The Judgment of the Court was delivered by

Govindan Nair, J.:— The Income-tax Appellate Tribunal, acting under section 66(1) of the Indian Income-tax Act, has drawn up a statement of the case and has referred the following questions to this court:

“1. Whether the provisions of section 34 have been properly invoked?

2. Whether the notice has been served and reassessment made in time?”

2. The Income-tax Officer, Kozhikode, made a best judgment assessment for the year 1948-49 on February 26, 1949, under the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), estimating the taxable income of the assessee as well as his foreign income for the purpose of fixing the rate of tax. The assessee himself had only estimated his foreign income arising from the former Cochin State and mentioned the estimated figure of Rs. 40,000 in his return. The officer did not accept that estimate and said:

“I shall provisionally adopt Rs. 50,000 subject to revision later on production of the Cochin State assessment orders.”

3. During the investigation conducted by the Income-tax Officer, Trichur, in connection with the voluntary disclosure made by the assessee, he came across certain information. This was conveyed by him to the Income-tax Officer, Kozhikode, by a letter dated September 24, 1953, which is annexure “B” to the statement of the case and the former suggested an investigation regarding an entry in the books of account of the assessee in his Kozhikode branch on July 30, 1947, of Rs. 25,000. Actually, this was a credit entry in favour of the assessee's wife. This fact, however, was not evident from the entry because the assessee's wife was described-as “Trichur Nadakavukaran Ouseph Inasu's daughter Kunjanam”. The Income-tax Officer, Kozhikode, issued a notice under section 34 of the Act to the assessee on November 1, 1956. Thereupon, the assessee moved this court by way of a writ application challenging the jurisdiction of the officer to issue a notice under section 34. That officer did not pursue the matter, but requested the Income-tax Officer, Trichur, to take necessary action and the latter officer issued a further notice under section 34 on March 22, 1957, and also sent a letter on the same date to the assessee. These are contained in annexure “L” to the statement of the case. The assessee did not file a return as required by the notice, though several opportunities were given to him. Finally notice under section 22(4) of the Act was issued requiring the assessee to produce the books of account on March 6, 1958. The assessee's advocate wrote to the officer on March 5, 1958, asking for time till the nth or 12th March. This request was refused. Thereafter, the assessment was completed under section 23(4) of the Act by order dated March 20, 1958. The assessee appealed to the Appellate Assistant Commissioner and the appeal being dismissed, appealed again to the Income-tax Appellate Tribunal and on the Tribunal too dismissing the appeal, moved under section 66(1) of the Act and prayed that a statement of the case be drawn up and the nine questions mentioned in that petition be referred to this court. As indicated already, the Tribunal has referred only the above two questions and has stated:

“The assessee has raised several questions in his application. We are unable to refer all of them as they are either questions of fact or covered by the questions referred in paragraph 13.”

4. The questions referred in paragraph 13 are those which we have extracted at the top of this judgment. The assessee had not moved this court under section 66(2) of the Act for a reference of any further questions.

5. Counsel for the assessee raised several contentions before us. It was urged that this was a case where there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year in question and, therefore, section 34(i)(a) of the Act was not attracted and so it was contended that the notice under section 34 issued on March 23, 1957, is out of time. Counsel proceeded further and submitted that it could not be said that the Income-tax Officer had reason to believe that income, profits or gains chargeable to income-tax had escaped assessment and had, therefore, no jurisdiction to take action under section 34. Finally, counsel urged that, in any view of the matter, as far as the estimate of the foreign income of Rs. 1,02,511 was concerned, there was no justification whatever since an estimate of that income had already been made when the original assessment order was passed on February 26, 1949.

6. Before dealing with these arguments, it is necessary to state what was done at the time of the reassessment proceedings. The explanation offered by the assessee that Rs. 25,000 entered in the account books at Kozhikode on July 30, 1947, represented money that really belonged to his wife was not accepted and an addition of that amount was, therefore, made to the total taxable income that had originally been estimated at Rs. 90,169 when the order of assessment dated February 6, 1949, was passed. For the purpose of fixing the rate, the foreign income which had been estimated at Rs. 50,000 by the assessment order dated February 6, 1949, was enhanced to Rs. 1,02,511.

