S.K Jha, J.:— This reference by the Income-tax Appellate Tribunal, Patna Bench, under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), has been made at the instance of the assessee in a reassessment proceeding under section 147(a) of the Act. The following question of law has been referred by the Tribunal for our opinion:

“Whether, on the facts and in the circumstances of the case, the reassessment under section 147(a) is proper and valid.”

2. The facts relevant for the disposal of this case are these. For the assessment year 1959-60 corresponding to the previous year ending on the 21st of October, 1958, the assessee, a Hindu undivided family was assessed originally on a total income of Rs. 3,187, as against the income of Rs. 821, shown by the assessee. It was subsequently found that the assessee had constructed a house during the year in question at Samastipur which, on the report of the income-tax inspector, was estimated to be valued at Rs. 30,000. Accordingly, a proceeding under section 147(a) was started and in response to notice under section 148 the assessee filed the return along with a letter explaining that the main portion of the construction was completed in the year 1958 and subsequent years and the total cost of construction had already been shown in the assessee's books of account which had been produced before the Income-tax Officer at the time of the original assessment at Rs. 7,041. The Income-tax Officer, however, held that the construction of the house was completed during the year 1958-59 and he also estimated the cost of construction at Rs. 30,000 on the basis of the report of the income-tax inspector. After deducting Rs. 7,041 as cost of construction already shown in the assessee's books of account, the Income-tax Officer made an addition of Rs. 22,959 as unexplained investment within the meaning of section 69 of the Act and thus completed the reassessment under sections 143(3) and 147(a). The assessee having preferred an appeal before the Appellate Assistant Commissioner challenged the legality of the reassesment under section 147(a), but this objection did not find favour with him. The Appellate Assistant Commissioner, however, allowed a deduction for the expenditure incurred by the assessee as per its books of account during the three subsequent years to the tune of about Rs. 4,000. Accordingly, he reduced the addition and sustained the same at Rs. 18,959. On a further appeal before the Tribunal the assessee objected to the jurisdiction of the Income-tax Officer in issuing a notice under section 147(a). It was contended on behalf of the assessee before the Tribunal that there was no omission or failure on its part to disclose truly and fully all material facts. It had shown the makan-khata in the balance-sheet which stood at Rs. 7,041 which was borne out by the assessee's books of account. The Tribunal, however, rejected this contention and held that it did not file the full details of the expenses over the house in question which was either constructed or partly constructed and that, therefore, in the circumstances, there was omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the completion of the assessment for the relevant year. The assessee's appeal was accordingly dismissed by the Tribunal.

3. Although the dates of the original assessment order and the notice under section 148 of the Act do not appear from the statement of the case, it was stated at the Bar that the date of the original assessment was the 20th of July, 1959, while that of issuance of notice under section 148 was the 2nd of November, 1966. Evidently, therefore, any proceeding under the provisions of section 147(b) was time-barred. That seems to be the reason why proceedings under section 147(a) were resorted to. From the facts stated above and those which admit of no controversy, the salient features of the case are: (1) at the time of the original assessment the assessee had produced books of account and balance-sheet showing the total expenditure at Rs. 7,041 during the year in question over construction of the house; (2) this figure was accepted by the Income-tax Officer at the time of the original assessment; (3) subsequently the income-tax inspector inspected the house and estimated the cost of construction at about Rs. 30,000 and submitted a report to that effect. Nothing was found in the assessee's books of account showing that the cost of construction was made obscure or misleading or confusing in any of the entries therein or that the figure of Rs. 7,041 was not borne out by the entire books of account; and (4) thereupon the Income-tax Officer initiated a a proceeding under section 147(a) and made the addition as stated earlier on the basis of such estimate.

