Case: Kantamani Venkata Narayana &amp; Sons Vs. First Additional Income-Tax Officer,Rajahmundry

the managers professional income and the agricultural income of the assessee, the aggregate could not exceed Rs. one lakh, and that possession of large wealth on April 1, 1949 which was not explained justified him in inferring that there "was escapement of assessment of huge income or in any event it had resulted in under-assessment on account of the failure of the assessee in not disclosing the material facts fully and truly for the assessment years 1940-41 to 1949-50." 8. The averments made by the Income-tax Officer in his affidavit which have been accepted by the Court of first instance, prima facie, establish that the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income chargeable to income-tax has escaped assessment. 9. It was urged on behalf of the assessee that year after year account books and statements of account were produced by the assessee before the Income-tax Officer, and the Income-tax Officer had computed the taxable income on the materials furnished, no case for exercising the power of the Income-tax Officer under S. 34 was made out, since power to re-assess may not be exercised merely because on the same evidence the Income-tax Officer or his successor entertains a different opinion. In our view there is no force in this contention. From the affidavit of the Income-tax Officer it clearly appears that there had been considerable increase since 1938 in the investments in the money-lending transactions of the assessee and in the wealth of the assessee. The Income-tax Officer was not seeking to re-assess the income on a mere change of opinion. The increase in the wealth discovered, was wholly disproportionate to the known sources of income of the assessee. That was prima facie evidence on which he had reason to believe that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure income had escaped assessment. The Income-tax Officer has said that no attempt was made by the assessee to furnish some reasonable proof of the source of the additional wealth: the partition deed was not produced, the hooks of account prior to 1948-49 were withheld on the plea that all the hooks were lost: no evidence was tendered to show that the father-in-law of the manager was possessed of sufficient means to give and did give any large cash amounts to him; and there was also no explanation why a large amount exceeding a lakh of rupees was not invested in the money-lending or other business. 10. The Income-tax Officer had, therefore prima facie reason to believe that information material to the assessment had been withheld, and that on account of withholding of that information income liable to tax had escaped assessment. From the mere production of the books of account it cannot be inferred that there had been full disclosure of the material facts necessary for the purpose of assessment. The terms of the Explanation are too plain to permit an argument being reasonably advanced, that the duty of the assessee to disclose fully and truly all material facts is discharged when he produces the books of account or other evidence which has a material bearing on the assessment. It is clearly implicit in the terms of Ss. 23 and 34 of the Income-tax Act that the assessee is under a duty to disclose fully and truly material facts necessary for the assessment of the year, and that the duty is not discharged merely by the production of the books of accounts or other evidence.......... It is the duty of the assessee to bring to the notice of the Income-tax Officer particular items in the books of account or portions of document, which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment. 11. It was urged that since the High Court in appeal did not decide whether any primary facts on which the determination of the issue of reasonable belief in non-disclosure of material facts necessary for the assessment of the previous year and escapement of tax in consequence thereof depended were not disclosed, the Judgment of the High Court should be set aside. The learned Trial Judge has dealt with in detail the affidavits of both the assessee and the Income-tax Officer and has come to the conclusion that there was prima facie evidence of non-disclosure fully and truly of all material facts necessary for the assessment and on the materials placed before the Income-tax Officer he had reason to believe that as a consequence of that non-disclosure income had escaped assessment. The High Court in appeal after referring to the judgment in Calcutta Discount Companys case, 1961-2 SCR 241 : (AIR 1961 SC 372 ) observed:"* * without the enquiry being held by the concerned Income-tax Officer it is not possible, on the material on record, to decide whether or not the assessee omitted to or failed to disclose fully and truly all material facts necessary for his assessment for the respective years." The High Court has pointed out that no final decision about failure to disclose fully and truly all material facts bearing on the assessment of income and consequent escapement of income from assessment and tax could be recorded in the proceedings before them. It certainly was not within the province of the High Court to finally determine that question. The High Court was only concerned to decide whether the conditions which invested the Income-tax Officer with power to re-open the assessment did exist, and there is nothing in the Judgment of the High Court which indicates that they disagreed with the view of the Trial Court that the conditions did exist.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. It is clear from the affidavits filed in the Court of first instance that the Income- tax Officer had received information relying upon which he had reason to believe that the assessee had not disclosed fully and truly all material facts necessary for the assessment and in consequence of non-disclosure of that information, income chargeable to tax had escaped assessmentFrom the affidavit of the Income-tax Officer it clearly appears that there had been considerable increase since 1938 in the investments in the money-lending transactions of the assessee and in the wealth of the assessee. The Income-tax Officer was not seeking to re-assess the income on a mere change of opinion. The increase in the wealth discovered, was wholly disproportionate to the known sources of income of the assessee. That was prima facie evidence on which he had reason to believe that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure income had escaped assessment. The Income-tax Officer has said that no attempt was made by the assessee to furnish some reasonable proof of the source of the additional wealth: the partition deed was not produced, the hooks of account prior to 1948-49 were withheld on the plea that all the hooks were lost: no evidence was tendered to show that the father-in-law of the manager was possessed of sufficient means to give and did give any large cash amounts to him; and there was also no explanation why a large amount exceeding a lakh of rupees was not invested in the money-lending or other business10. The Income-tax Officer had, therefore prima facie reason to believe that information material to the assessment had been withheld, and that on account of withholding of that information income liable to tax had escaped assessment. From the mere production of the books of account it cannot be inferred that there had been full disclosure of the material facts necessary for the purpose of assessment. The terms of the Explanation are too plain to permit an argument being reasonably advanced, that the duty of the assessee to disclose fully and truly all material facts is discharged when he produces the books of account or other evidence which has a material bearing on the assessment. It is clearly implicit in the terms of Ss. 23 and 34 of the Income-tax Act that the assessee is under a duty to disclose fully and truly material facts necessary for the assessment of the year, and that the duty is not discharged merely by the production of the books of accounts or other evidence.......... It is the duty of the assessee to bring to the notice of the Income-tax Officer particular items in the books of account or portions of document, which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessmentThe High Court has pointed out that no final decision about failure to disclose fully and truly all material facts bearing on the assessment of income and consequent escapement of income from assessment and tax could be recorded in the proceedings before them. It certainly was not within the province of the High Court to finally determine that question. The High Court was only concerned to decide whether the conditions which invested the Income-tax Officer with power to re-open the assessment did exist, and there is nothing in the Judgment of the High Court which indicates that they disagreed with the view of the Trial Court that the conditions did existSince on the matter canvassed in these appeals there is no material change in the Section, we will only refer to the Section as amended by Act 48 of 19488. The averments made by thex Officer in his affidavit which have been accepted by the Court of first instance, prima facie, establish that thex Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income chargeable tox has escaped assessmentIn our view there is no force in this contention.