Holding

The Income‑Tax Officer was justified in invoking Sections 147(a) and 148 to reopen the assessment because he had specific, reliable information that led to a bona‑fide belief of non‑disclosure, satisfying the statutory conditions.

Summary

The assessee firm claimed a cash loan of Rs 50,000 from a Calcutta company and claimed interest deductions for several years. The Income‑Tax Officer (ITO) in Azamgarh, after receiving a specific letter from the ITO in Calcutta stating that the Calcutta company was merely a name‑lender and had not advanced any money, formed a belief that the loan was fictitious and that the assessee had not made a true and full disclosure. Consequently, the ITO issued a notice under Section 148 to reopen the assessment for the year 1965‑66 under Section 147(a). The High Court upheld the ITO’s action and dismissed the writ petition, leading to a certificate of fitness for appeal. The Supreme Court affirmed that the ITO’s jurisdiction was valid because the subsequent information was specific, reliable and sufficient to satisfy the twin conditions of Section 147(a). The Court dismissed the appeal, confirming the reassessment was lawful.

Issues considered

Whether an Income‑Tax Officer can reopen a concluded assessment under Sections 147 and 148 on the basis of specific, reliable information received after the original assessment.
Whether the assessee’s duty is limited to disclosing primary facts or extends to making a true and full disclosure of material facts.
Whether a belief formed on fresh information, as opposed to a mere different inference from existing facts, suffices for jurisdiction under Section 147(a).
Whether the High Court’s interpretation of divergent High Court decisions on this point was correct.

Legislation cited

Income Tax Act, 1922s. 34
Income Tax Act, 1961s. 147, s. 148, s. 149

Subjects

income taxreassessmentsection 147section 148true and full disclosurefalse loanname lendingjurisdictionassessment reopening

Judgment

A PHOOL CHAND BAJRANG LAL AND ANR.
v. '·
INCOME TAX OFFICER AND ANR.

JULY 13, 1993

B [S.C. AGRAWAL AND DR. A.S. ANAND, JJ.]

Income Tax Act, 1961-Ss. 147, 148 149-Income escaping· assess-
ment-Assessing Officer's jurisdiction to reopen assessment-Held, Income
Tax Officer can reopen assessment only if on the basis of specific, reliable
c and relevant information coming to his possession subsequently he has
reasons to beliel'e that by reason of omission or failure on the part of the
assessee to make a tnte and full disclosure of all material facts any part of
his income profit or gains chargeable to income tax has escaped assess-
ment-To say that the question regarding truthfulness or falsehood of'certain
transaction reflected in retunz can only be examined during original assessnlent
D proceedings and not at any stage subsequent thereto, does violence to plane
phraseology of ss. 147(a), and 148 and is against the settled law.

The appellant firm was an income tax assessee at Azamgarb(U.P.).
In the income tax returns for the assessment year 1963-64, it claimed to
E have borrowed in cash a sum of Rs. 50,000/- on 19.5.1962 from a Calcutta
Company and filed a letter from that company confirming the payment of
the loan to the assessee. The assessee claimed that it bad paid interest to
the Calcutta Company and was accordingly allowed deduction for each of
the assessment years 1963-64 to 1968-69.

F The Income Tax Officer Azamgarh entertained some doubts abont
the genuineness of the loan transaction and requested the Income Tax
Officer at Calcutta to supply him information about the Calcutta Com-
pany. The Income Tax officer Calcutta replied that the business of the

G
Calcutta Company consisted entirely of name lending and no finance was
claimed to have been distributed in the assessments of the company for
..
1962-63 to 1964-65.

The assessing authority issued a notice to the assessee on 26.8.1971
proposing to reopen the case for the assessment year 1965-66 under
Section 147(a) of the Income Tax Act, 1961, as it was prima facie satisfied
H that the Joan transaction of Rs.50,000 was not genuine and since the
28
PHOOLCHAND v. l.T.0. 29

assessee had failed to disclose fully and truly all material facts necessary A
I for assessment years 1963-64, income chargeable to tax had escaped as-
sessment. The assessee unsuccessfully contended that it had disclosed all
the primary facts at the stage of original assessment and the provisions of
Section 147(a) were inapplicable. The I.T.O. issued a notice under Section
148 of the Act to reassess assessee's income after recording that he had
B
reasons to believe that the assessee's income had escaped assessment
within the meaning of Section 147. The assessee filed the return for
assessment year 1963-64 as also an affidavit of the creditor Calcntta
Company in support of its stand of cash loan. The Managing Director of
the Calcutta Company was examined and he admitted to have made a
confession to Calcutta I.T.O. in respect of his company's business to be of C
mere name lending. The l.T.O. issued a show cause notice to the assessee.
The assessee meanwhile filed a writ petition before the High Court seeking
to quash the notice issued under Section 148 to it and to restrain the I.T.O.
from continuing with the assessment procetdings.

D
The High Court dismissed the writ petition holding that the infor-
mation received from Calcutta I.T.O. could form the basis for entertaining
a reasonable belief on the part of the assessing authority that as a result
of false representation made by the assessee regarding the cash loan from
the. Calcutta Company, its income had escaped assessment during the
relevant assessment year. However, noting the divergent views of different E
High Courts in similar cases, the High Court granted the certificate of
fitness to appeal to this Court under Article 133 of the Constitution. The
assessee accordingly filed the appeal before this Court.

It was contended by the assessee that the obligation of an assessee F
during the assessment proceedings is primarily to disclose all material
and relevani facts i.e. the primary facts and once that disclosure has been
made, it is for the Income Tax Officer to draw the necessary inferences
therefrom on the basis of such facts; that if an Income Tax Officer draws
•• some inferences at the time of the assessment proceedings from the
disclosed primary facts and accepting the same concludes the assessment G
proceedings, any subsequent information which may create an impression
on the mind of the Income Tax Officer that either the primary facts were
not true and full or that the inferences drawn therefrom were not correct,
would not clothe him with the jurisdiction to initiate action for the reopen-
ing of a concluded assessment. H
30 SUPREME COURT REPORTS [1993) SUPP. 1 S.C.R.