4. It is well-settled that to confer jurisdiction under section 147(a) to issue notice in respect of the assessments beyond a period of four years but within a period of eight years from the end of the relevant year two pre-requisite conditions have to be satisfied. Firstly, the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under-assessed and secondly, that he must have also reason to believe that such under-assessment had occurred by reason of either an omission or failure on the part of an assessee to make a return of his income or an omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. In the instant case, while it is not disputed that the Income-tax Officer may have reason to believe that income, profits or gains had been underassessed, it was contended by learned counsel for the assessee that there could be no reason to believe that such under-assessment had occurred either by reason of the omission or failure on the part of the assessee to make a return of its income or to disclose fully and truly all material facts necessary for its assessment for the year in question. Indeed, it is not the department's case either that an under-assessment had occurred by reason of the assessee's omission or failure to make a return of its income. The question then remains as to whether the Income-tax Officer's reason to believe that an under-assessment had resulted on account of any omission or failure on the part of the assessee to disclose fully and truly all material facts. If there had been a full and truthful disclosure of all primary facts by the assessee, then if certain inferences of facts and ultimately of law could be made therefrom by the Income-tax Officer, the non-drawing of such inferences could not in any way make the assessee liable. This view finds support from numerous decisions of the Supreme Court including those in the cases of Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 SC. and Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† [1971] 79 ITR 609 SC. It seems the Tribunal in the instant case has erred in relying upon a quotation from the judgment of Hidayatullah J. (as he then was), in the case of Calcutta Discount Co. Ltd. Firstly, the quotation is not a correct reproduction of its original contents and, secondly, the view expressed therein to the effect that the mere production of evidence before the Income-tax Officer is not enough and there may be an omission or failure to make a full and true disclosure “if some material for the assessment lies embedded in that evidence which the assessee can uncover but does not” runs counter to the majority view in that case. Because, while relying upon this principle, Hidayatullah J. (as he then was) held that the evidence which is produced by the assessee disclosing only primary facts and not disclosing certain other facts to interpret the evidence may also amount to an omission or failure to make a full and true disclosure, the majority decision proceeded upon a contrary principle. The disclosure of such material primary facts includes within its sweep the furnishing of such particulars which, under the law, the assessee is under an obligation to furnish. If, on the contrary, the law does not impose any obligation upon the taxpayer to disclose any fact, then the non-disclosure of such a fact will not amount to a nondisclosure of any primary fact. Reference in this connection may be made to the decision of the Supreme Court in the case of Muthiah Chettiar v. Commissioner of Income-tax [1969] 74 ITR 183 SC.. This principle has been reiterated by the Supreme Court in the case of Commissioner of Income-tax v. Gillanders Arbuthnot & Co., where Hegde J. observed as follows:

“So far as the primary facts are concerned, it is the assessee's duty to disclose all of them—including particular entries in the account books, particular portions of documents and documents and other evidence which could have been discovered by the assessing authority from the documents and other evidence disclosed. The duty, however, does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the assessing authority, it is for him to decide what inferences of facts could be reasonably drawn and what legal inferences have ultimately to be drawn. It was not for anybody else—far less the assesses —to tell the assessing authority what inferences whether of facts or of law should be drawn.”

5. But what facts are necessary and material, in other words, what are the primary facts for assessment is bound to differ from case to case. In the instant case, therefore, it will have to be seen as to whether there has been a non-disclosure of any primary fact by the assessee or an omission or failure to disclose any such material particular which the assessee was obliged in law to furnish before the Income-tax Officer.

6. Learned counsel for the assessee submitted that it is not a case where the assessee has not shown in his account books the investment on the construction of the house completely nor was there anything in the books of account to which the attention of the Income-tax Officer could have been drawn but was not drawn by the assessee. Nor was there any legal obligation on the assessee to furnish in the return any investment made over the construction of the house. The Income-tax Officer's reason to believe that there had been an under-assessment cannot be said to be on account of any omission or failure on the part of the assessee to disclose any primary fact, but merely as a Tesult of the subsequent information given to him by the income-tax inspector on the basis of estimate of the cost of construction made by him. At best, therefore, it could be a case of the Income-tax Officer's reason to believe that income chargeable to tax had escaped assessment in consequence of the information in his possession and not by reason or any omission or failure on the part of the assessee. It could, therefore, at the most attract the provisions of section 147(b) of the Act and not section 147(a). Reliance in this connection was placed on the decision of the Supreme Court in Muthiah Chettiar's case and a decision of the Assam High Court in the case of Bajranglal Beria v. Income-tax Officer.

7. Learned standing counsel for the department placed great reliance on the provisions of section 69B of the Act for the purpose of showing that there was a legal obligation on the assessee to disclose the true and full details of all investments over the house in question and its failure to discharge that obligation amounted in law to a failure or omission to disclose fully and truly all the material facts. I think there is no substance in the submission of the learned standing counsel for the revenue for the reasons which I shall presently give. In the case of Muthiah Chettiar the Supreme Court was seized with the point of applicability of section 34(1)(a) of the Income-tax Act, 1922 (hereinafter referred to as “the 1922 Act”) to the case of non-disclosure by the assessee in his return of the income received by his wife or minor child admitted to the benefits of partnership in a firm of which he was a partner. In that connection reliance was sought to be placed by the revenue on the provisions of section 16(3) of the 1922 Act under the provisions of which in computing the total income of an assessee the income of a wife or minor child could be included. While repelling this contention Shah J. (as he then was) held as follows:

“Section 16(3) imposes an obligation upon the Income-tax Officer to compute the total income of any individual for the purpose of assessment by including the items of income set out in clauses (a)(i) to (iv) and (b), but thereby no obligation is imposed upon the taxpayer to disclose the income liable to be included in his assessment under section 16(3). For failing or omitting to disclose that income proceedings for reassessment cannot, therefore, be commenced under section 34(1)(a).”

