1. In compliance with an order of this court under Section 66(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as to as "the Act"), the Income-tax Appellate Tribunal, Delhi Bench "A", has submitted this statement of the case and has referred the following two questions for our opinion :
"1. Whether, on the facts and circumstances of the case, the income of Rs. 70,000 can be said to have escaped assessment because of the failure or omission on the part of the assessee so as to attract the provisions of Section 34(1)(a) of the Act ?
2. If the answer to the above question be in the negative, whether the Tribunal was right in affirming the assessment for the year 1943-44 made by the Income-tax Officer on February 22, 1952 ?"
2. The assessee is a Hindu undivided family consisting of Sahu jagdish Prasad and his sons. The family carried on a business in respect of which it adopted Dashra year as the accounting year. In the books relating to the previous year relevant to the assessment year 1944-45, the Income-tax Officer noticed two cash credits of Rs. 20,000 and Rs. 50,000 entered on October 28, 1942, and November 16, 1942, respectively. The assessee was asked to explain the source and nature of these credits. Sahu Jagdish Prasad, karta of the assessee family, appeared before the Income-tax Officer on February 22, 1947, and made a statement that the cash deposits had come out of the family's secret reserve fund. This explanation was not accepted and the Income-tax Officer treated the two cash credits as the assessee's income from undisclosed sources and brought them to tax in the assessment year 1944-45. The assessee's appeal to the Appellate Assistant Commissioner of Income-tax failed. On a second appeal the Income-tax Appellate Tribunal held that as the assessee did not maintain accounts in respect of any source other than the business carried on by it, the previous year in respect of the income from undisclosed source could only be the financial year in which they were credited as provided under Section 2(11) of the Act The cash credits were entered in the financial year 1942-43 and, as such, they could be assessed in the assessment year 1943-44 only. On this ground the Income-tax Appellate Tribunal by its order dated May 28, 1951, deleted the two cash credits from the assessment for the year 1944-45. Thereupon, the Income-tax Officer reopened the assessment for the year 1943-44 by issuing a notice under Section 34 of the Act on 18th September, 1951. In response to the said notice the assessee filed a return on November 8, 1951, and did not include in the total income shown in the return the two cash credits. When called upon to explain the source and nature of the cash credits, the assessee reiterated the explanation which it had given earlier during the course of proceedings for the year 1944-45. The explanation was not accepted and the two amounts were assessed in the year 1943-44, representing the assessee's income from undisclosed source. The assessee's appeal to the Appellate Assistant Commissioner of Income-tax failed. It then went in second appeal before the Income-tax Appellate Tribunal. Two legal contentions were raised before the Tribunal: (1) that section 34(1)(a) was not applicable to the facts of the case and, as such, the assessment was barred by time; and (2) that the assessment having been made on the Hindu undivided family after its dissolution was bad in law. The Tribunal rejected both the contentions. Hence, this reference.
3. The first question relates to the applicability of section 34(1)(a) of the Act, while the second question is based upon the alternative contention that after the dissolution of the family, no assessment could be made against it. It is conceded by the learned counsel for the parties, however, that if the first question is answered in favour of the assessee the second question need not be answered.
4. Taking up the question No. 1, it is not disputed that if Clause (a) of Sub-section (1) of Section 34 is not applicable, then the impugned assessment will be out of time. section 34(1)(a) reads :
"34. (1) If.-
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year ...... he may in cases falling under Clause (a) ...... serve on the assessee...... a notice ...... "
5. Thus, there are two require incuts of section 34(1)(a):
(i) that the income should escape assessment; and
(ii) that the escapement should be duo to the failure of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment.
6. Now, in the instant case, there is no dispute that the two amounts of cash credits had escaped assessment in the year 1943-44. The real question is as to whether the escapement was due to the omission or failure on the part of the assessee to disclose all material facts.
7. The contention of the assessee is that the Income-tax Officer had come into possession of all material facts relating to two cash credits on February 22, 1947, when Sahu Jagdish Prasad had made a statement before him. At that time the assessment for the year 1943-44 was pending and the Income-tax Officer could have included the two amounts in that assessment. He did not do so under the erroneous belief that the two cash credits were assessable in the year 1944-45. Thus, the escapement took place not because of any default on the part of the assessee but because of the error committed by the Income-tax Officer and to such a case the provisions of Section 34(1)(a) would not apply.
8. It appears that the first assessment for the year 1943-44 was made on March 3, 1945. Thereafter, the assessment was reopened under Section 34 of the Act in order to include therein the assessee's income from its share in a firm at Ujhani. This assessment was completed on February 1, 1948. Thus, the assessment for the year 1943-44 was pending on February 22, 1947, when Sahu Jagdish Prasad made the statement.
date, after considering the explanation of Sahu Jagdish Prasad he had become aware of the true nature and source of the deposits, namely, that they were the assessee's income from undisclosed source. At that time the assessment proceedings for the year 1943-44 were pending and if the Income-tax Officer had been aware of the correct legal position, there would have been no difficulty in including them in the assessment for the year 1943-44. But, as it is, the Income-tax Officer made a mistake and the mistake was pointed out by the Income-tax Appellate Tribunal when it deleted the amounts from the assessment for the year 1944-45. The order of the Income-tax Appellate Tribunal was thus the immediate cause for the proceedings under Section 34.