A The revenue contended that the obligation of an assessee is not
merely to make disclosure of the basic or primary facts at the time of '
assessment but to make a "true and full" disclosure of such basic facts,
and an omission to do so, would clothe the I.T.O. with the jurisdiction to
reopen a concluded assessment; and that the question as to whether the
grounds for reassessment are adequate or not is not a matter for the
B Courts to investigate so long as the belief of the l.T.O. is based on relevant
material and is otherwise bonafide.

Dismissing the appeal, this court

C HELD: 1. The Income-Tax Officer rightly initiated the reassessment
proceedings on the basis of subsequent information, which was specific,
relevant and reliable, after recording the reasons for formation of his own
belief that in the original assessment proceedings the assessee had not
disclosed the material facts truly and fully and therefore income charge-
D able to tax had escaped assessment. He, therefore, correctly invoked the
provisions of Sections 147(a) and 148 of the Income Tax Act, 1961.
[53-B-C]
2.1. An Income-Tax Officer acquires jurisdiction to reopen assess-
ment under s.147(a) read with ss. 148 and 149 of the Income Tax Act 1961
when two conditions are satisfied - the I.T.O. must have reason to believe
E
that (a) the income, profits or gains chargeable -to tax had either been
under as~essed or escaped assessment and, (b) such escapement or under
assessment was occasioned by reason of omission or failure on the part of
the assessee to disclose fully and tTU/y all material facts necessary for the
assessment. Both these conditions must co-exist in order to confer juris-
F diction on the Income Tax Officer. The I.T.O. is obliged before initiating
proceedings under s.148 of the Act to record the reasons for the formation
of his belief to reopen the assessment. He may start assessment proceed-
ings either because some fresh fact& come to light which were not pre-
viously disclosed or some information with regard to the facts previously
G disclosed comes into his possession which tends to expose the untruthful-
ness of those facts. In such situations, it is not a case of mere change of
.
opinion or the drawing of a different inference from the same facts as were
earlier available but acting on fresh information.
[38-G, H; 39-A, B; 51-G, H; 52-A-B]
H CIT v. TS Pl.P. Chidambaram, 80 (1971) !TR 467, relied on.
PHOOLCHAND v. J.T.0. 31

2.2. It cannot be said that the question regarding truthfulness or A
1- falsehood of the transactions reflected in the return can only be examined
during the original assessment proceedings and not at any stage sub-
sequent thereto. It would also be immaterial whether the Income-Tax
Officer at the time of making the original assessment could or, could not
have found by further enquiry or,investigation, whether the transaction
B
was genuine or not. The purpose and intent of the provisions need to be
looked into. One of the purposes of Section 147, is to ensure that a party
cannot get away by wilfully making a false or untrue statement at the time
of original assessment and when that falsity comes to notice to turn around
and say that since "you accepted my lie, now your hands are tied and you
can do nothing". (52-D, G-H; 53-A] c
CIT v. Bur/op Dealers Ltd., (1971) 79 !TR 609, explained.

2.3. Since, the belief to re-open the assessment is that of the Income-
tax Officer, the sufficiency of reasons for forming the belief, is not for the
Court to judge but it is open to an assessee to establish that there in fact D
existed no belief or that the belief was not at all a bonafide one or was
' based on vague, irrelevant and non-specific information. To that limited
extent, the Court may look into the conclusion arrived at by the Income-tax
Officer and examine whether there was any material available on the
record from which the requisite belief could be formed by the Income-tax E
Officer and further whether that material had any rational connection or
a live link for the formation of the requisite belief. (52-B-D)

3.1. From the conduct of assessee the I.T.O. at Azamgar could
justifiably entertain doubts about the genuiness of the cash loan of Rs.
50,000 leading to the making of enquiry from the ITO at Calcutta, after F
completing the assessment proceedings. When the jurisdictional I.T.O. at
Calcutta wrote back to the l.T.O. at Azamgarh that the Managing Director
of the Calcutta company had made a confession about his business ac-
tivities regarding the assessment years 1962-63, 1963-64 and 1964-65 and
had confessed that he was only a name lender and had not advanced any G
loan to any party during those assessment years, the I.T.O. at Azamgarh
prima facie formed the belief that the assessee had not stated the primary
facts regarding the loan transaction "fully and truly" during the assess-
ment proceedings. [42-D-F]

3.2. The information, was specific that no money had been lent by H
32 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R.

A the Calcutta Company to any one during 1962-63, 1963-64 and 1964-65. .\
Thus, the period during which the Calcutta company had only lent its
name was specified. That period corresponded to the period during which
the assessee had claimed to have received a cash loan of Rs. 50,000 from
the Calcutta company. It is therefore not correct to say that the informa-
tion available with the I.T.O. Azamgarh was vague in nature. [44-B-C]
B
Chhugmal Rajpal v. S.P. Chaliah, (1971) 79 ITR 603 and ITO v.
Lakhmani Mewal Das, (1976) 103 ITR 437, distinguished.

4.1. Acquiring fresh information, specific in nature and reliable iu
character, relating to the concluded assessment ooich goes to expose the
c falsity of the statement made by the assessee at the time of original
assessment is different from drawing a fresh inference from the same facts
and materials which was available with the ITO at the time of original
assessment proceedings. The two situations are distinct and diffe':"Cnt.
[47-H-48-A]
D 4.2. Where the transaction itself on the basis of subsequent informa·
lion, is found to be a bogus transaction, the mere disclosure of that
transaction at the time of original assessment proceedings, cannot be said
to be a disclosure of the "true" and "full" facts in the case and the ITO
would have the jurisdiction to reopen the conclude assessment in such a
E case. [48-A·B]

43. The instant case is not the one where the Income Tax Officer
sought to draw any fresh inference, which could have been raised at the
time of original assessment on the basis of the material placed before him
by the assessee relating to the loan, which he failed to draw at the time.
F The I.T.O. Azamgarh, subsequent to completion of the original assessment
proceedings, on making an enquiry from the jurisdictional I.T.O. at Cal·
cutta, learnt that the Calcutta company from whom the assessee claimed
to have borrowed the load had not really lent any money but only its name,
to cover up a bogus transaction and after recording his satisfaction as
G required by the provisions of Section 147 of the Act proposed to reopen
the assessment proceedings. [47-E-H]

CIT v. Bur/op Deale" Ltd., (1971) 79 ITR, explained and distin-
guished.

