Case: Sowdagar Ahmed Khan (Deceased)(By His Legal Representatives) Vs. Income Tax Officer, Nellore

1. These appeals are brought, by certificate, from the judgment of the Andhra Pradesh High Court dated November 18, 1963, in Writ Petitions Nos. 757, 758, 761, 762, 763, 775 and 776 of 1961 The appellant (hereinafter called " the assessee ") is an individual carrying on business in distribution and exhibition of cinema films. The assessee owns a cinema theatre called the New Talkies at Nellore. The original assessments of the assessees income for the years50 were completed during 1944 to 1950. In the course of assessment proceedings for the assessment yearax Officer found that the assessee had a current account in the Imperial Bank of India in the name of histill the latters death. This fact came to the notice of theOfficer when the assessee was asked to explain a cash credit of Rs. 40, 000 found in the assessment yearSimilarly, a sum of Rs. 70, 000 was advanced by the assessee to Jagamani Pictures on January 9, 1946, which the assessee failed to disclose in the course of the assessment proceedings for the relevant assessment year. When later on Jagamani Pictures could not meet this debt the assessee got their distribution right in lieu of the amount advanced and exploited the films. It was also detected by theOfficer that in the relevant returns the assessee had not shown income from property in the names of his sons, wife and daughter, though many of the properties were purchased by him in their names. TheOfficer had therefore reason to believe that, by reason of the omission or failure on the part of the assessee to disclose fully and trully all the basic and material facts necessary for the assessment for those years, income chargeable to tax had escaped assessment or wasAfter obtaining the requisite permission from the Central Board of Revenue, theOfficer issued notices dated September 5, 1959, under section 34(1)(a) of theAct, 1922 (hereinafter called " the Act ") to reopen the assessment for the assessment years0. The assessee raised an objection to the issue of the notices on the ground that the proceedings were barred by limitation and theOfficer was seeking to revise assessments merely on a change of opinion. Thereafter, theOfficer wrote a letter to the assessee dated November 16, 1959, wherein he gave details of the cash credits for which he required explanation as well as the properties whose incomes should be assessed in his hands. After exchange of some correspondence, the assessee moved the High Court of Andhra Pradesh for grant of a writ under article 226 of the Constitution directing theOfficer to forbear from proceeding further in pursuance of the notices issued under section 34(1)(a) of the Act. By its judgment dated November 18, 1963, the High Court dismissed the writ petitions holding that the notices issued after March 31, 1956, were not barred by time and there was material before theOfficer which justified his belief that the income chargeable to tax had escaped assessment

Court's reasoning:
ax 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 discloure 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 sections 23 and 34 of theAct 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 account or other evidence. It is the duty of the assessee to bring to the notice of theOfficer particular items in the books of account or portions of documents which are relevant. Even if it if be assumed that from the books produced, theOfficer, if he had been circumspect, could have found out the truth, theOfficer may not on that account be precluded from exercising the power to assess income which had escaped assessment. "For the reasons expressed we hold that there is no merit in these, appeals which are accordingly dismissed withthe context of these facts we are of opinion that there was some material before theOfficer on which he formed the prima facie belief that the assessee had omitted to disclose fully and trully all material facts and that in consequence of suchincome had escaped assessment. It follows that theOfficer had jurisdiction to issue notices under section 34(1)(a) of the Act and Mr. S. T. Desai, on behalf of the appellant, is unable to make good his argument on this aspect of the caseThere is also no substance in the contention of the assessee that theOfficer had no jurisdiction to issue notices under section 34(1)(a) of the Act, because a the original assessment orders showed that the cash credits in question were duly considered and accepted.