10. It is true that the assessee did not disclose to the Income-tax Officer that the two cash credits represented income from undisclosed source but that is not material. In spite of the efforts of the assessee to conceal the true nature and source of the cash credits, the Income-tax Officer had become aware of the true facts on February 22, 1947. Once the primary facts were before him it was for him to draw a proper inference both of facts and law and to apply appropriate legal provisions, as has been pointed out by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, [1961] 41 ITR 191 (SC):
"Once all the primary facts were before the assessing authority, it was for him to decide what inferences of facts could reasonably be drawn and what legal inferences had ultimately to be drawn. It was not for anybody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law should be drawn."
11. Mr. Deokinandau, the learned counsel for the Commissioner of Income-tax, does not dispute that the cash credits had come to the notice of the Income-tax Officer before the assessment for the year 1943-44 was completed, but what he contends is that there is nothing to show that on February 22, 1947, the Income-tax Officer found the explanation of Sahu Jagdish Prasad to be incorrect. He argues that it may be the explanation was considered good until October 30, 1948, when he passed the assessment order for the year 1944-45. Now, such was not the case of the department before the Income-tax Appellate Tribunal. It was not contended before the Tribunal, where the question arose for the first time, that the Income-tax Officer felt any doubt about the explanation of Sahu Jagdish Prasad when he recorded the same. Onus under Section 34 is upon the department. It has to establish that some income had escaped assessment due to the failure or omission on the part of the assessee either to file a return or to disclose truly and fully all material facts. It was for the Income-tax Officer to show that although he ultimately disbelieved the statement of Sahu Jagdish Prasad made on February 22, 1947, yet when the statement was recorded he had not finally made up his mind. There is nothing on record to show that the Income-tax Officer conducted any further enquiry in this regard. This contention of the learned counsel, therefore, cannot be accepted.
12. It was next contended that in order to discharge the duty cast by section 34(1)(a) of the Act, the assessee should have included the two cash credits in its return fur the year 1943-44. Anything short of that could not absolve the assessee of its obligation. We are unable to accept this contention. As has been held by the Supreme Court in the case of Calcutta Discount Co. Ltd., the disclosure by an assessee need not necessarily be in the return but it ran be by other means. In the instant case, the Income-tax Officer had already become aware of the two cash credits as also of their true nature and source. When a particular fact is in the knowledge of the Income-tax Officer, it is not necessary for an assessee to inform the. Income-tax Officer about it. It also made no difference that the Income-tax Officer became aware of the true facts while dealing with another assessment year so long as the proceedings for the appropriate assessment year were pending before him. On the farts and in the circumstances of the case it has to be held that the Income-tax Officer became aware of all material facts on Februay 22, 1947, long before the assessment for the year 1943-44 came to be finalised. As such, escapement cannot be attributed to any default on the part of the assessee. The view that we are taking finds support from a large number of authorities. See Ram Charan Lal Ram Narain v. Income-tax Officer, [1966] 59 ITR 282 (All), Govind Ram v. Income-tax Officer, [1966] 61 ITR 120 (All), Dwijendra Chandra Chowdhury v. Commissioner of Income-tax, [1966] 61 ITR 97 (All), Eastern Coat Co. Ltd. v. Income-tax Officer, [1970] 73 ITR 700 (Cal), R.M. Subramania Iyer v. Income-tax Officer, [1968] 68 ITR 863 (Ker), Rai Singh Deb Singh Bist v. Union of India, [1970] 77 ITR 802 (Delhi) and Indra Co. Ltd. v. Income-tax Officer, [1971] 80 ITR 559 (Cal).
13. Mr. Deokinandan has relied upon the case of Commissioner of Income-tax v. Chidambaram Chettiar, [1971] 80 ITR 467 (SC). That case is clearly distinguishable. In that case, the Income-tax Officer was not in possession of full information with regard to the nature of Rs. 1,50,000, but had only a vague information from another Income-tax Officer in support of which there was no material. In the circumstances, the Supreme Court held that the Income-tax Officer could not be said to be in possession of the true and material facts. Such is not the case here.
14. In Ice and General Mills v. Income-tax Officer, [1972] 83 ITR 34 (All), the Income-tax Officer did not come in possession of any information during the course of original assessment proceedings. As such, this case is of no help. The same is the position with regard to the decision of the Punjab High Court in the case of S.D. Sachdeva v. Commissioner of Income-tax, [1972] 86 ITR 447 (Punj). If proper information is not disclosed to the Income-tax Officer during the course of the proceedings for the relevant assessment year nor does he acquire such information from other sources, then section 34(1)(a) is clearly applicable. There is no difficulty in such a case. In the instant case, the Income-tax Officer had acquired the information when the proceedings for the relevant assessment year were still pending. That makes the whole difference.
15. For the reasons stated above, we answer the question No. 1 in the negative, in favour of the assesses and against the department.
16. In view of our answer to question No. 1, question No. 2 need not be answered.
17. The assessee is entitled to its costs, which we assess at Rs. 200.