Income-tax Reference No. 124 of 1976

Decided on June 15, 1981

The Judgment of the Court was delivered by

Sabyasachi Mukharji, J.:— This reference arises under s. 256(1) of the I.T Act, 1961, for the assessment years 1950-51 and 1951-52, for which the relevant previous years were the calendar years 1949 and 1950, respectively.

2. The firm of M/s. Tarachand Ghansnyamdas which has now been assessed through its partners was dissolved on March 3, 1958. It was originally assessed on Rs. 4,34,024 and Rs. 5,13,457 for the assessment years 1950-51 and 1951-52, respectively. Subsequently, it came to the knowledge of the ITO that the assessee had concealed the particulars of its income at the time of original assessments. He made enquiries into the matter, secured approval of the then Central Board of Revenue (now Central Board of Direct Taxes) under s. 34(1)(a) of the Indian I.T Act, 1922, and issued notices under the above sections for both the above years which were served on March 22, 1962. The assessee in response to the above notice submitted returns showing income of Rs. 4,34,024 for the assessment year 1950-51 and Rs. 2,12,839 for the assessment year 1951-52 being incomes on which it was originally finally assessed. In Part “D” of the return the assessee also showed amounts of Rs. 87,225 and Rs. 81,141 with the following details:

1950-51 1951-52 (i) Credits in Balkishenlal Jankiprasad, Liquidators, Madras a/c 48,979 39,841 (ii) Credits in empty barrels and tins a/c. 39,246 41,300 87,225 81,141

3. In the letters attached to the returns the assessee submitted that the amounts credited in the account of Balkishenlal Jankiprasad, liquidators represented dues from customers in respect of M/s. Tarachand Ghanshyamdas before its reconstitution in 1934. It was submitted before him that all the dues from customers prior to 1934 were not taken in the new ledger, but a list of the same was kept and attempts were made to realise them. Since these debtors' accounts were not entered in the books, it was submitted, realisations from them were not entered in the books but were kept separately. It was also submitted that most of the debtors hailed from Madras side and the accummulated realisations so made were remitted by the Madras office and credited to the account of M/s. Balkishenlal Jankiprasad Madras account. On the basis of the above, it was submitted before the ITO that the amounts in question did not represent any revenue receipts and could not, therefore, be included in the total income. As regards credits in Radhakissen Balkishenlal empty barrels and tins account it was stated before the ITO that the above firm had huge stocks of barrels and tins at its branch in Narayanganj, now in Bangladesh which was controlled by M/s. Radhakissen Balkishenlal that these stocks were accumulated during many years past, that in 1948, it was feared that Pakistan Govt. would put an embargo on the free movement of money and goods to and from India and, therefore, empty barrels were despatched from Narayanganj to Delhi where they were expected to fetch better prices. In all 4,873 barrels and 26,400 tins were despatched to Delhi where they were sold and the sale proceeds thereof were later on remitted to Calcutta from Delhi. It were these amounts which, on receipt of remittances, were credited to the above account. The ITO issued various notices and allowed opportunity to the asses-see to prove its claim that the amounts were not taxable. According to the Tribunal, the assessee failed to produce its books of account on the ground that these had been lost. Realising these difficulties Sri Raghu-nath Prasad Poddar, one of the partners of the assessee-firm in his letter dated June 24, 1967, addressed to the ITO submitted that even if their explanations were not accepted, the ITO could assess Rs. 1,00,617 for the assessment year 1950-51 and Rs. 33,800 for the assessment year 1951-52, on the basis of the financial years. From this submission, the ITO inferred that the assessee had admitted that the above amounts represented its escaped income. The ITO also discussed the facts of the remittances with details and refused to accept the assessee's explanation that the receipts of the amounts either represented the realisations on behalf of the firm dissolved in 1934 or that these represented the sale proceeds of the empty barrels and tins. He observed that, as stated in the assessment years 1952-53 and 1953-54, the prices of kerosene oil and allied products, in which the assessee was dealing, were much higher than those in the open market as these commodities were in short supply and that the businessmen earned very high profits. In the circumstances stated, he held that the credits amounting to Rs. 88,080 and Rs. 89,141 represented the assessee's income from business. These figures were arrived at by him on the basis of the remittances received in calendar years 1949 and 1950, which he adopted as the previous years for the assessment years 1950-51 and 1951-52. He did not agree with the submission of the assessee that the additions, if at all, should be made by taking the financial years as the accounting years.

4. The assessee, thereafter, went up in appeal. The first contention of the assessee before the AAC with which we are really concerned in this reference, was, that the ITO had no jurisdiction to reopen the assessments under s. 34(1)(a) of the Indian I.T Act, 1922.