H 4.4. Of course, the assessing authority could have deferred the
PHOOL CHAND v. I.TO. [DR. ANA."ID, J.] 33

completion of the original assessment proceedings for further enquiry and A
investigation into the genuiness to loan transaction, but his failure to do
so and complete the original assessment proceedings would not take away
his jurisdiction to act under Section 147 of the Act on receipt of the
information subsequently. (48-B-C]

A.LA. Fimi v. CIT, 189 (1991) ITR 285, relied on. B

C.J. T v. Bur/op Deale1~ Ltd., (1971) 79 !TR 609, explained.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1235 of
1977.
c
From the Judgment and Order dated 24.11.76 of the Allahabad High
Court in C.Misc. Writ No.1541 of 1974.

G.C. Sharma, Mrs. Indu Goswami, Ms. Premlata Bansal, Ram Avtar
Bansal, R.K. Maheshwari and Arvind Minocha for the Appellants
D
S.C. Manchanda, KP. Bhatnagar, S. Rajappa and P. Parmeswaran
for the Respondents.

The Judgment of the Court was delivered by

DR. ANAND, J. This appeal, on a certificate of fitness granted by the E
High Court under Article 133 of the Constitution of India is directed
against the judgment in Civil Misc. Writ Petition No. 1541 of 1974 decided
by the Allahabad High Court on 24.11.1976 and arises in the following
circumstances:
F
The appellant is a firm which was assessed to income-tax at Azam·
garb (U.P.). In the Income Tax Returns for the assessment year 1963-64,
the assessee claimed that it had borrowed a sum of Rs. 50,000 from M/s
Jain Finance Distributor (India) Private Limited, Calcutta (hereinafter
called the Calcutta company) on 19.5.1962. An entry dated 25.5.1962 in that
behalf was made by the assessee in it' books of account as well as in the G
balance sheet as liability. The loan was stated to have been raised in cash
and it was also claimed to have been returned in cash in 1968, though the
interest on loan was stated to be paid by cheque/bank drafts till repayment
in 1968. During the assessment proceeding, the Income-tax Officer
directed the assessee to file a copy of the account of the Calcutta company H
34 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R.

A to support the loan transaction. The assessee produced a confirmatory
letter dated 15.11..1963 from the Calcutta company, confirming the pay-
ment of loan of Rs. 50,000 to the assessee. The case of the assessee before
••
the ITO was that one of its partners, namely Bajrang Lal, (since deceased)
had gone to Calcutta on 13th May, 1962 with a draft of Rs. 31,000 and Rs.
151 in cash in order to make payment of outstandings at Calcutta. For
B making certain purchases of cloth and for payment of other outstandings
against the assessee, the said partner, while in Calcutta, raised a cash loan
of Rs. 50,000 from the Calcutta company and on his return to Azamgarh
on 25th May, 1962 necessary entries were made in the books of account of
the assessee showing a credit of Rs. 50,000 from the Calcutta company by
C way of cash Joan to the assessee. The ITO finalised the return and for each
of the assessment years 1963/64 to 1968/69, the ITO allowed. deduction of
interest claimed to have been paid to the Calcutta company by the assessee.
From a perusal of the recurd il appears that the Income Tax Officer
entertained some doubts about the genuineness of the loan transaction and
D accordingly he addressed a letter to the Income Tax Officer, District
Companies (III)-196/J/l, Central Revenue Building, Calcutta on 19th May,
1970 enquiring if the Calcutta company fell 'Within its jurisdiction. it was
stated by the ITO in that letter that he wanted to gather certain information
from the case records of the Calcutta Company. In reply the ITO Calcutta
on 7.7.70 sent the following communication to the ITO Azamgarh:
E 11
Confidential
Regd. Post ND

OFFICE OF THE INCOME TAX OFFICER, "K'' WARD,
COMPANIES DISTT. III P/7, CHOWRINGHREE SQUARE
F CALCUTTA

No. C-III/J-46/K/606 Date 7.7.70
Income Tax Officer,
A Ward, Azamgarh,
G (by name)

SUB: M/s. Jain Finance Distributors (India) Private Ltd., 34/IB,
Sudhir Chatterjee St., Calcutta.

Ref: Your letter No. P306/A, Dt. 19.5.70 addressed lo ITO "!"
H Ward, Companies Dist. lll, Calcutta.
P!-IOOL CHAND v. I.T.O. IDR. ANAND, J.j 35

Please refer to your above letter asking for .some information A
, about Jain Finance Distributors India Private Ltd., This company
is now assessed to tax in my ward. I have however to inform you
that according to the confession of Shri Tara Chand Surana Mg.
Director of the company it appears that the so-called company is
really a dummy concern of Shri Surana. The company never
B
actually advanced any loans to any person and according to the
confession of Shri Surana the business of the company consisted
entirely of name-lending. The company lent its name to enable.
different parties to bring into their books 'black money' under the
guise of loan from Jain Finance Distributors (India) Pvt. Ltd. No
finance was ever distributed, only the name of the concern was c
lent.

This pos1t1on has been accepted in the assessments of the
company for 1962-63, 1963-64 and 1964-65. In the circumstances
you are requested not to treat any transaction with this concern as
genuine. D

I can furnish further information to you if you sent me full
particulars of transactions which you may be enquiring about.

Sd/- (AR. Das Gupta)
E
Income Tax Officer 'K' Ward
(Companies Distt. III, Cal.)"

After receipt of the above co1nmunication the assessing authority on
1

26.8.1971 issued a notice lo the assessee slating therein that he was prima
facie satisfied that the loan transaction of Rs. 50,000 was not genuine and F
that since the assessee had failed to disclose fully and truly all the material
facts necessary for assessment for the year 1963/64, income chargeable to
tax had escaped assessment and he therefore proposed to reopen the case
for the assessment year 1965-66 under Section 147 (a) of the Indian Income
Tax Act, 1961 (hereinafter called as the Act). Objections were invited from
the assessee. In his reply dated 25.11.1972, the assessee contended that G
there had been no non-disclosure on its part in respect of the loan
transaction of Rs. 50,000 and that since all the primary facts had been
disclosed by the assessee at the stage of the original assessment,. the
provisions of Section 147(a) were inapplicable. After considering the reply,
the ITO issued a notice under Section 148 of the Act to the assessee H
36 SUPREME COURT REPORTS [1993] SUPP. 1 S.C.R.

