Prakash Narain, C.J:— The common question of law referred by the Income-tax Appellate Tribunal, Delhi Bench ‘A’, to this court in these two references reads as under:

“Whether, on the facts and in the circumstances of the case, the Income-tax Officer was justified in reopening the assessments in question under the provisions of section 34(1)(a) of the Indian Income-tax Act, 1922?”.

2. The assessment years involved in these two references are 1949-50 and 1950-51, the relevant accounting year of the assessee being the years ending on April 30, 1949, and April 30, 1950. Briefly stated, the facts are these: For the relevant two years the assessee in its returns claimed to have paid to the two companies known as M/s. Gokulnagar Sugar Mills Co. Ltd. and Great Sugar Combine Ltd. selling agency commission with reference to certain territories at the rate of 0-12-0 (75 paise) per cent. on the sales. It is common ground that the assessee is one of the companies belonging to one group of companies carrying on sugar business. Another company in the same group is Nawabganj Sugar Mills Co. Ltd. It seems the ITO took up the assessment of all the companies belonging to this group together. In the course of assessment proceedings of Nawabganj Sugar Mills Co. Ltd. for the assessment year 1948-49, the ITO on May 30, 1950, wrote a letter to the managing agents of that company enquiring as to since when the Gokulnagar Sugar Mills Co. Ltd. has been acting as the selling agent of that company and receiving commission. He called for a copy of the resolution authorising the Gokulnagar Sugar Mills Co. Ltd. to act as selling agent and also enquired as to the work the said selling agent had done. The managing agents of the assessee replied on June 17, 1950, giving the information asked for. They also sent a copy of the resolution passed by the board of directors in that behalf. It was further stated in the letter that the work that Gokulnagar Sugar Mills Co. Ltd. were doing was the same as of the other selling agents. The selling agents were the sole in-charge of sales of sugar of the assessee and appointed sub-agents for executing sales at various places. The sub-agents' commission was paid by the agents from their own pocket. The agents were responsible for conducting the sales honestly and diligently and they were responsible to the assessee if there was any loss in delivery or in case any trader refused to accept delivery. The sugar was despatched by the assessee-company at the selling agents' responsibility. This information, it seems, satisfied the ITO inasmuch as while completing the assessment of Nawabganj Sugar Mills Co. Ltd., he allowed the claim of the assessee also for sole selling agency commission. Similar orders were passed in the case of the other companies in the group whose claims of sole selling agency commission were also accepted. That is how the assessee before us, also had its claim for paying selling agency commission accepted. In the assessment proceedings of Nawabganj Sugar Mills Co. Ltd. for the assessment year 1952-53, the ITO examined the claim for selling agency commission in greater detail. He held on an examination of the material before him that the claim for sole selling agency commission could not be allowed inasmuch as the sole selling agents had rendered no service to the assessee.

3. Consequent on the information that the ITO had gathered in the course of assessment of Nawabganj Sugar Mills Co. Ltd. for the assessment year 1952-53, the ITO reopened the assessments of the assessee before us for the assessment years 1948-49 to 1950-51. He issued notices under s. 34 of the Indian I.T Act, 1922, and after examining the matter disallowed the assessee's claim regarding payments made to the selling agents. The reassessments were based on the discussion contained in the assessment order for the assessment year 1951-52.

4. Dissatisfied with the orders of the ITO, the assessee preferred appeals which were dismissed by the AAC. The assessee then appealed to the Tribunal. In the meanwhile, the Tribunal had disposed of a similar appeal filed by the assessee for the assessment years 1947-48, 1948-49 and 1951-52. Consistently with the orders passed by the Tribunal in the three appeals, the Tribunal in the two appeals filed by the assessee for the assessment years 1949-50 and 1950-51, upheld the action of the ITO under s. 34(1)(a) as well and disallowed the claim made by the assessee for payment of the selling agency commission. On a motion made by the assessee to refer certain questions of law to the High Court, the Tribunal found that only one question need be referred and that is the one that has now been referred and is before us for our consideration.

5. Learned counsel for the assessee has urged that all the facts within the knowledge of the assessee were disclosed at the time of the original assessment. On the basis of the facts disclosed a finding was given by the ITO upholding the claim of the assessee for payment of the selling agency commission. The finding may be corrector incorrect. Merely because the finding did not find favour with the Revenue was no justification for the issuance of a notice under s. 34(1)(a) of the Act of 1922. Such a notice could only be issued if primary facts had not been disclosed. It could not be issued merely because the inference from such facts is not acceptable. It is submitted that it was for the ITO to find out whether services were rendered by the selling agent or not after the primary facts had been disclosed. Reliance in support of the contention was placed on a decision of this court given in a petition under art. 226 of the Constitution, in Dwarka Dass and Brothers v. ITO, [1979] 118 ITR 958 and in Calcutta Credit Corporation Ltd. v. ITO, [1971] 79 ITR 483 (Cal). It has been vehemently argued that even the type of service rendered by the sole selling agent had been disclosed and none of the facts disclosed had been found to be untrue.

