Reassessment notice principles: full disclosure of primary facts bars section 147(a), but later appellate information may sustain section 147(b).

Reassessment under section 147(a) could not rest on a mere later change in legal inference where the assessee had already disclosed the primary facts of the transaction; the omission must relate to material facts, not the legal conclusion drawn from them. The notice could nevertheless be supported under section 147(b) where an appellate order supplied information showing escaped income. Transitional provisions under section 297(2)(d)(ii), read with sections 150(1) and 153 Explanation 2, could also validate reassessment for escaped income arising from proceedings originally governed by the 1922 Act. The text states that the reassessment notice was ultimately sustainable on these grounds.

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Issues: (i) Whether reassessment notice under section 147(a) of the Income-tax Act, 1961 was invalid for want of failure by the assessee to disclose fully and truly all primary facts; (ii) whether the notice could nevertheless be sustained under section 147(b) of the Income-tax Act, 1961 on the basis of information arising from the appellate order; (iii) whether the notice was saved by section 297(2)(d)(ii) read with section 150(1) and section 153, Explanation 2 of the Income-tax Act, 1961 despite the earlier assessment order having been made under the Indian Income-tax Act, 1922.

Issue (i): Whether reassessment notice under section 147(a) of the Income-tax Act, 1961 was invalid for want of failure by the assessee to disclose fully and truly all primary facts.

Analysis: The material facts relating to the transaction were the sale, the consideration, the date of conveyance and the date of registration. Those facts had been disclosed to, or were otherwise within the knowledge of, the department at the time of the original assessment for the relevant year. The assessee was under no obligation to disclose the correct legal inference to be drawn from those facts. The escapement of income, if any, arose from a wrong inference drawn by both the assessee and the department, and not from any failure to disclose primary facts.

Conclusion: Section 147(a) could not be invoked, and this objection to the notice failed.

Issue (ii): Whether the notice could nevertheless be sustained under section 147(b) of the Income-tax Act, 1961 on the basis of information arising from the appellate order.

Analysis: The appellate order subsequently showed that the income in question had escaped assessment for the later year, and that constituted information within the meaning of the reassessment provision. A notice initiated on the footing of clause (a) may, where the statutory conditions are otherwise satisfied, be treated as one under clause (b). The facts disclosed that the reassessment was founded on information emerging after the original assessment and not on a failure of disclosure by the assessee.

Conclusion: The notice was capable of being supported under section 147(b) of the Income-tax Act, 1961.

Issue (iii): Whether the notice was saved by section 297(2)(d)(ii) read with section 150(1) and section 153, Explanation 2 of the Income-tax Act, 1961 despite the earlier assessment order having been made under the Indian Income-tax Act, 1922.

Analysis: The case fell within the category where income had escaped assessment and no notice under the 1922 Act had been served before the 1961 Act came into force. In such a situation the special transitional provision applied, and the provisions of the 1961 Act operated mutatis mutandis. The earlier appellate finding that the income was not taxable in the year under appeal brought the case within the statutory fiction contained in section 153, Explanation 2, enabling reassessment for the correct year. The proceedings were also not barred, because the relevant date for limitation was the date of the original order from which reassessment could validly have been taken.

Conclusion: The notice was validly issued and could be upheld under the transitional and limitation provisions of the Income-tax Act, 1961.

Final Conclusion: The reassessment notice was legally sustainable, and the challenge to it failed.

Ratio Decidendi: Where all primary facts relating to a transaction are disclosed, reassessment cannot rest on section 147(a) merely because the revenue later draws a different legal inference; however, if subsequent appellate material supplies information that income has escaped assessment, the notice may be supported under section 147(b), and transitional provisions may validate action under the 1961 Act for an escaped item arising from proceedings under the 1922 Act.

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