5. Reliance was placed on the AAC's order relating to the previous year. It would be better, in view of the contentions raised in this case, to refer to the order of the AAC on this aspect. After setting out the contentions, the AAC referred to the fact that the assessments were reopened to include the amounts which we have mentioned hereinbefore, and, thereafter, the contentions advanced on behalf of the parties were adverted to. The AAC, thereafter, went on to observe as follows:

“The appellant-firm had filed its original returns of income on August 25, 1953, for the assessment year 1950-51 and on February 12, 1954, for the year 1951-52. Along with the returns of income, the appellant had filed profit and loss statements, details of expenses, details of receipts, balance-sheets, lists of balances, partners' accounts, etc. A perusal of these statements on record showed that the appellant had also disclosed the two accounts now challenged in the reassessment proceedings, (i) Balkishenlal Jankiprasad, Liquidator, Madras account, and (ii) Radhakishen Balkishenlal, Narayanganj account. According to copies of Nayabahi account, available on miscellaneous record of 1950-51 and 1951-52, the following figures are reflected in those two accounts:

(i) Balkishenlal Jankiprasad, Liquidator, Madras. 31-12-49 Rs. 78,976-15-6 (cr.) 31-12-50 Rs. 1,18,817-10-6 (cr.) (ii) Radhakishen Balkishenlal, Narayanganj. 31-12-49 Rs. 5,73,767-7-11 (cr.) 31-12-50 Rs. 5,77,988-6-8 (cr.)

6. The ITO had called for clarification on many points and, ultimately, the assessments were completed on March 14, 1955 and March 13, 1956, respectively, for 1950-51 and 1951-52. These assessments had become final by the order of the I.T.A.T on December 17, 1957, for the first year and that of the AAC on January 22, 1959, for the second year.

7. It would appear, that the appellant-firm was reconstituted in 1934, when partners representing the interests of M/s. Deopchand Poddar, Guru-pratap Poddar and Anadilal Poddar left the firm and the remaining partners continued the firm thereafter. All the dues from customers prior to 1934 were not taken over in the new ledger of Madras, but a list of them was kept and attempts were made to realise the outstanding. Since these debtors' accounts were not in the post 1934, Madras books, realisations made from them on account of pre-1934 transactions were not entered in these books, but kept separately by the Madras office. Most of those debtors belonged to that area. The accumulated realisations from those debtors were remitted by the Madras office and credited to the account of Balkishenlal Jankiprasad, Liquidator, Madras, in the Calcutta books. This Balkishenlal Jankiprasad, Liquidator, Madras account was admitted and declared even at the original assessment stage and as already mentioned, there was a balance (cr.) of Rs. 78,976-15-6, as on December 31, 1949, in the Calcutta Nayabahi account as per statements filed for 1950-51 assessment and a balance (cr.) of Rs. 1,18, 817-10-6 as on December 31, 1950, in the Calcutta Nayabahi account as per statements filed for 1951-52 assessment. The credits during the previous year ended on December 31, 1949, amounted to Rs. 48,976-15-6 and for the year ended on December 31, 1950, to Rs. 39,840-11-0, and these credits were duly recorded in the Balkishenlal Jankiprasad, Liquidator, Madras account of the Calcutta books at ledger page No. 22.

8. At the material time, the appellant had 18 branches in the then East Pakistan and all the branch activities were controlled by Radhakishen Balkishenlal, Narayanganj. The Pakistan authorities did not allow the books of account maintained at Narayanganj to be taken out of Pakistan to India. This is evident from the observation of the AAC, B-Range, Calcutta, in his order dated September 15, 1935.

“Re: Ground No. 8

It is stated by the appellant's representative that the ITO had estimated the Pakistan income at Rs. 2,32,000 on the ground that no. Pakistan accounts could be produced before him. It is stated that the books of accounts could not be produced before the ITO because of the restriction imposed by the Pakistan authorities for bringing books from Pakistan.”