A proposing to reassess his income, after recording that he had reason to
believe that the assessee's income in respect of \vhich he was assessable to
tax had escaped assessment within the meaning of Section 147 of the Act.
The assei;see was called upon to file its return for the assessment years
1963-64 to 1968-69 within 30 days from the date of service of the notice.
The proposal of the ITO to reopen the assessment had been submitted
B earlier to the Commissioner of Income Tax on 1.1.72 with the relevant
record and sanction of the Commissioner for reassessment was obtained
on 7.2.72. On 26.2.72,..the assessee filed its return for the assessment year
1963-64 and later appeared before the ITO in person on 26.9.1973. The
assessee filed before the ITO Azamgarh an affidavit from the creditor,
c Calcutta Company, in support of its contention that the cash loan had in
fact been raised from the creditor. The ITO directed the assessee to
produce the Calcutta creditor for cross-examination in respect of his
affidavit. The creditor, Shri Surana, Managing Director of the Calcutta
Company appeared and was cross examined by the ITO. During the course
of his cross examination, he admitted before the ITO that he had made a
D
confession to the ITO at Calcutta on the lines which had been indicated
in the letter of the jurisdictional ITO from Calcutta dated 7.7.70. The
creditor, was thereafter reexa1nined by the counsel for the assessee but
nothing was elicited from the creditor regarding the correctness or other-
wise of the 'confession' alleged to have been made by him before the ITO
E at Calcutta, during the assessment proceedings relating to his company at
Calcutta. After considering the entire material on the record, a show cause
notice was issued by the ITO, Azamgarh to the assessec detailing all the
facts gathered by him from the contents of the letter of the ITO at Calcutta,
the confession allegedly made by the creditor before the ITO at Calcutta
F in respect of assessment years 1962-63 to 1964-65 and the statement of the
creditor before him. The assessee was called upon to reply but he did not
I
give any reply to the show cause notice. While the matters rested here, the

G
assessee filed writ Petition No.1541i74·in the High Court of Judicature at
Allahabad on 18.3.74 seeking the quashing of the notices issued under
Section 148 of the Act and to restrain the ITO from continuing with the
reassessment proceedings.

A Division Bench of the High Court after a detailed consideration
.,..
of facts and law, came to the conclusion that the information furnished by
the ITO Calcutta could form the basis for entertaining a reasonable belief
H on the part of the ITO, Azamgarh, that as a result oi false representation
PHOOL CHAND v. l.T.O. [DR. ANAND, J.] 37

.J. I made by the assessee regarding the raising of cash loan from the Calcutta A
company, his income had escaped assessment during the relevant assess~
ment year and it dismissed the writ petition with costs on 24.11.1976. The
assessee applied for a certificate of fitness to file an appeal in the Supreme
Court under Article 133 of the Constitution. The Division Bench of the
High Court while granting the certificate opined:
B
"On one of the questions which arise out of our order in the writ
petition, there is considerable divergence of views amongst dif-
ferent High Courts. Some High Courts have taken the view that in
.... the cases of loans borrowed by an assessee, if he has disclosed
the details thereof to the Income Tax Officer at the time of the
original assessment, he (the assessee).is under no further obligation
c
to inform the Income Tax Officer that such loans were bogus ones.
Whether such loans are genuine or bogus according to this view,
a matter of inference which the Income Tax Officer has to draw
on the facts disclosed after proper verification and that if he had
treated such loans as genuine, he can not, later, re-open the D
assessment merely because he was subsequently reason to believe
that such loans were not genuine.

A few other High Courts have taken a contrary view on the
above question.
E
The aforesaid question is, in our opinion, a substantial question
of law of general importance which ne. !ds to be decided by the
Supreme Court."

That is, how, the matter is before us.
F
Before we take up for consideration the rival submissions made by
the learned counsel for the parties and consider the authorities cited by
them, it would be appropriate to first notice some of the provisions of the
Act. The relevant provisions of Sections 147, 148, 149 as they stood at the
relevant time for the purpose of this case read as under: G
"147. Income escaping assessment -if-

(a) the Assessing Officer has reason to believe that, by reason of
the omission or failure on the part·of an assessee to make a return
under section 139 for any assessment year to the Assessing Officer H
38 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R.

A or to disclose fully and truly all material facts necessary for his
assessment for that year, income chargeable to tax had escaped
assessment for that year, or

xxx xxx xxx

B 148. Issue of notice, where income has escaped assessment-

(1) Before making the assessment, reassessment or recomputation
under Section 147, the Income Tax Officer shall serve on the
assessee a notice containing all or any of the requirements which
may be included in a notice under sub-section (2) of section 139;
c and the provisions of this Act shall, so far as may be, apply
accordingly as if the notice were a notice issued under that sub-
section.

xxx xxx xxx

D 149. Time limit for notice

(1) No notice under section 148 shall be issued,

(a) in cases falling under clause (a) of section 147-

E (i) for the relevant assessment year, if eight years have elapsed
from the end of the year, unless the case falls under sub-clause
(ii);

xxx xxx xxx

F (b) in cases falling under clause (b) of section 147, at any time
after the expiry of four years from the end of the relevant, assess-
ment year."

From the plain phraseology of the above Sections of the Act, it
G appears that two conditions precedent which are required to be satisfied
before an Income Tax Officer can acquire jurisdiction to proceed under
clause (a) of Section 147 read with Sections 148 and 149 of the Act, beyond
the period of four years but within a period of eight years, from the end
of the relevant year, are: (a) that the Incol!le Tax Officer must have reason
to believe that the income, profits or gains chargeable to tax had either
H been under assessed or escaped assessment and (b) that the ITO must have
PHOOL CHAND v. I.T.O. [DR. ANAND, J.] 39

reason to believe that such escapement or under-assessment was oc- A
1 casioned by reason, of omission or failure on the part of the assessee to
disclose }Ully and tmly all material facts necessary for the assessment. Both
these conditions must co-exist in order to confer jurisdiction on the Income
Tax Officer. The Income Tax Officer is obliged, before initiating proceed-
ings under Section l.48 of the Act to record the reasons for the formation
B
of his belief to reopen the assessment.

