1975 (5) TMI 1 - SC - Income Tax

High Court rules against Income-tax Officer's reassessment notice, finding no failure to disclose material facts.

The High Court ruled in favor of the partnership firm, quashing the notice issued by the Income-tax Officer for reassessment of income. The court held ... Whether the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment for the assessment year in question by reason of the omission or failure on the part of the assessee to disclose, fully and truly all material facts - we allow the appeal and quash the impugned notice dated March 31st, 1965, and the proceedings in consequence thereof Issues:Jurisdiction of Income-tax Officer to issue notice under sections 147 and 148 of the Income-tax Act, 1961 based on undisclosed income represented by drafts utilized for purchases. Application of section 147(a) - whether income chargeable to tax had escaped assessment due to failure to disclose material facts.Analysis:The judgment pertains to an appeal by a partnership firm against a notice issued by the Income-tax Officer under sections 147 and 148 of the Income-tax Act, 1961, for reassessment of income for the assessment year 1956-57. The notice was based on the firm's utilization of drafts for purchases in Madras and Calcutta, representing undisclosed income. The High Court justified the action under sections 147 and 148, citing that the drafts were not considered during the original assessment and proposing to include this income for reassessment. The firm challenged the notice's validity, arguing lack of jurisdiction by the Income-tax Officer.The court analyzed the application of section 147(a) concerning the firm's failure to disclose the source of amounts invested in purchasing the drafts, which were not recorded in the account books. The Income-tax Officer's best judgment assessment included detailed findings on the drafts, giving partners the opportunity to explain. The court noted that all conditions for invoking jurisdiction under section 147(a) were met, as the Income-tax Officer had all primary facts but failed to draw necessary inferences during the original assessment.The court referred to the precedent set by the Calcutta Discount Co. Ltd. case, emphasizing that once all primary facts are before the assessing authority, further disclosure by the assessee is not required. The Income-tax Officer's oversight in not considering the drafts during the original assessment was deemed a case of error, not a failure by the assessee to disclose material facts. Consequently, the court allowed the appeal, quashing the notice and related proceedings, as the income chargeable to tax had not escaped assessment due to the assessee's failure to disclose fully and truly all material facts.In conclusion, the court ruled in favor of the appellant, highlighting that the Income-tax Officer's oversight did not warrant invoking section 147(a) for reassessment. The judgment emphasized the importance of the assessing authority drawing proper inferences from all primary facts available, without necessitating additional disclosure from the assessee.