9. However, in 1952, the Pakistan business was completely closed and all the books and assets were locked up there permanently and subsequently lost. The appellant's only link with the Pakistan branches was through a current account styled “Radhakishen Balkishenlal, Narayanganj”. This account showed a balance (cr.) of Rs. 5,73,767-7-11 as on December 31, 1949 and Rs. 5,77,988-6-8 as on December 31, 1950, as per Calcutta Nayabahi account. The value of barrels and tins sent from Narayanganj to Delhi amounting to Rs. 75,130 was debited on December 31, 1948, to Balkishenlal empty barrels tins account (L.F 202 of the 1948 Calcutta books) and credited to Radhakishen Balkishenlal, Narayanganj account. In the year 1949, the balance of Rs, 75,130 was brought forward and the sale proceeds of barrels and tins amounting to Rs. 38,245-15-9 between August 9, 1949, and December 26, 1949 were credited in Radhakishen Balkishenlal empty barrels tins accounts (LF 188). The balance of Rs. 36,844-1-3 had been carried forward in the 1950 books. In the year 1950, sale proceeds of barrels and tins amounting to Rs. 41,300 were credited in the said Radhakishen Balkishenlal empty barrels tins account and the excess amount of Rs. 4,415-14-9 had been transferred to the current account of Radhakishen Balkishenlal, Narayanganj account. That was the reason the current account as per Calcutta books, had increased from Rs. 5,73,767-7-11 as on December 31, 1949 to Rs. 5,77,988 as on December 31, 1950.

10. In the background of the above facts, the AAC examined the facts and different principles laid down in several authorities which he has noted in his decision. He held as have been noted that the returns of income submitted by the assessee were accompanied by balance-sheet, lists of balances, statements of account, etc., supported by its books of account. The balances in the two accounts. Balkishenlal Jankiprasad Liquidator. Madras account and Radhakishan Balkishenlal, Narayanganj account were also disclosed in the statements furnished and there should be no dispute about this. The assessee, according to the AAC, had discharged its duty by revealing all major facts, which had any bearing on the assessments to be made. He had made a clean breast of all the sources of its income; he did not hide any books of account or documents which would help the computation of the total income. The assessee was not expected to do more than this. If the ITO had asked for more details perhaps the appellant would have readily complied with it, according to the AAC. However, the AAC reviewed that the assessee was not expected to delve into the mind of the ITO and to predicate what were the material facts in the view of the officer. According to the AAC, the rule of full and true disclosure of material and necessary facts should bear a nexus on the assessment and should hot have only a remote bearing thereon. Relying on these principles, the AAC was of the view that in this case the assessee could not be said to be guilty of non-disclosure of material facts. The matter was taken up in appeal before the Appellate Tribunal. The Appellate Tribunal noted the different contentions and the authorities and set out the facts as we have noted. The Tribunal held that there was an approval of the CBR which was duly given and reasons were duly recorded. Then the Appellate Tribunal discussed the authorities and the facts as emerged from the narration of the facts as we have indicated. Here, in the instant case, according to the Appellate Tribunal, there was no such notice in the balance-sheet to disclose the nature of the source of the balances standing against the disputed accounts. There was also no discussion with the ITO in the course of the original proceedings in which he might have considered the nature of the accounts. The Tribunal was of the view that the findings of the AAC could not be supported on this ground and there was a failure to disclose fully and truly all material and relevant facts necessary for the assessment and as such the income of the assessee had escaped assessment. On this, the assessee made an application for a reference and it was submitted that the following two questions should be referred:

“(i) Whether, the Income-tax Appellate Tribunal was right in holding that the Income-tax Officer had recorded his reasons for initiating reassessment proceedings and the Central Board of Revenue was duly satisfied on such reasons recorded that it was a fit case for the issue of the notice under section 34(1)(a) as required by proviso (iii) to section 34(1)?

(ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding the action of the Income-tax Officer under section 34(1)(a) as valid?”

11. The Tribunal, however, reframed the questions and referred one question, which, according to it, was a comprehensive question, to us which is as follows:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding the action of the Income-tax Officer under section 34(1)(a) of the Indian Income-tax Act, 1922, as valid?”

12. Therefore, we are concerned whether the reopening was valid on the ground that there had been a full and true disclosure of all material and relevant facts, and the principles upon which this question should be adjudicated are well settled. It is obligatory on the part of the assessee to disclose fully and truly all material an 1 relevant facts. It is also well settled that production of accounts does not necessarily exonerate an assessee from disclosing fully and truly all material and relevant facts. On behalf of the assessee, it was contended that in this case the balance-sheets were produced and to whom the credits belonged were also disclosed. It was also made quite-clear, as would be apparent from the discussion in the order of the AAC, which we have set out hereinbefore, that it was made clear that an inspection of the books of account were not made and, therefore, if on this ground the ITO had not doubted any of the items then the assessee could not be made liable. Learned advocate for the assessee sought to urge that if an amount standing to the credit of an assessee in the bank was fully disclosed, it was not obligatory on the part of the assessee, he argued, to fulfil the obligation of a real, full and true disclosure, that the assessee should explain each item which the credit and the debit balance in that particular account represented. On behalf of the Revenue, howeve, it was urged that the question whether in a particular case there had been a full and true disclosure of all primary land material facts is essentially a question of fact and if on such matter the Tribunal had arrived at the decision then unless that fact is challenged on the ground that such a finding was perverse in law or not based on evidence, the assessee was precluded now to contend that in the original assessment there was full and true disclosure of all material facts.

