AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(1) of the IT Act, 1961, for the asst. yr. 1965-66 the following questions of law have been referred to this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reopening of assessment under S. 147(a) of the IT Act, 1961, was justified ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that conditions precedent to initiate proceedings under S. 147(a) of the IT Act, 1961, was satisfied ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the query made by the ITO by his letter dt. 7th Oct., 1967 to M/s Hewitt-Robins Inc. regarding the nature of the advance before the original assessment was general in nature ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was a nexus between the materials available before the ITO and the formation of belief that income escaped assessment during the previous year for the asst. yr. 1965-66 ?"
(2.) SHORTLY stated the facts leading to this reference are as under : The ITO in his fresh assessment order noted that the original assessment was made on 19th June, 1968 on a total income of Rs. 1,26,028 which was reduced in appeal to Rs. 1,23,990. He also noted that the assessee had income from contract business, a major portion of which was derived from sub-contract under M/s Hewitt Robins Inc. an American concern entrusted with the work of installation of iron ore, handling plant of Paradeep Port during the financial year 1964-65. The assessee disclosed Rs. 8,70,837 as total receipt from the said American concern. The ITO pointed out that the assessee received also another sum of Rs. 3,50,000 which was not shown in the receipt. He pointed out that in the balance sheet as on 31st March, 1965, the assessee, however, has shown the liability of Rs. 5 lakhs which was made up of Rs. 3,50,000 as mentioned above and another sum of Rs. 1,50,000 received on 7th Dec., 1963 which was shown earlier as advance and stood as such in the balance sheet for the year under consideration. The ITO noted that later on an enquiry was made in early 1973 and it was learnt from the auditors of the said American concern that although Rs. 1,50,000 was paid during the asst. yr. 1963-64, the payment was really in the nature of advance and that the subsequent payment of Rs. 3,50,000 was not at all in the nature of an advance but on account of payment of net bills. The ITO reproduced such details in the assessment order. But the Assessing Officer pointed out that the net amount was paid to the assessee by cheque on 20th April, 1964 by the American concern, being at Rs. 3,50,000. He was of the view that the assessee's due for the year were squared up during the year for which Rs. 5 lakhs should have been accounted for as income for the year under consideration. He was, therefore, of the view that there was a total escapement of income of Rs. 5 lakhs due to the non-disclosure of the assessee of all the material facts at the time of the original assessment. He initiated proceedings under S. 147 (a) of the Act. The assessee complied with the notice issued under S. 148 and filed the return under protest. The assessee submitted written submissions before the ITO stressing the point that the abvoe sum was really in the nature of advance. But the ITO did not agree with the submissions made before him as the "advance account" did not reflect the correct position as the real character of both the receipts of Rs. 3,50,000 and Rs. 1,50,000 was clear from the letter of the auditors of the American company received at the time of making enquiry on the point. He, therefore, proceeded and completed the reassessment proceedings after taking into account the provisions of S. 144B. In the reassessment order, the originally assessed income of Rs. 1,23,990 was considered and Rs. 5 lakhs were added on the basis of the discussion made above. The assessee took up the matter before the CIT(A) raising various points including the reopening of the assessment under S. 147(a). The CIT(A) considered the different contentions made before him and the facts available. He, inter alia, observed that the ITO on his own account was not aware of the correct facts that the net receipts of Rs. 3,50,000 which was not due to his oversight, but on account of omission or failure of the assessee to disclose the primary and basic facts fully and correctly. He found that the materials which were available subsequently have a direct nexus or live-link with the formation of the ITO's belief that the income had escaped assessment as contemplated under S. 147(a). The CIT(A) sustained the order of reassessment. The assessee took up the matter before the Tribunal and reiterated the same points made out before the authorities below. It was contended before the Tribunal that all the basic and primary facts were before the ITO who made the original assessment and who asked for assessee to produce complete books of accounts, etc., under ss. 142(1) and 143(2) and that the assessee clarified other points during the hearing. According to the assessee, the information obtained by the ITO subsequently in 1973 was a secondary one and could not be relied upon by the ITO who made these assessment without stating the correct facts. On a consideration of the facts and circumstances of the case the Tribunal held that the assessee on the facts of the case failed to disclose the primary facts fully and truly at the time of the original assessment and as such the reopening of the assessment under S. 147(a) was justified. At the hearing before us, Mr. D. Dhar, learned counsel for the assessee, has contended that the materials on the basis whereof the ITO came to the conclusion that there was omission to disclose the material facts necessary for the assessment for the said assessment year were before him when the original assessment was completed and accordingly the ITO cannot have a fresh look at it on the same set of materials and reopen the assessment. In other words, the conditions precedent for reopening the assessment have not been satisfied in this case. He has drawn our attention to the decision of this Court in the case of CIT vs. Kallu Babu Lalchand reported in (1969) 73 ITR 138 (Cal) where this Court held that where all the primary facts relating to a particular income were known to the ITO or were in his possession either by disclosure by the assessee or by his own discovery there cannot be any omission or failure on the part of the assessee to disclose in terms of S. 34(1)(a) of the Indian IT Act, 1922.
(3.) HE has also relied on a decision of the Supreme Court in Gemini Leather Stores vs. ITO reported in 1975 CTR (SC) 127 : (1975) 100 ITR 1 (SC) where the Supreme Court held that where in a proceeding for the original assessment the assessee did not disclose certain transactions evidenced by certain drafts but the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant, subsequently, the ITO cannot invoke S. 147(a) of the IT Act, 1961, with a view to assess the aforesaid amount as the income of the assessee from undisclosed sources.;