6. The relevant portion of s. 34 of the Act of 1922 reads as under:

“34. (1) If—

(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 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, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or …….

he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:

Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1)—

(i) for any year prior to the year ending on the 31st day of March, 1941;

(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941;

(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice:

Provided further that the Income-tax Officer shall not issue a notice under this sub-section for any year, after the expiry of two years from that year, if the person on whom the assessment or reassessment is to be made in pursuance of the notice is a person deemed to be the agent of a non-resident person under section 43 : …”

7. In our opinion, the contentions made on behalf of the assessee cannot be accepted. The assessee is relying on the letter written by the managing agents on June 17, 1950, in reply to the enquiry made by the ITO by his letter of May 30, 1950, in the assessment proceedings of Nawabganj Sugar Mills Co. Ltd, for the assessment year 1948-49. In the assessment proceedings of the assessee before us no such material was placed by the assessee either before the ITO or the AAC or even the Tribunal. In the original assessment the ITO has merely assumed that what was true about one company belonging to the same group was true with regard to the other companies as well. Furthermore, a detailed enquiry was made by the ITO even with regard to the claims of Nawabganj Sugar Mills Co. Ltd. For the assessment year 1952-53, it was found as a fact that the selling agents had rendered no service. The same is the finding in respect of the present assessee for the two years in question. Consequently, it was rightly held that the assessee had failed to truly disclose all the primary facts. A distinction has to be made between the falsity of the material facts disclosed by the assessee and the erroneous inference which an ITO may draw from the material facts which are otherwise full and true. Indeed, this precise question with regard to the same assessee came up for consideration before a Bench of this court in references made for the assessment years 1947-48, 1948-49 and 1951-52. The facts and circumstances of the present references before us and the facts and circumstances of the references, which were considered by the Bench of this court, are identical. Answering those references, a Bench of this court in Nawabganj Sugar Mills Co. Ltd. v. CIT, [1980] 123 ITR 287, held that the action of the ITO was correct in law. Therefore, we must hold, respectfully agreeing with the decision in [1980] 123 ITR 287, that the action of the ITO in the present two matters was also correct and legal and fell within the ambit of exercise of jurisdiction postulated by s. 34(1)(a) of the Act of 1922.

8. The reliance by the assessee on the two decisions above referred to is misplaced. What was held in Dwarka Dass' case, [1979] 118 ITR 958, by one of us (Prakash Narain J., as he then was) was that if the facts disclosed by the assessee are earlier accepted as true at the time of the original assessment but there is a possibility of those facts being disbelieved later on, that will not fall within the ambit of the assessee's default in fully and truly disclosing all material facts as contemplated by s. 147(a) of the I.T Act, 1961. It was not said in that judgment that if in a later assessment the facts stated earlier and believed to be true were actually found to be false, there would be no power to go in for reassessment. Indeed, it was held that the belief of the ITO could not be on the basis of an inference but must be based on primary facts and material facts must be relevant to full and true disclosure. The terms of s. 147(a) of the Act of 1961, postulates that there must be positive ground for belief before issue of notice. The grounds cannot be created during assessment, as was done in that case, where the ITO issued notice under s. 147(a) acting on the basis of the names circulated by the Department of persons in whose names bogus deposits were made by the assessee-companies. Similarly, reliance on the decision in Calcutta Credit Corporation's case, [1971] 79 ITR 483 (Cal) is misplaced. That was a case in which the claim of financial allowance paid by the assessee to a third party was originally allowed by the ITO. Notice was issued under s. 148 of the Act of 1961 to the assessee. The assessee filed return and thereafter demanded from the ITO reasons which had prompted him to issue notice under s. 148 of the Act. The ITO informed the assessee that during the course of assessment proceedings for a subsequent year a coparcener of the party to whom financial allowance was given was examined and according to his statement no business services were rendered by the said third party to the assessee during the relevant accounting years and that in view of the above facts coming to the knowledge of the ITO, he formed an opinion that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. It was urged on behalf of the assessee that the statements of the coparcener, even if assumed to be true, only constituted information within s. 147(b) and, therefore, assessment could only be reopened within four years as provided by s. 149 of the Act of 1961. It was further submitted by the assessee that it had filed its books of account, profit and loss accounts, and its balance-sheet for the relevant accounting years and had disclosed all material facts for assessment. In those circumstances, it was held by the Calcutta High Court that it was impossible to accept the view that the assessee had failed to disclose fully and truly all material facts within the meaning of s. 147(a) of the Act of 1961. The assessee having placed all its documents before the ITO, it was for him to investigate the truth or otherwise of the claim made by the assessee. The impugned notices under s. 147(a) of the Act were held not sanctioned by that provision.

9. In the present case, however, the facts are entirely different which we have already discussed. Accordingly, we answer the reference in the affirmative, in favour of the Revenue. There will be no order as to costs.