13. In this connection, reliance was placed on the observations of the Supreme Court in the case of Commissioner Of Income Tax, Bombay North, Ahmedabad v. Lakhiramdas, [1962] 44 ITR 726, where the Supreme Court held that the question to be decided was as stated by the Tribunal and the High Court whether by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts, income had escaped assessment, and that on the facts and circumstances the finding of the Tribunal that there was no such omission or failure was a finding of fact, and the application for reference was rightly rejected as no question of law arose. This principle was reiterated by a Division Bench judgment of this court in the case of Haripada Samanta Pramatha Nath Samanta v. CIT, [1981] 128 ITR 592. On behalf of the assessee, however, it was contended that such a proposition would be applicable where an assessee was disputing any item which the ITO was saying that it had not been disclosed, but the assessee was contending that it had been disclosed. According to the assessment, that was not the situation here. According to the assessee, there is in the instant case no dispute as to whether there was any dispute as to the facts. What was disclosed originally had been noted. It is also not an issue that there was any falsity in the disclosure made. The only question, according to the assessee. relevant in this case was whether the disclosure made was a full disclosure in terms of the requirements of the section. In such a case, the finding of the Tribunal was a finding of law and the question as framed was wide enough to cover the contention now sought to be raised by the assessee in this reference.

14. We are, however, unable to accept this contention. It is true that in the instant case, there was no dispute as to the falsity or otherwise of the facts. But, whether the particular facts disclosed amounted to a full disclosure, in a particular situation, of all the relevant and material facts necessary to be disclosed is also a question of fact. It may be that in an appropriate case, the finding of the Tribunal would not be binding on the court, but such a situation would arise where such a finding is challenged either as perverse in law, based on no evidence or a decision which no reasonable mart could arrive at. The question as framed in the instant case is not in that fashion. If that is the position, then, in our opinion, there being no question challenging the finding of fact either as perverse in law or the finding is not possible by a reasonable man, it was not possible for the assessee to contend that the Tribunal's finding on this basis was not correct. On the merit also, in order to be a true disclosure we agree with the learned advocate for the assessee that the production of books of account might, in some cases though not necessarily as a matter of law, exonerate the assessee of the obligation as to a full disclosure. It appears to us that the obligation is to make a full disclosure of all relevant and material facts. What would be a full disclosure of all the relevant and material facts would naturally depend upon the facts and circumstances of each case. Now it is true, in cases where a bank account is disclosed it is not obligatory for the assessee to disclose all the items in the credit and debit sides of the bank account to show how the balance is struck. But in an appropriate case, the significance of a particular account may be of such a nature that it may have a bearing on the assessment that disclosure of that fact particularly would be obligatory and non-disclosure would be failure to disclosure fully and truly all material facts. In this connection, it may not be inappropriate to refer to the observations of the Supreme Court in the case of Kantamani Venkata Narayana and Sons v. First Addl. ITO, [1967] 63 ITR 638, where at p. 644, the Supreme Court observed as follows:

“It is the duty of the assessee to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment.”

15. If it is a duty of the assessee to bring to the notice of the ITO particular items in the books of account or portions of the documents which are relevant, then it may reasonably be held that even if the balance account is produced or the balance is drawn attention to, that would not be a sufficient disclosure of all the relevant facts. In the instant case, having regard to the nature of the facts as noted above, it cannot be said that the Tribunal had arrived at a decision that there had not been a full disclosure of all the relevant and material facts perversely or without evidence. If that is the position, then, in our opinion, the Tribunal was right in its conclusion. In this connection reference may also be made to the observations of the Delhi High Court in the case of Nawabganj Sugar Mills Co. Ltd. v. CIT, [1980] 123 ITR 287 and the observations of the Supreme Court in the case of CIT v. T.S PL.P Chidambaram Chettiar, [1971] 80 ITR 467. But as we have said before whether in a particular case, the facts to which the attention of the ITO was not drawn may be of such significant nature that not doing so would amount to a failure to disclose fully the relevant and material facts, would depend upon the facts and circumstances of each case. In the facts and circumstances of the case, the Tribunal has come to that conclusion and we would not differ from the conclusion arrived at by the Tribunal in the instant case.

16. In the premises, the question is answered in the affirmative and in favour of the Revenue. In the facts and circumstances of the case, the parties will pay and bear their own costs.

Sudhindra Mohan Guha, J.:— I agree.