Surinder Singh, J.:— The applicant-assessee required the Income-tax Appellate Tribunal (Amritsar Bench), to refer to this court certain questions of law under s. 256(1) of the I.T Act, which questions, according to the applicant, arose out of the order, dated September 9, 1975, of the said Tribunal, pertaining to the case of the applicant for the assessment year 1960-61, relevant to the accounting period ending March 31, 1960.
2. The undisputed facts, culminating in the present reference, may be briefly noticed. For the assessment year mentioned above, the original assessment in the case of the applicant, was completed by the ITO on March, 12, 1965, on a total income of Rs. 67,906. During the course of the original assessment proceedings, the ITO found certain hundi loans introduced in the books of account of the assessee and out of the various hundi loans, the ITO, included such loans to the tune of Rs. 29,400, in the total income of the assessee. The addition so made by the ITO was upheld in appeal by the Tribunal. It is the case of the revenue that subsequently the ITO learnt that there was a hundi racket all over the country and a number of hundi bankers had confessed that they had been doing hawala business meaning thereby that they had not given any genuine loans to the parties concerned, but had only lent their names for such loans. The ITO found that six of the bankers or brokers who are shown to have advanced loans to the applicant were such parties, as referred to above. The names of these parties are detailed below:
(i) Didar Singh Charan Singh,
(ii) Kabul Co. Traders,
(iii) Man Singh Wadhwa,
(iv) Mool Chand Chander Bhan,
(v) Jetha Nand & Sons,
(vi) Sohan Singh Paras Ram.
3. On the basis of the above information, the ITO initiated proceedings under s. 147(a) of the I.T Act, by issuing the necessary notice under s. 148, to the applicant. This notice was actually served on one Khem Singh, who is stated to be the attorney of the applicant, Jai Singh. It is not disputed that Jai Singh during the relevant period, was a “non-resident” and was residing at Kabul. There is no dispute in regard to the fact that the assessee did not file any return of income, in response to the notice under s. 148. According to the revenue, the ITO issued various notices to the assessee affording him opportunity to produce necessary evidence in support of the genuineness of the credits, appearing in the names of various hundi creditors, whose list has been mentioned above, but the assessee did not produce such evidence. The ITO, therefore, completed the assessment under s. 144 of the I.T Act, on the basis of best judgment, vide his order dated February 3, 1973, and computed the total income of the assessee for the assessment year in question at Rs. 82,940. The applicant-assessee filed an appeal before the AAC, but the same was rejected and the addition of the hundi loans amounting to Rs. 71,900 and of interest Rs. 536 by the ITO, was upheld. The assessee thereafter filed an appeal against the decision of the AAC, before the Income-tax Appellate Tribunal and the said Tribunal, after considering the entire matter, has referred the following questions of law to this court for its opinion:
“(a) Whether, on the facts and in the circumstances of the case, the reassessment proceedings under section 147(a) of the Income-tax Act, 1961, for the assessment year 1960-61 were validly initiated by the Income-tax Officer?
(b) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the service of the notice under section 148 on Shri Khem Singh on behalf of the assessee, Shri Jai Singh, was a proper service?
(c) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the direct assessment made by the Income-tax Officer on the non-resident by taking recourse to section 166 of the Income-tax Act, 1961.was a valid assessment?”
4. It may be observed at the outset that the crucial question which requires determination is question (a), as the fate of the case could largely hinge on the answer to the said question. We, therefore, proceed to consider the same before dealing with the other two questions. Mr. S.C Sibal, learned counsel for the applicant, has made reference to certain circumstances in this case and on the basis of the same, he has contended that in view of the circumstances, the ITO was not justified in reopening the matter of assessment. Great emphasis has been laid by the learned counsel on the fact that at the time of the initial assessment by the ITO a complete list of hundi loans and the parties from whom the same had been taken, had been provided to the ITO. In fact, the ITO after scrutiny of the list of such loans, had ruled out the benefit of hundi loans obtained from fifteen parties and had, therefore, added a sum of Rs. 29,400 in the total income of the applicant for being assessed to tax, which fact showed that the ITO had applied his mind to this aspect of the matter. It is further contended that the hundi loans obtained from six other parties, who are now being dubbed as bogus parties, were also mentioned in the original list. This fact is apparent from a perusal of the second assessment order made by the ITO (annex. “B”), in which the names of the six parties referred to above, are shown at serial Nos. 16 to 21. The ITO in the said assessment order, however, reconsidered the hundi loans of these six parties, and while doing so, made a general observation to the following effect:
“There is an information available with the department that the party has indulged in hawala business. This fact was confirmed by surrender of credits in the name of the party by various persons. It was in the light of this information that the mere filing of the confirmatory letter was not considered sufficient……”
5. The above observation was made in the assessment order in respect of each of the six parties, with change of phraseology here and there.