7. The taxing authorities as well as the Income-tax Appellate Tribunal have dealt with the materials available with them and have drawn the inference that the sum of Rs. 25,000 really was the undisclosed income of the assessee. They rejected the explanation offered by the assessee and disbelieved his case that the above sum really belonged to his wife. The Income-tax Appellate Tribunal in its order said:

“The last argument is that the credit is genuine as it is.supported by the affidavit of the lady, a letter from her father since deceased and proceedings before the Commissioner of Income-tax, Cochin. The Commissioner says that the lady must have received some dowry and that he gave Rs. 25,000 worth of jewels. There is no proof all the same that the lady sold the jewels so obtained as her dowry property correlated with the various bank deposits that had been made from time to time; it is by withdrawals of these deposits essentially the credits in 1944 and the impugned credit have been made. We do not believe the assessee's version.”

8. It is not possible to say that the taxing authorities acted arbitrarily or capriciously in rejecting the explanation offered. In any view of the matter, the question whether the department was justified in adding the sum of Rs. 25,000 has not been referred to us and we do not think we should consider that question.

9. Counsel for the assessee elaborated his first point that this is not a case in which section 34(i)(a) is attracted by pointing.out that the account books of the assessee were produced before the officer concerned at the time of the original assessment proceedings and that there was a ledger account described as “Trichur Nadakavukaran Ouseph Inasu's daughter Kunjanam” and to this account was credited a sum of Rs. 25,000 on July 30, 1947, and a further sum of Rs. 1,041-15-2 as interest at the end of the year 1122M.E (the relevant accounting year for the year of assessment 1948-49). The Income-tax Officer disallowed.this latter sum of Rs. 1,041-15-2 treating this as interest paid to a nonresident since no tax was deducted as required by section 18 of the Act. It was urged that the Income-tax Officer had the material facts before him; he knew of the entry of Rs. 25,000; he even adverted to the same and applying his mind disallowed the interest that was charged on that amount as due to Kunjanam, because there was no deduction under section 18 of the Act. According to the counsel, therefore, the primary facts, which alone the assessee was under an obligation to disclose, were placed before the assessing authority and it was not necessary or obligatory on the part of the assessee to point out the inference that could be drawn from those facts and if the Income-tax Officer had not drawn the proper inference, the assessee could not be blamed and it could not be said that he had not disclosed any material facts fully and truly. Reliance was placed on two rulings of the Supreme Court in Calcutta Discount Company Limited v. Income-tax Officer, Companies District I, Calcutta [1961] 41 I.T.R 191 and Commissioner Of Income Tax, Bombay North, Ahmedabad v. Lakhiramdas [1962] 44 I.T.R 726 S.C.. We do not think that the argument is well founded. In the first of the above cases, the assessee had purchased certain shares and had also sold them during the accounting period. Those transactions were reflected in the account books which were made available at the time of the assessment. The officer, in making the assessment, did not treat the profits made from those transactions as income. Proceedings, however, were initiated under section 34 and it was proposed to treat the profits derived by the purchase and sale of shares as if it was income from the business of dealing in shares. It was with reference to these facts that the Supreme Court observed that the duty of the assessee was only to disclose the “primary facts” and that there was no obligation to suggest to the Income-tax Officer the possible inferences that could be drawn from those facts. The later decision of the Supreme Court has not gone any further. The assessee in that case had an account in Bombay with the Exchange Bank of India and Africa. This fact was known to the taxing authorities and was specifically referred to in the report of the Examiner of Accounts. However, the amount in deposit in that bank was not treated as the income of the assessee at the time of the passing of the original order of assessment. Later, when the Income-tax Officer came to know of the fact of the transfer of a sum of Rs. 1,10,000 from the Bombay branch of the bank to the Allahabad branch of the same bank, a notice was issued under section 34 to show cause why that amount should not be considered as the undisclosed income of the assessee. Following the principle enunciated in the earlier decision, the Supreme Court held that there is no justification for invoking the aid of section 34 of the Act. These cases, we do not think, have any application in determining the question that arises in the case before us. There is an obligation on the part of the assessee to disclose his entire income during the relevant accounting period. He is obliged to file a return in which that income should be specified and he has to further declare that the amounts of total income and total world income are truly stated. If the assessee did not disclose his entire income, but only returned a part, we are of the view that there was an omission on his part to disclose fully and truly the material fact of his total income and section 34(1)(a) is attracted. But it is urged by the counsel that the material fact referred to in that section is not the statement regarding his income, but other material circumstances and facts from which the assessing authority can glean or infer the true income. We are asked to hold that even in a case where the return submitted by an assessee omitted to mention his entire income, section 34(1)(a) would not be attracted, since that will not be a case falling under the first part of that sub-clause, because there was no failure to submit a return and, since it will not fall under the second part of the sub-clause, because, according to the counsel for the assessee, the material fact referred to in that part must be a fact other than a statement relating to the income of the assessee. We do not see any reason to limit part two of the sub-clause as contended. If the return submitted by an assessee showed only a part of the income of the assessee for the year in question and it proceeded on the basis that, what was stated was the entire income of the assessee, there was an omission to truly and fully disclose a material fact.

