S. 148 of the Act was quashed by the Supreme Court in the aforesaid decision. Following the aforesaid decision of the Supreme Court a Division Bench of the Madhya Pradesh High Court in the case of Dinesh Kr. Gordhanadas vs. CIT (1983) 140 ITR 211 (MP) : TC 51R.842 held that when primary facts were already before the ITO and after some routine enquiry the ITO assessed the income on the basis of such information, it was not open for him to invoke the provisions of S. 147(a) of the IT Act, 1961, and reopen the assessment even though he may have to notice facts mentioned in the return by the other side. In that decision also the Madhya Pradesh High Court held that when the assessee had disclosed all material facts and even if the ITO was of the view that such disclosure was not genuine it was for the ITO to make necessary enquiries and draw proper inference as to whether the transaction of loan on which payment of interest was disclosed by the assessee was a genuine transaction of loan or not. After doing so, it cannot be said that the assessee had not fully and truly disclosed all material facts necessary to assess the arrear, when all the primary facts were disclosed by the assessee to the ITO, and the ITO had failed to hold further enquiry in respect of the disclosures made by the assessee merely because in any subsequent assessment proceeding, the AO discredited the testimony of someone and happened to come to a conclusion that there was in fact no loan advanced by her to the assessee on which interest could have been paid by him, it cannot be held that the ITO acquired jurisdiction to initiate action under cl. (a) of S. 147 of the Act. In the aforesaid situation, the Madhya Pradesh High Court held : "It was a case of change of opinion and accordingly answered the question in favour of the assessee and against the Revenue, Again in the case of Basanta Ram Kedar Nath vs. ITO (1986) 56 CTR (Cal) 344 : (1987) 165 ITR 777 (Cal) : TC 51R.1064 : Division Bench of this Court said : 'Law appears to be settled that in order to attract the case within the ambit of S. 147, it is for the Revenue to establish that the assessee had failed to disclose the material correctly or truly which has resulted in assessment of the income of the assessee. As long as the material facts with contemporaneous record and documents are placed before the ITO at the time of original assessment, the assessee can be said to have done his duty, thereafter it is for the ITO to investigate and then to accept case of the assessee. It is not for the assessee to invite a rejection from the ITO by confessing with his return as filed, is not true or correct or that he has conceded material facts or has made untrue statements.'" [Emphasis, italicised in print, added] ;