Shri G.C. Sharma, the learned senior counsel appearing for the
appellants, snbmitted that the obligation on an assessee during the assess-
ment proceedings is primarily to disclose all material and relevant facts i.e.
the primary facts and once that disclosure has been made, it is for the c
Income Tax Officer to draw the necessary inferences there from on the
basis of sµch facts and that the assessee is under no obligation to also state
as to what inferences could be drawn from those primary facts. He sub-
mitted that it is for the Income Tax Officer to draw the correct inferences
from those primary facts and if an Income Tax Officer draws some inferen- D
'I ces at the time of the assessment proceedings from those disclosed primary
facts and accepting the same concludes the assessment proceedings, any
subsequent information which may create an impression on the mind of
the Income Tax Officer that either the primary facts were not true and full
or that the inference drawn therefrom were not correct, would not clothe
him with the jurisdiction to initiate action for reopening of a concluded E
assessment. Argued Mr. Sharma that since in the instant case the assessee
had disclosed the primary facts and the Income Tax Officer after accepting
those facts had completed the original assessment, he could not reopen the
assessment, on getting information from the Calcutta JTO to the effect that
the Calcutta company was merely a name lender and had not advanced F
loan to any party. Learned counsel contended that even if it be assumed
that the ITO, Azamgarh had entertained doubts about the genuineness of
the loan transaction and sought information from the Calcuta ITO, the
reply furnished by the Calcutta ITO, could at the best be said to cast a
j
suspicion on the genuineness of the transaction but could not form the
basis for "reason to believe" that the income chargeable to tax had escaped G
assessment during the relevant assessment year on account of the omission
on the part of the assessee to disclose true and full facts during the
asse.."srnent proceedings. Learned counsel maintaine<l that the subsequent
infor1nation from JTO, Calcutta was vague and, therefore, the enquiry
under Section 147 of the Act could not be commenced and in any event H
40 SUPREME COURT REPORTS [1993) SUPP. 1 S.C.R.

A the subsequent information could not justify the reopening of the assess-
ment, particularly, when it was open to the Income Tax Officer to have
conduCted an enquiry during the original assessment proceedings to clear
any doubts which he may have entertained with regard to the loan trans-
'
action. Learned counsel referred to certain judgments in support of his
submissions. We shall refer to them in the course of this judgment.
B
Mr. K.P. Bhatnagar, the learned counsel appearing for the respon-
dent, on the other hand submitted that the obligation of an assessee is not
merely to make disclosure of the basic or primary facts at the time of
assessment but to make a "true and full" disclosure of such basic facts, and
C an omission to do so, would clothe the l.T.O. with the jurisdiction to reopen
a concluded assessment. He contended that in the instant case, the Income-
tax Officer at Azamgarh came to possess specific information from l.T.O.
Calcutta, which was sufficient for the formation of his belief, that the
assessee had not made a true and full disclosure in the return and that
D income chargeable to tax had escaped assessment on that account. Accord-
ing to Shri Bhatnagar, the question as to whether the grounds are adequate
or not is not a mattt?r for the Courts to investigate so long as the belief of
,.
the I.T.O. is based on relevant material and is otherwise bonafide. Learned
counsel supported his arguments
, by reference to certain judgments which
E we shall deal within the latter part of this judgment.

The High Court has dealt at length with the question whether the
two condition precedent for exercising jurisdiction under section 147 of the
Act had been satisfied by reference to the facts of the case and the case
law cited before it. The High Court noticed that the jurisdictional ITO from
F Calcutta had conveyed to the ITO at Azamgarh that the Managing Director
of the Calcutta Company Mr. Surana, had made a confession before him
to the effect that the Calcutta Company had not advanced any loan to any
person during the assessment proceedings of the Calcutta Company for the
years 1962-63; 1963-64 and 1964-65, and since, it was the case of the
G assessee that he had had raised a cash loan of Rs. 50,000 in May, 1962 from
the Calcutta Company on interest, the information furnished by the juris-
dictional ITO at Calcutta in his letter dated 7.7.1970, was sufficient for the
Income-tax Officer to have reasons to believe that the Calcutta Company
had prima facie not advanced any money to the assessee and, therefore,
H some income chargeable to tax had escaped taxation on account of the
PHOOL CHAND v. i.T.O. [DR. ANAND, J.] 41

failure of the assessee to disclose full and true material facts. In the words A
of the High Court:
>
"As the information furnished by the I.T.O., Calcutta, could
form the basis for a reasonable belief on the part of the I.T.O.,
Azamgarh, that as a result of a false representation made by the
petitioner as to his having borrowed money from the Calcutta B
Company, his income had estaped assessment, the I.T.O., Azam-
garh, could take notice under section 147(a) of the Act."

Certain tell tale circumstances of the case support the above view-of
the High Court. c
The assessee was being assessed to tax at Azamgarh. It was claimed
that it had raised a cash loan of Rs. 50,000 in May, 1962 from the Calcutta
Company on interest. According to the assessee, the loan was raised by
one of the partners of the firm who had gone to Calcutta for making
purchases of cloth etc. In para 3 of the writ petition filed by the assessee D
). in the High Court it was stated thus:

"That on 13th May, 1962 one of the partners namely Sri Bajrang
Lal who is since deceased had gone to Calcutta with a draft of
Rs.31,000 and of Rs. 151 in cash. The amount was carried by the
E
said partner in order to make payment of outstandings against the
firm. In Calcutta the said partner raised the loan of Rs. 50,000 on
19th May, 1962. This loan was raised for making purchases of cloth
and also for payment of other outstandifigs against the firm."

