Reassessment for nondisclosure fails where primary facts are disclosed; successor bank may face predecessor's tax liability.

Reassessment under section 147(a) was held invalid because the assessee had disclosed the primary facts in the return materials, including its accounting method and treatment of accrued interest; a wrong inference from disclosed facts did not amount to nondisclosure. Proceedings for the escaped income of an erstwhile bank were held maintainable against the successor bank because the vesting provision transferred liabilities and obligations, including lawful tax liability, to the successor; section 170 was treated as unnecessary on the facts. Interest on sticky loans was also held not includible in total income, following the assessee's earlier case on the same accounting method.

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Issues: (i) Whether reassessment under section 147(a) of the Income-tax Act, 1961 was valid on the ground of failure to disclose primary facts; (ii) whether proceedings for escaped income of the erstwhile bank could be taken against the successor bank under section 5 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and section 170 of the Income-tax Act, 1961; (iii) whether interest on sticky loans was includible in the total income of the assessee.

Issue (i): Whether reassessment under section 147(a) of the Income-tax Act, 1961 was valid on the ground of failure to disclose primary facts.

Analysis: The materials filed with the returns, including the balance sheets and profit and loss accounts, disclosed the method of accounting adopted by the assessee and showed that interest on accrued loans was not being taken into account as income. The reasons recorded for reopening did not establish any failure to disclose true and correct particulars of income. Where the primary facts are already before the assessing authority, a wrong inference drawn from them does not amount to nondisclosure by the assessee.

Conclusion: The reopening under section 147(a) was invalid.

Issue (ii): Whether proceedings for escaped income of the erstwhile bank could be taken against the successor bank under section 5 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and section 170 of the Income-tax Act, 1961.

Analysis: The obligation to pay the correct tax does not cease merely because the banking undertaking has vested in a successor. Section 5(1) is of wide import and transfers liabilities and obligations of the existing bank to the new bank, including the obligation to meet lawful tax liability. Section 5(5) does not restrict such liability so as to prevent assessment proceedings against the successor. Section 170 was held unnecessary in the facts of the case.

Conclusion: Proceedings could be taken against the successor bank for the escaped income of the erstwhile bank.

Issue (iii): Whether interest on sticky loans was includible in the total income of the assessee.

Analysis: The matter was governed by the Tribunal's earlier view in the assessee's own case that such interest on sticky advances, on the facts and accounting method adopted, could not be brought to tax as accrued income.

Conclusion: The interest on sticky loans was not includible in the total income.

Final Conclusion: The reassessments could not be sustained, the assessee succeeded on the challenge to reopening, and the additions made on account of sticky-loan interest were deleted, resulting in dismissal of the revenue appeals.

Ratio Decidendi: Reassessment cannot be founded on section 147(a) unless there is failure by the assessee to disclose primary facts, and a successor undertaking may be assessed for the tax liability of the predecessor where the vesting provision transfers the predecessor's liabilities and obligations.

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