1993 (9) TMI 34 - HC - Income Tax

High Court upholds validity of assessment reopening under Income-tax Act

The High Court held that the reopening of assessments for the assessment years 1965-66 and 1966-67 under section 147(a) of the Income-tax Act, 1961 was ... Income Tax Act, Revenue Receipt Issues Involved:1. Validity of reopening assessments under section 147(a) of the Income-tax Act, 1961 for assessment years 1965-66 and 1966-67.Detailed Analysis:Issue 1: Validity of Reopening Assessments under Section 147(a)The principal question referred to the High Court was whether the reopening of assessments for the assessment years 1965-66 and 1966-67 was valid and proper in law under section 147(a) of the Income-tax Act, 1961.1. Background and Facts:- The assessee's original assessments for the years 1965-66 and 1966-67 were completed under section 143(3) of the Act.- During the assessment proceedings for 1967-68, a partner from Messrs. Madhusudan Gordhandas deposed that loans amounting to Rs. 4,50,000 shown in the assessee's books were bogus.- Based on this deposition, the Income-tax Officer (ITO) initiated proceedings under section 147(a), believing the assessee had not fully and truly disclosed all material particulars, resulting in income escapement.2. Assessee's Contention:- The assessee argued that he had made a full and true disclosure by producing confirmatory letters from the creditors during the original assessment.- It was contended that the ITO, having accepted these letters, could not reopen the assessment under section 147(a) based on subsequent information, as it should fall under section 147(b).3. Appellate Authorities' Findings:- The Appellate Assistant Commissioner (AAC) and the Tribunal upheld the ITO's decision, noting that the fresh information about the bogus nature of the loans justified the reopening under section 147(a).- The AAC emphasized that the partner's deposition was specific, reliable, and stood the cross-examination, while the assessee failed to provide counter-evidence.4. High Court's Analysis:- The High Court reviewed the conditions for reopening under section 147(a): (a) reason to believe that income had escaped assessment, and (b) such escapement was due to the assessee's failure to disclose fully and truly all material facts.- The court referred to the Supreme Court's decision in Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456, which clarified that acquiring fresh, specific, and reliable information exposing the falsity of the original disclosure allows reopening under section 147(a).- The court noted that the Supreme Court had distinguished between drawing fresh inferences from existing facts and acquiring new information that reveals falsehood in the original facts presented.5. Supreme Court Precedents:- The court addressed the assessee's reliance on Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 and CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609, explaining that these decisions did not conflict with Phool Chand Bajrang Lal.- The Supreme Court in Phool Chand Bajrang Lal had clarified that the disclosure of primary facts must be true and full, and if subsequent information reveals falsity, reopening is justified.6. Court's Conclusion:- The High Court concluded that the reopening of assessments was valid as the ITO had acquired specific and reliable information post-original assessment, indicating false disclosures.- The court dismissed the argument that the information was not reliable, stating that the deposition of the partner was specific and credible.- The Tribunal's decision to uphold the reassessment was affirmed, and the question was answered in favor of the Revenue and against the assessee.Judgment:The High Court held that the reopening of the assessments for the assessment years 1965-66 and 1966-67 under section 147(a) was valid and proper in law. The question referred was answered in the affirmative, in favor of the Revenue and against the assessee. No order as to costs was made.