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

1. M/s. Kantamani Venkata Narayana and Sons-hereinafter referred to as the assessee, is a Hindu undivided family which was assessed to tax on income derived principally from money-lending. In the course of proceedings for assessment of a private limited company styled "Motu Industries Ltd.", the Income-tax Officer Rajahmundry discovered that there was a large accretion to the wealth of the assesses which had not been disclosed in proceedings for its assessment. On March 12, 1959, the Income-tax Officer issued a notice seeking to reopen the assessment for the year 1950-5l . The assessee filed a return under protest. On March 14, I960 the income-tax Officer issued notice of re-assessment for the year 1951-52, and on December 19, 1960, the Income-tax Officer intimated the reasons that had prompted him to issue the notices of re-assessment. On March 24, 1962 the Income-tax Officer issued notices under S. 34 for re-assessment of income of the assessee for the years 1940-41 to 1949-50. The assessee then presented petitions in the High Court of Andhra Pradesh for writs of prohibition directing, the Income-tax Officer to refrain from proceeding in pursuance of the notices for the assessment years 1940-41 to 1949-50 and 1950-51 and 1951-52. A single Judge of the High Court rejected the petitions and the order was confirmed in appeal by a Division Bench of the High Court. The assessee has appealed with special leave.

Reasoning: 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.