1977 (2) TMI 13 - HC - Income Tax

Court upholds reassessment for undisclosed income based on failure to disclose material facts

M Varadarajulu Naidu Versus Commissioner Of Income-Tax, Madras II

M Varadarajulu Naidu Versus Commissioner Of Income-Tax, Madras II - [1978] 111 ITR 301, 1977 CTR 517 Issues Involved:1. Validity of action u/s 147(a) of the Income-tax Act, 1961, for reassessment of the assessee for the assessment years 1957-58 and 1958-59.Summary:Issue 1: Validity of action u/s 147(a) of the Income-tax Act, 1961The primary question referred to the court was whether the Tribunal was right in law in holding that the action u/s 147(a) of the Income-tax Act, 1961, for reassessment of the assessee for the assessment years 1957-58 and 1958-59 was valid.The assessee, engaged in business, maintained books of accounts closed on July 31 each year. For the years ending July 31, 1956, and July 31, 1957, the books included entries for loans allegedly borrowed from Multani bankers on hundis, with interest on these loans claimed as deductions. The original assessments for 1957-58 and 1958-59 were completed without questioning the genuineness of these loans. However, the assessments were reopened by notices issued u/s 148, served on March 18, 1966, and February 6, 1967, respectively. The Income-tax Officer (ITO) initiated action u/s 147(a) after securing the Commissioner's sanction, concluding that certain hundi loans were not genuine and adding these amounts as income from undisclosed sources.The assessee appealed against the reassessments, contending that the reopening was invalid. The Tribunal upheld the reassessments, stating that the assessee had not fully and truly disclosed all material facts necessary for the assessments. The Tribunal's decision was challenged, leading to the present reference.The court examined whether the ITO had reason to believe that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court noted that the assessee consistently challenged only the validity of the reassessment proceedings, not the merits. The court found that the mere filing of certain statements did not amount to full disclosure, which is a factual finding.The assessee's counsel cited Supreme Court decisions in Lakhmani Mewal Das and Chhugamal Rajbal, arguing that the ITO lacked sufficient reason to believe that income had escaped assessment. However, the court distinguished these cases, noting that in the present case, the ITO had prima facie concluded that the loans were not genuine based on information about the bankers' involvement in hawala business.The court also referred to a previous decision involving the same assessee, where similar reassessment proceedings were upheld. Based on these findings, the court concluded that the reassessments were valid and answered the question in the affirmative, against the assessee. The revenue was awarded costs of Rs. 500.