Bachubhai Shantibhai and Bros. vs Commissioner of Income Tax

V.K. Singhal, J.—The Income Tax Appellate Tribunal has referred the following question of law arising out of its order dated February 28, 1981, in respect of the assessment year 1965-66 :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that there was failure on the part of the assessee to disclose fully and truly all material facts which were necessary for the purpose of completing the original assessment and consequently the Income Tax Officer had validly reopened the assessment u/s 147(a) of the Income Tax Act, 1961 ?"

The brief facts of the case are that the assessee is a registered firm and during the relevant assessment year in respect of the accounting period ending on December 31, 1964, the assessee filed a return showing income of Rs. 1,61,734. In the course of the original assessment proceedings, the assessee has submitted copies of accounts of various parties from whom the assessee claimed to have borrowed moneys. One such party was Nandkishore Laxminarain, Bombay, from whom a sum of Rs. 31,000 was alleged to have been borrowed on December 4, 1964. The assessee furnished the Bombay address of this party and also filed confirmation from him. The principal amount and the interest accrued thereon was paid in cash on September 1, 1965. No enquiry was made by the Income Tax Officer and the assessment was completed and the genuineness of the loan was not questioned by the Income Tax Officer. Subsequently, Nandkishore Laxminarain made a statement through its partner before the Income Tax Officer, Hundi Circle, Bombay, to the effect that the said firm was doing only hawala business and they have never advanced the said amount to the assessee but had merely lent their name for some consideration. On the basis of the statement given by the partner, the Income Tax Officer initiated reassessment proceedings u/s 147(a) of the Income Tax Act to tax the said amount. The Income Tax Officer was of the view that the assessee had not furnished full facts before the then Income Tax Officer and hence the income escaped assessment. The assessee had shown its inability to produce the creditor for cross-examination and no other witness in respect of genuineness of the loan was produced. The copy of the statement of Nilamani recorded u/s 131 of the Income Tax Act and that of Prem Lata Ras Behari Lal and the proceedings before the Third Income Tax Officer, X-Ward, Bombay, were sent by the Income Tax Officer, Bombay, to the Income Tax Officer A-Ward, Jaipur. In the proceedings before the Income Tax Officer, Bombay, the statements of Neelamani and Prem Lata Ras Behari Lal, witnesses on behalf of Nandkishore Laxminarain, were recorded and cross-examination was allowed to the assessee-company in which it was stated that it was only a hawala entry and the money was not actually given to the assessee-firm. In the assessment order, the Income Tax Officer was of the view that commission was issued to the Income Tax Officer, Bombay, for cross-examination of Nandkishore Laxminarain which was done on March 20, 1976, in which it was stated that the loan was never advanced as a genuine loan and it was only a hawala entry. On the basis of the statement given by the parties and the opportunity of cross-examination being allowed, the amount of Rs. 31,000 was included in the assessment year as income from undisclosed sources.

It was submitted before the Commissioner of Income Tax (Appeals) that since the copies of accounts were given along with their confirmation, the material particulars regarding the loans were produced before the Income Tax Officer and there is no omission or failure on the part of the assessee to disclose any material fact. The Commissioner of Income Tax (Appeals) came to the conclusion that the assessee had failed to disclose fully and truly all material facts necessary for assessment, on account of which income had escaped assessment and, therefore, the proceedings were rightly initiated.

In the second appeal before the Tribunal, it was observed that the assessee had not disclosed fully and truly all material facts for completing its assessment. The matter with regard to calling for the books of account of Nandkishore Laxminarain was restored to the file of the Income tax Officer for fresh determination as the books were not produced at the time of cross-examination at Bombay.

The question as to whether there was failure on the part of the assessee to disclose fully and truly all material facts which were necessary for completion of the original assessment was considered recently by the apex court in the case of M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, and the decision of this court in the case of M. D. Jewellers v. CIT [1994] 208 ITR 196 (D.B. Income Tax Reference No. 18 of 1982--decided on October 12, 1995). We are of the view that the point referred by the Income Tax Tribunal is fully covered by these decisions and adopting the same reasoning, we are of the view that the provisions of Section 147(a) were rightly involved in this case.

In view of the above decision, it has to be considered that disclosure by Nandkishore Laxminarain through its partner that the said firm was doing hawala business and they never advanced the money to the assessee but were merely name-lenders establishes that there was no full and true disclosure of the facts which were required to he disclosed and that that fact being within the knowledge of the assessee, simply because the enquiry was not made by the Income Tax Officer and assessment was completed without making such an enquiry would not convert an untrue fact into a true one. The assessee was required to produce the creditor and he has failed to produce him and when the statements of a partner of Nandkishore Laxminarain were recorded u/s 151 and opportunity was given to the assessee for cross-examination in which he has categorically staled that it was only a hawala entry. If the assessee wanted to prove the contrary from the books of account of Nandkishore Laxminarain it was for him and for that purpose the Income Tax Appellate Tribunal has sent the matter back to the Income Tax Officer for fresh determination after giving the assessee a reasonable opportunity. The directions which have been given to the Income Tax Officer to call for the books of account of Nandkishore Laxminarain to be produced are for the purpose of assisting the assessee and discharging the public duty.

In view of the decision given by the apex court, we are of the view that the Income Tax Officer was justified in holding that there was failure on the part of the assessee to disclose fully and truly all material facts which were necessary for the purpose of completing the original assessment and consequently the Income Tax Officer has validly reopened the assessment u/s 147(a) of the Income Tax Act. We are not satisfied in the present case that it is a matter which could be considered u/s 147(b). There is failure on the part of the assessee to disclose fully and truly all material facts which were necessary for the purpose of assessment and the information having been received subsequent to the assessment, the provisions of Section 147(a) could have been invoked. It is not a case where it could be said that there was no omission or failure and, therefore, Clause (b) should be invoked.

The reference is accordingly answered in favour of the Revenue and against the assessee.