10. We are also unable to accept the contention that there were no grounds to induce a reasonable belief in the Income-tax Officer to entitle him to issue a notice under section 34. Material facts, such as that Kunjanam was the wife of the assessee, that there had been other credit entries in her favour for substantial amounts during other years and that it was doubtful whether the dowry said to have been received by her was sufficient to cover those credit entries, were all mentioned in the letter written by the Trichur Income-tax Officer on September 24, 1953-to the Kozhikode Officer. These were available with the Income-tax Officer, Trichur, when he issued the notice on March 23, 1957. It has been ruled by the Supreme Court in Calcutta Discount Company Limited v. Income-tax Officer, Companies District I, Calcutta:

“That if there were in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts was not open for the court's investigation. In other words, all that was necessary to give this special jurisdiction was that the Income-tax Officer had, when he assumed jurisdiction, some prima facie grounds for thinking that there had been some non-disclosure of material facts. It was the duty of the assessee, who wanted the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure.”

11. We, therefore, negative this contention as well.

12. There is merit in the final contention that was raised on behalf of the assessee. There is nothing to indicate that at the time the assessee filed his return his accounts relating to his Cochin business had been completed and that he knew exactly what his income was from that business. In the return he had only estimated that income to the best of his belief. The fact that when the accounts were finally closed it was seen that the income was actually much more, is not sufficient to hold that the assessee had not truly and fully disclosed his income unless there is material to show that the assessee knew at the time he submitted his return that his income was not that which was estimated by him. There is no such material. The Appellate Assistant Commissioner in paragraph 5 of his order made an attempt to establish that this was a case of deliberate under-statement of the assessee's income from the Cochin business. Even he has not stated that the accounts of the assessee relating to his Cochin business had been closed at the time he submitted his return to the Kozhikode officer. We, therefore, hold that circumstances justifying the application of section 34(i)(a) have not been made out so far as the income relating to the Cochin business is concerned and that section 34(i)(b) cannot apply since the notice dated March 23, 1957, was issued long after the period of four years provided for action being taken under that sub-clause of the section. The enhancement of that income from Rs. 50,000 to Rs. 1,02,511 is, therefore, unwarranted. It was conceded before us and, we think rightly, that the reservation contained in the order of assessment dated February 6, 1949, that the fixation of Rs. 50,000 was provisional and subject to revision later, would not entitle the department to reopen that assessment. There can be no piece-meal assessment.

13. In the light of the above conclusions, we answer the first question in the affirmative and against the assessee so far as the addition of Rs. 25,000 is concerned. But we answer the same question in the negative and in favour of the assessee and hold that the enhancement of the income for the Cochin business from Rs. 50,000 to Rs. 1,02,511 is unwarranted. It is stated before us by the counsel for the assessee and the department that question No. 2 need not be answered. We, therefore, decline to answer question No. 2. There will be no order as to costs.

14. Forward a copy of this judgment under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal.

15. Question answered accordingly.