The interest on the loan was being paid to the Calcutta Company by F
draft/cheque and not in cash till the loan was claimed to have been repaid
in cash in 1968. Since, the assessee itself stated in paragraph 3 of the writ
petition (supra) that the loan had been raised for making purchases of
cloth and for clearing other outstanding debts, in the normal course of
; human conduct if not the entire amount of Rs. 50,000, at least a substantial
G
amount, would have been spent or paid towards the purchases and to clear
off the other debts at Calcutta. However, on the assessee's own showing it
was not so. This is evident from what the assessee stated in paragraph 4 of
the writ petition which reads :

"That when Sri Bajrang Lal returned to Azarngarh on 25th May, H
42 SUPREME COURT REPORTS (1993) SUPP. 1 S.C.R.

A 1962 he deposited Rs. 19.98 out of the money that he had taken when
he went to Calcutta and the sum of Rs. 50,000 which he had raised
by way of loan. On the same day namely 25th May, 1962, necessary
entries were made in the books of account of the firm and amongst
other entires, M/s jain Finance Distributors (India) Private Limited
given a credit of Rs. 50,000 by way of loan to the firm."
B
(Emphasis supplied)

Thus, it is seen that the cash amount of Rs. 50,000 taken at Calcutta
was shown to have been deposited with the assessee by Shri Bajrang Lal,
C when he returned to Azamgarh and an entry was made in the books of
account on 25.5.62. Why was the amount not returned at Calcutta if it was
not spent is anybody's guess? Again, while the loan was received in cash,
the interest was alleged to have been paid by cheque or bank draft and yet
the repayment of the loan was allegedly made again in cash in 1968! There
D is no explanation for this type of dealing with the loan alleged to have been
borrowed by the assessee. The I.T.O. at Azamgarh therefore could jus-
tifiably entertain doubts about the genuineness of the cash loan of Rs.
50,000 leading to the making of enquiry from the ITO at Calcutta, after
completing the assessment proceedings. When the jurisdictional I.T.O. at
Calcutta wrote back to the l.T.O. at Azamgarh conveying that the Calcutta
E Company was an assessee with him and that the Managing Director of the
Calcutta Company Mr. Surana, had made a confession about his business
activities regarding the assessment years 1962-63, 1963-64 and 1%4-65 and
had confessed that he was only a name lender and had not advanced any
loan to any party during those assessment years, the I.T.O. at Azamgarh
F prima facie formed the belief that the assessee had not stated the primary
facts regarding the loan transaction "fully and truly" during the assessment
proceedings. It was under these circumstances that the assessment was
sought to be reopened and a notice under section 148 of the Act after
obtaining the requisite permission from the CIT was issued.

G The judgment in Chhugamal Rajpal v. S.P. Chaliha, (1971) 79 !TR
603, relied upon by Mr. Sharma is clearly distinguishable. In Chhugamal's
case (supra) the I.T.O. had initiated reassessment proceedings on the basis
of a "circular" issued from the office of the Commissioner of Income Tax,
Bihar & Orissa, which stated that three persons named in that circular,
H were merely name lenders and their transactions were bogus and proper
PHOOLCHAND ''· I.T.O.[DR.ANAND,J.J 43

investigation regarding the loans from such persons was nec;cssary before A
accepting the returns. The I.T.O. merely on the basis of lhal "circular"
J
initiated reassessment proceedings. This Court held that the circular br
itself without any other niaterial and investigation, could not afford any basis
lo the l.T.O. for forming a reasonable belief that the assessce had not made
a full and true disclosure of the relevant facts on which account the income
of the asscssce chargeable to tax had escaped assessment. Unlike the
B
general "circular" issued by the Commissioner of Income tax in that case,
in the instant case, the l.T.O. at Azamgarh had entertained doubts about
the genuineness of the loan transaction of Rs. 50,000 and therefore had
made enquiries from the l.T.O. at Calcutta. The reply received from the
I.T.O. at Calcutta (supra) was specific and went to show that the Calcutta c
Company was not a money lender. The information in the present case is
vastly different both in content and character than the 'circular' in
Chlrngama/'s case which was held by this Court as not affording a basis for
entertaining a reasonable belief that income chargeable to tax had escaped
assess1nent.
D
Mr. Sharma the~ placed reliance on I. T.O. v. Lakhmani Mewal Das,
(1976) 103 ITR 437 to urge that the information contained in the letter of
the l.T.O. at Calcutta dated 7.7.1970 was no better than the 'information'
in Lakltmani Mewa/ Das's case (supra), and since the Supreme Court had
characterised that information as wholly vague, indefinite, far- fetched and E
remote, which could not afford any basis for entertaining a reasonable
belief to initiate proceedings under Section 147 of the Act, the same
grounds would be available in the present case also. We cannot agree. In
Mewa/ Das case (supra), the assessee in his return, claimed deductions of
certain sums paid by way of interest on the borrowings, including the one F
from Mohan Singh Kanayalal, who was shown as one of the creditors of
the assessee. A confession had allegedly been made by Mohan Singh
Kanayalal to the effect that he had only lent his name. However, there was
nothing to show that the confession related to any loan advanced to the
assessee or even the period during which name and not Joan was lent.
i There was no other material either to show that the confession made was G
in relation to the period April 1, 1957 to March 31, 1958, subject matter
cifthe assessment which was sought to be reopened. It was in that fact
situation that this Court found that the information based on the confession
of the creditor Mohan Singh Kanyalal was vague, indefinite, remote and
1 far-fetched and could not justify the formation of any belief that the income H
44 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R.

A of the assessee had for the period 1.4.1957 and 31.3.1958 escaped assess-
ment. In the instant case, however the facts are entirely different. From the
communication of the jurisdictional l.T.O. at Calcutta, it came to light that
the Managing Director of the Calcutta company Mr. Surana had, during
the assessment proceedings of that company for the period 1962-63, 1963-
64 and 1964-65, made a confession to the effect that he did not lend money
B to any party whatsoever. The information, therefore, was specific that no
money h.~d been lent to any one during 1962-63, 1963-64 and 19964-65.
Thus, tlie'"period during which the Calcutta Company had only lent its
name was specified. That period corresponded to the period during which
the assessee had claimed to have recieved a cash loan of Rs. 50,000 from
C the G.alcutta Company. It is therefore not correct to say that the informa-
tion available with the I.T.O. Azamgarh in the present case was of the same
vague nature as the information available with the I.T.O. in Mewal Das's
case (supra). The judgment in Mewal Das's case (supra) therefore, cannot
advance the case of the assessee at all.

