Sharma and Siddhanta vs Commissioner of Income Tax

A. Raghuvir, C.J.—The assessee in this reference is a partnership firm run under the name and style of Sharma and Siddhanta. The assessment order of the firm for the year 1962-63 was reopened. The reopening order was assailed in appeal before the AAC. The AAC allowed the appeal. He held:

There was thus no omission on the part of the appellant to disclose material facts originally for its assessments. The later informations which came into the possession of the ITO regarding confessions of the hundiwallas entitled to him to an action u/s 147(b) and not u/s 147(a).

The order of the AAC was reversed by the Tribunal. The Tribunal relied on a decision of the Calcutta High Court in the case of Lakhmini Mewal Das Vs. Income Tax Officer, "J" Ward and Others, and confirmed the order of the ITO and reversed the order in appeal in that it is held: Considering the facts for the assessment year 1962-63 we find that action u/s 147(a) has been taken on the ground that the assessee had disclosed in his books that it had taken certain loans from the various parties. These loans were accepted as genuine. Subsequently the income tax Officer found that these loans were bogus and these parties were acting merely as name-lenders. He, therefore, held that these amounts represented the assessee''s undisclosed income and believed that these amounts had escaped assessment by reason of the failure of the assessee to disclose fully or truly all material facts of the assessment. The source of receipt of the amounts appearing as credits in the books of the assessee is a material fact for the assessment and if the assessee fails to make a full and true disclosure about the same the provisions of section 147(a) would be applicable. The evidence mentioned by the income tax Officer in his reasons for taking action u/s 148 is sufficient for the income tax Officer to come to the prima facie conclusion that the loan transactions appearing in the books of the assessee were not genuine transactions. The income tax Officer has categorically recorded that he has reason to believe that these amounts represented undisclosed income of the assessee. In the reasons recorded of the order sheet he has also mentioned that these amounts escaped assessment by reason of the assessee''s failure to disclose fully and truly all the material facts necessary for the assessment.

The Tribunal set aside the decision of the AAC. The Tribunal refer red the following question u/s 256(1) of the income tax Act, 1961. The question is: Whether, on the facts and in the circumstances of the case, the Tribunal was correct in setting aside the order of the Appellate Assistant Commissioner relating to the assessment year 1962-63 and in restoring the appeal to his file for disposal of the same on merits on the ground that the income tax Officer was justified in taking action u/s 147(a) of the income tax Act, 1961?

The decision of the Calcutta High Court in Lakhmani Mewal Das'' case (supra) was considered by a larger Bench of the same High Court. On appeal the above decision was set aside? Lakhmani Mewal Das Vs. Income Tax Officer, ''I'' Ward and Others, . The Supreme Court accepted the majority views in Lakhmani Mewal Das'' case (supra). The decision of the Supreme Court is in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, .

The AAC considered the facts and circumstances of the case properly and applied ratio of the decision of the Court in Seth Kirorimal Adwani and Others Vs. Income Tax Officer, "E" Ward and Others, . Therefore, we do not see any vice in the decision of the AAC. We, therefore, answer the above question in the negative, i.e., in favour of the assessee and against the revenue.

The reference is answered accordingly. No costs.