8. It was further held in that case that section 34 of the 1922 Act (corresponding to section 147 of the Act) imposed no obligation upon the assessee to disclose all the income includible in his assessment by reason of section 16(3)(a)(ii).

“Section 34(1)(a) sets out the conditions in which the power may be exercised: it did not give rise to an obligation to disclose information which enabled the Income-tax Officer to exercise the power under section 16(3)(a)(ii), nor had the use of the expression ‘necessary for his assessment’ in section 34(1)(a) that effect.”

9. The ratio of this case applies with full force to the point for determination in the instant case. Section 69B merely imposes an obligation upon the Income-tax Officer to compute the total income of any individual for the purpose of assessment by including the amount expended over investments exceeding the amount recorded in this behalf in the assessee's books of account for which the assessee offers no satisfactory explanation. Apart from this there was no provision in the 1922 Act, under which the assessee was originally assessed in the present case, corresponding to section 69 or 69B of the Act. As a matter of fact, section 69-I was inserted in the Act by the Finance Act, 1965, with effect from the 1st of April, 1965. Although section 297(2)(d)(ii) provides for the applicability of section 147 in respect of an escaped assessment if no proceeding under section 34 of the 1922 Act had been initiated, such an application merely attracts the procedural part of the proceedings for reassessment which is made amply clear by reference to sections 148, 149 and 150 in section 297(2)(d)(ii) itself. The applicability of section 147 of the Act will not in its turn enable the department to take resort to any substantive provision of law in the Act de hors the provisions of the 1922 Act.

10. As stated earlier, the assessee in the present case had already produced its books of account and balance-sheet showing its total amount expended over the construction of its house in question at Rs. 7,041. It is nobody's case that there was anything in the books of account which could have been unravelled by the assessee, but had not been so done. Learned standing counsel for the department in this connection sought to rely on the provisions of Explanation 2 to section 147. This submission, however, proceeds upon a misconception. The aforesaid Explanation cannot have an application to the facts of the present case, inasmuch as, on the admitted facts there was nothing in the account books produced before the Income-tax Officer from which he could discover any material evidence with due diligence. The sole foundation for the action of the Income-tax Officer in issuing a notice under section 148 of the Act is the report of the income-tax inspector valuing the house in question on estimate independently of anything to be found in the assessee's books of account. From whatever point of view the matter be judged, the instant case cannot justify any action of the department in resorting to the provisions of section 147(a) of the Act. An identical question came up before the Assam High Court in the case of Bajranglal Beria, where Goswami C.J, dealing with this matter, observed as follows:

“The dispute is with regard to the quantum spent on the house in question. While the assessee gives in his accounts a certain sum, the Income-tax Officer after subsequent enquiry came to the conclusion that the amount shown in the account books is less than what it should be according to his valuation. Besides, there is no obligation on the assessee in submitting his return to furnish the particulars of the house properties, unless there was income from the same. It is not the case of the department that any income from the house has not been shown. “It was also held in that case that the Income-tax Officer's prima facie justification for the reason to believe was based upon his subsequent information and not upon anything already found on the records and that, therefore, it was not a case where the Income-tax Officer had reason to believe that income had escaped assessment by reason of non-disclosure of material facts. These reasons and observations I respectfully endorse. Learned standing counsel for the department attacked one reason recorded in that he reads it, that reasonable belief having nexus with the discovery of new facts and informations must always preclude the applicability of section 147(a) of the Act. This, in my view, is too sweeping a generalisation from the decision aforesaid drawn by the learned standing counsel. There may be cases where, in the first instance, the assessing officer has information which may also lead to his finding of certain items or entries in the assessee's books of account whereupon his action under section 147(a) of the Act will still be justified. But in Bajranglal Beria's case this was a reason advanced in the context of the salient fact that the whole basis of the Income-tax Officer's action in reopening the assessment proceedings was the information derived subsequently, which alone had any nexus with the reassessment proceedings.

11. For the reasons stated above, I must answer the question referred to us in the negative, against the department and in favour of the assessee and hold that, on the facts and in the circumstances of this case, reassessment made under section 147(a) is neither proper nor valid. The assessee will be entitled to its costs of this reference. Hearing fee assessed at Rs. 100 only.

Untwalia, C.J:— I agree.

12. Question answered in the negative.