D Mr. Sharma then made an attempt, based on CIT v. Bur/op Dealers
Ltd., (1971) 79 !TR 609 to urge that since it was permissible for the l.T.O.
during the original proceedings to have conducted an investigation and
verify the material facts, after the assessee had made a disclosure of the
primary facts, about the genuineness of the loan transaction, the assessing
E authority could not on account of an omission on his part to do so, be
permitted to reopen a concluded assessment on the basis of material
coming to its notice subsequently. Thrust of the argument of Mr. Sharma,
was that the finality of a concluded assessment could not be permitted to
be violated on the ground that the I.T.O. acquired some information
subsequently which gave rise to a belief that income assessable to tax had
F
escaped assessment, after he had earlier accepted the statement made by
the assessee in the original assessment proceedings.

After the judgment in Burlap's case (supra) some High Courts h~ve
also taken the view that if on the disclosed facts, after proper verificatiqn,
G the I.T.O. had treated the loan as genuine, he could not reopep_ the
assessment merely because he had subsequently acquired some informa-
tion giving him reason to believe that such loan was not genuine. Some·
High Courts on the other hand have taken the view (after the judgment in
Burlap's case) that if on the basis of the representation made by an
H assessee, the I.T.O. had treated certain loan as genuine but subsequently
PHOOL CHAND v. I.TO. !DR. ANAND.J.J 45

learnt on reliable inforn1ation that such representation \Vas either false or A
incorrect, the l.T.(). \vould have jurisdiction lo initiate reassessment
;
proceedings, because the asscssee could not be said to have disclosed
material facts truly and fully during the origianl assessment proceedings.
As a matter of fact it \Vas this divergence of opinion bCtwccn the High
Courts which le<l the High Court in the present case lo grant the certificate
of fitness to file an appeal in this court. Ho\vcver, we need not burden this
B
judgment by referring to different judgments of the High Courts taking one
view or the other. It would be appropriate at this stage lo consider the facts
of Bllriop's case (supra) an<l the law lai<l Jown therein.

In Bur/op Dea/en' case (supra) for the assessment year 1949-50, the C
asses.sec submitted a profit and loss account disclosing in the relevant year
of account a sun1 of Rs. 1,75,875 as profit in a joint venture from H. Manary
Limited (hereinafter HM) and claimed that Rs. 87,937 being half the profit
earned from HM was paid to one Ratiram under a partnership agreement.
According to the aS.sessee, it had entered into an agreement with HM on D
June 5, 1948 to Jo business in plywood chests an<l in consideration of
financing that business, the assessee \Vas to receive 50% of the profits of
the business. The assessee claimed that it had entered into an agreement
\Vith. Ratiram for financing the transactions of HM in the joint venture and
had agreed to pay to Ratiram 50% of the profit earned by it from the
business with HM. The Income Tax Officer accepted the returns file<l by E
the assessee and in computing the total income for the assessment year
1949-50 he included a sum of Rs. 87,937 (50% of Rs.1,75,875) only as the
profit earned on the joint venture with HM. In the assessment year 1950-51
also the assessee filed a return accompanied by a profit and loss account,
disclosing total profit of Rs. 1,62,155 in the relevant accounting year F
received from HM and claimed that it had transferred 50% of the amount
equal to Rs: 81,077 to the account of Ratiram as his share. The Income
Tax Officer did not agree and held that the alleged agreement between the
assessee and Ratiram was merely a got up device to reduce the profits
received from HM and brought the entire amount of Rs. 1,62,155 to tax.
The order of the l.T.O. was confirmed by the Appellate Assistant Com- G
missioner and the Income-tax Tribunal also. The High Court also agreed
with the view of the Tribunal and on a reference made to it answered the
question against the assessee. In the meanwhile on May 13, 1955, the
Income-tax Officer issued a notice under· Section 34 of the Income Tax
Act, 1922 to the assessee relating to the assessment year 1949-50, intimating H
46 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.~.

A his intention to reopen the assessment of 1949-50, with a view to bring to
tax the amount of Rs. 87,937 allegedly paid lo Ratiram and allowed as a
deduction in the relevant assessment year and called upon the assessee to
file the return. The assessee then filed a return which did not include the
amount paid to Ratiram. The Income-lax Officer reassessed the income
under Section 34(1)(a) and added Rs.87,937 to the income returned by the
B assessee in the assessment year 1949-50. The Appellate Assistant Commis-
sioner held that the Income-tax Officer was entitled to take action under
Section 34(1)(a) of the Income-tax Act, 1922 and to reopen the assessment,
since income had been under-assessed owing to the failure on the part of
the assessee to disclose fully and truly all material facts necessary for the
C assessment at the time of original assessment proceedings. He confirmed
the order of the Income-tax Officer holding that the assessee had misled
the Income-tax Officer into believing that there was a genuine arrangement
with Ratiram. Before the Income Tax Appellante Tribunal, the assessee
submitted that he had produced all the relevant accounts and documents
D necessary for completing the assessment during the concluded assessment
proceedings and he was under no obligation to inform the Income-tax
Officer as to what inferences could be drawn from the material placed
before him. The Tribunal accepted the submission of the assessee and
reversed the order of the Appellate Assistant Commissioner and directed
that the amount of Rs. 87,937 be excluded from the total income of the
E assessee for 1949-50. Reference applications under Sections 66(1), 66(2) of
the Indian Income-tax Act 1922 failed. The revenue Commissioner ap-
preached this Court and it was held :-

"The assessee had disclosed his books of account and evidence
from which the material facts could be discovered: It was under
F
no obligation to inform the Income Tax Officer about the possible
interferences which may be raised against him. It was for the
Income Tax Officer to raise such an inference and if he did not
do so the income which has ~scaped assessment cannot be brought