6. The learned counsel for the assessee has also urged that the ITO, as well as the Tribunal were not justified in holding that the assessee had shown his inability to adduce further evidence in support of the confirmatory letters already filed by him. Counsel has in this behalf drawn the attention of this court to the observations contained in the statement of the case itself that the assessee had requested the ITO to issue notice under s. 131 to the various creditors, whose loans were doubted and allow the assessee an opportunity to inspect the record. This prayer of the assessee was, however, declined by the ITO. The submission is that in the wake of the prayer made by the assessee as above, it could not be said that he had not associated himself with the inquiry in regard to the reassessment of his case, and hence there is no justification for the ITO to proceed with the matter under s. 147(a) of the I.T Act.
7. To controvert the submissions made by the learned counsel for the assessee, Mr. D.N Awasthy, learned counsel for the revenue has submitted that once, it is found that the ITO had acquired knowledge on the basis of some fresh information in regard to the fictitious nature of some of the loans, he would be well within his rights to invoke the provisions of s. 147(a) of the I.T Act. According to Mr. Awasthy, the non-disclosure of the fact that six of the parties who are alleged to have advanced loans to the assessee were bogus firms, would tantamount to the assessee not making a “true” disclosure in this respect, though the same may be “full” as envisaged under s. 147 of the Act.
8. The point for determination being quite clear, it [would be necessary to advert now to the legal position in the matter. It would be advantageous to notice what the highest court of the land has to opine in this behalf. In ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437, their Lordship of the Supreme Court considered a matter in which the facts were very much similar to those in the present case, and the following observations were made (headnote at p. 437):
“The reasons for the formation of this belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words ‘definite information’ which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the behalf must be held in good faith and should not be a mere pretence.”
9. It was further held as follows (p. 439 ibid):
“The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the aseessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.”
(Emphasis* mine).
10. In another case decided by the Supreme Court, ITO v. Madnani Engineering Works Ltd., [1979] 118 ITR 1, in which the facts were absolutely similar to those in the case on hand, it was held as follows (p. 5):
“It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of account were false. The assessee discharged the obligation which lay upon it by disclosing its books of account and evidence from which material facts could be discovered and it was for the ITO to decide whether the documents produced by the assessee were genuine or false. Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. We do not see any distinction at all between Burlop Dealers' case, [1971] 79 ITR 609 (SC) and the present one and the language of s. 147(a) being identical with that of s. 34(1)(a) the ratio of the decision in Burlop Dealers' case must govern the decision of the present case. We must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of s. 147(a) was not satisfied.
We may also point out that though it was contended in the writ petition that the ITO could have no reason to believe that any part of the income of the respondent had escaped assessment by reason of its failure to make a full and true disclosure of material facts, the ITO did not disclose in his affidavit any material on the basis of which it could be said that he had come to the requisite belief. All that the ITO stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus. The ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the ITO could reasonably entertain such belief. We are, therefore, not at all satisfied on the affidavit that the ITO had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. The notice under s. 147(a) of the I.T Act for reopening the assessment must in the circumstances be held to be void.
We, accordingly, dismiss the appeal with costs.”
11. In still another case nearer home, a Division Bench of the court in Rajive Textile Mills v. Commissioner Of Income-Tax, Patiala-Ii., [1980] 125 ITR 581 (P & H) again held that reopening of the assessment by the ITO under s. 147 of the I.T Act, on the ground that it had come to his notice that the banker was a mere name-lender indulging in hawala hundi business, was not justifiable, as there was only a general type of information regarding the banker-firm and there was no information with the ITO that the loan advanced by the said banker to the assessee was bogus. The reassessment proceedings were therefore, struck down. In this decision, the dictum of the Supreme Court in Lakhmani Mewal Das case, [1976] 103 ITR 437 was followed.
12. Mr. Awasthy, learned counsel for the revenue, has referred to the decision in Civil Writ Petition No. 3671 of 1971, rendered by a Division Bench of this court, on November 20, 1979 (Kirpa Ram Ramji Dass v. CIT, [1982] 135 ITR 68). The facts in this case were, however, distinguishable, as is apparent from the discussion of the matter in the judgment of the Bench. The following observations are material in this behalf (p. 78):
“As regards the question, whether in view of the facts and circumstances of the case, the issuance of the impugned notice under s. 147(a) of the Act is without jurisdiction or not, we have already reproduced in extenso the relevant averments made in the return. At the time of hearing, the learned counsel for the revenue produced the relevant records before us. The learned counsel for the revenue made a reference to the statements of Ashok Kumar Gola Chand, Meghraj Sewaram, Meghaj Vasudev, Ram Chand Meghraj. All the statements were recorded before the impugned notice was issued to the petitioner. In the statement recorded, the persons mentioned above clearly stated that all the loans shown against their names were bogus and they did not in fact advance any loan from their own pockets. The statements contain the detailed procedure which was being followed in connection with the hawala hundis. Further more, in the return, a portion of which has already been reproduced in this earlier part of the judgment, it has been categorically averred that the matter was investigated with regard to the petitioner's dealings with these five parties and it was found that this was a clear case of escapement of income through deliberate concealment on the part of the assessee.
The contention of Shri Bhagirath Dass, the learned counsel, for the petitioner, that in the statement of the persons referred to in the earlier paragraph of the judgment, there is no reference of the name of the petitioner's firm and, therefore, the said statements should be taken to be not relevant material, is without any merit. When the bogus hawala hundi proprietors, namely, Meghraj, etc., in categorical terms stated that they did not advance loans to any person whatsoever, it would automatically mean that no loan was advanced to the petitioner and the loans shown in their names were in fact bogus transactions brought on the record. It is not necessary for the department to have further put questions qua each of the persons and against whom bogus loans were shown in the names of bogus hawala hundi dealers. It is well settled that it is not for us to see the adequacy or inadequacy of the material but so long the relevant material is there before a notice is issued, this court in writ jurisdiction cannot hold that the notice issued is without jurisdiction.”
13. The above observations would show that there was sufficient material on the record to indicate that the impugned loans were bogus. Apart from this, the Bench also found that while exercising the extraordinary jurisdiction under arts. 226/227 of the Constitution of India, it was not for the court to see the adequacy or inadequacy of the material, and hence the impugned notice reopening the assessment, was not quashed. In the present case, however, a specific reference has been made to this court under the I.T Act.
14. The next case relied upon by Mr. Awasthy is Hazi Amir Mohd. Mir Ahmed v. CIT, [1977] 110 ITR 630 in which the following observations were made by a Division Bench of this court in the penultimate part of the judgment (p. 637):
“Of course, the breaking of a hundi racket on an all-India basis cannot have any rational connection with the loans to the assessee but the confessional statements of the creditors may have. That depends on whether the confessional statements are related in any manner to the loans to the assessee. That information is not available in the order of the Tribunal out of which the reference arises or in the statement of the case submitted to us by the Tribunal. Therefore, the only answer which we can give to the question referred to us is to say that the Appellate Tribunal was justified in upholding the reopening of the assessment under section 147(a) if the confessional statements referred to in paragraph 5 of its order were in any manner related to the loans to the assessee; otherwise, not. The reference is answered accordingly. The Appellate Tribunal will now deal with the matter in the light of our answer. No costs.”
15. On the basis of the above observation, Mr. Awasthy submits that we may also adopt the same course as was adopted by the Bench in the above-mentioned case, and answer the questions referred, in the same terms. We do not think that on the facts and circumstances of the present case, such a course is warranted. The duty is cast upon the revenue to show that there is any taxable income of the assessee, and not upon the assessee to prove the converse.
16. In so far as the present case is concerned, as already noticed, the case of the assessee was reopened by the ITO on the basis of a vague information that certain firms were engaged in the racket of hawala business, and the farthest that the revenue has been able to reach, is that the six firms whose names are mentioned in the earlier part of the judgment, were also found to be members of the said group of firms. There is, however, neither any allegation nor evidence to show that these six firms had entered into bogus transactions with the applicant in this case. This being so, the present case would be covered by the dictum of the Supreme Court in Lakhmani Mewal Das' case, [1976] 103 ITR 437 and Madnani Engineering Works Ltd. case, [1979] 118 ITR 1 which were followed by our court in Rajive Textile Mill's case, [1980] 125 ITR 581. In the result, question (a) of the reference is answered in the negative, i.e, in favour of the assessee and against the revenue. In view of the answer to question (a), the other two questions (b) and (c) do not arise and are, therefore, returned unanswered. There will be no order as to costs of this reference.
Prem Chand Jain, J.:— I agree.