-
to tax under Section 34(1)(a)."
G
1
Thus, it is seen that in Bur/op Dealers' case, apart from the Income-
tax Officer holding during the assessment proceedings of the same assessee
for a subsequent year, that the alleged agreement between the assessee and
Ratiram was bogus, there was no other information or material from any
H other external source which came to the notice of the l.T.O. after the
PHOOL CHAND v. l.T.O. [DR. ANAND, J.J 47

assessment proceedings which could enable the I.T.O. to form a reasonable A
., belief that the income of the assessee had escaped assessment in the earlier
year. As a matter of fact after the conclusion of the original assessment
proceedings, there was no fresh material at all available with the Income-
tax Officer in Bzutop Dealers' case which could have enabled the l.T.O. to
entertain any reason to believe that the income of the assessee had escaped B
assessment for the assessment year 1949-50. An assessment order for the
subsequent year could not by itself lead to any inference, much less to the
formation of a reasonable belief, that income chargeable to tax had escaped
assessment in the previous year, on account of the failure on the part of
the assessee to make a true and full disclosure of the primary facts during
the proceedings of the concluded assessment. The judgment in Bur/op
c
Dealers' case (supra), cannot be understood as laying down any such
proposition that even where the I.T.O. gets some fresh information which
was not available at the time of the original assessment, subsequent to the
conclusion of the original assessment proceedings, which enables him to
form a reasonable belief that the income of assessee had escaped assess- D
ment, because of the omission or failure of the assessee to disclose true
and full facts during the assessment proceedings he cannot reopen the
assessment. The observations in Burlap's case, noticed above, were made
in the peculiar fact situation of that case and cannot be construed to be of
universal application irrespective of the facts and circumstances of the E
particular case.

In the present case, as already noticed, the I.T.O. Azamgarh, sub-
sequent to completion of the original assessment proceedings, on making
an enquiry from the jurisdictional I.T.O. at Calcutta, learnt that the Cal-
cutta Company from whom the assessee claimed to have borrowed the loan F
of Rs.50,000 in cash, had not really Jent any money but only its name, to
cover up a bogus transaction and after recording this satisfaction as re-
quired by the provisions of Section 147 of the Act proposed to reopen the
assessment proceedings. The present is, thus, not a case where the Income
Tax Officer sought to draw any fresh inference, which could have been G
raised at the time of original assessment on the basis of the material placed
before him by the assessee relating to the loan from the Calcutta Company
and which he failed to draw at that time. Acquiring fresh information,
specific in nature and reliable in character, relating to the concluded
H
48 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R.

A assessment which goes to expose the falsity of the statement made by the
assessce at the time of original assessment is different from dravving a fresh l, .'
inference from the some facts and material which was available which the
ITO at the time of original assessment proceedings. The two situations are
distinct and different. Thus, where the transaction itself on the basis of
B subsequent information, is found to be a bogus transaction, the mere
disclosure of that transaction at the time of original assessment proceed-
11 11 11
ings) cannot be said to be disclosure of the ntrue and ful1 facts in the case
and the ITO would have the jurisdiction to reopen the concluded assess-
ment in such a case. It is correct that the assessing authority could have
deferred the completion of the original assessment proceedings for further
c enquiry and investigation into the genuineeness to the loan transaction but
in our opinion his failure to do so and complete the original assessment
proceedings would not take away his jurisdiction to act under section 147
of the Act, on receipt of the information subsequently. The subsequent
information on the basis of which the ITO acquired reasons to believe that
D income chargeable to tax had escaped assessment on account of the
omission of the assessee to make a full and true disclosure of the primary
facts was relevant, reliable and specific. It was not at all vague or non-
specific.

E It would in this connection be advantageous to take note of some of
the other judgment of this Court wherein the position of law on this aspect
has been clearly enunciated.

Jn CIT v. TS Pl. P. Chidambaram, 80 (1971) !TR 467, relied upon
by Mr. Bhatnagar, the facts were quite similar to the facts in the present
F case.

In that case, the father of the assessee, Palaniappa Chettiar, a money-
lender had made various advances to one Nallathambi, a prominent
landlord in Coimbatore District, on promisory notes. For the amounts ~ue
G from him, Nallathambi had executed mortgage deed of some of his proper-
ties in favour of the assessee's father. On December 14, 1940, the
mortgagee instituted a suit on the basis of the mortgage deed claiming a
sum of Rs.5,50,573, inclusive of principal and interest. On September 19,
1943, the claim was compromised and on October 5, 1943, a compromise
H decree for a sum of Rs.3,50,000 in full and final satisfaction of the
PHOOLCHAND v. l.T.O.[DR.ANAND.J.] 49

mortgagee's claim, was decreed. That debt was subsequently discharged. A
For the assessment year 1.944-45, the assessee as Karla of his undivided
Hindu family, was assessed to income-tax on a total income of Rs.78,556.
While the assessment proceedings were pending before the Income Tax
Officer, Trichy, information was received by the assessing ITO from In-
come Ta,x Officer, Erode, to the effect that the mortgagor had paid secretly B
to the mortgagee a sum of Rs.1.,50,000 during the year ending April 9, 1944
and that the said amount had not been included in the compromise decree.
On enquiry by the Income Tax Officer, Trichy, the assessee denied having
received any such amount secretly. Th.e assessment proceedings were then
concluded accepting the statement of the assessee. The Assessing Officer,
Trichy, however, made further enquiries into the matter and exan1ined the
c
party in the mortgage case, and came to the prima facie conclusion that a
sum of Rs. 1,50,000 (secretly received) had escaped assessment by reason
of the omission of the assessee to disclose fully and truly all material facts
necessary for his assessment for the assessment year 1944-45 during the
original assessment proceedings. He, accordingly, issued a notice under D
Section 34(1)(a) of the 1922 Act (corresponding to Section 147) to the.
assessee. In reply to that notice, the assessee filed a return similar to the
one filed earlier and denied having r.eceived Rs.1,50,000 secretly from the
mortgagor. That plea was not accepted by the ITO who included the
additional sum of Rs.1,50,000 in the income of the assessee, earlier deter- E
mined for the assessment year 1944-45, and taxed him accordingly. On a,n
appeal, the Appellate Assistant Commissioner set aside the order of the
Income Tax Officer and remanded the case for redoing the assessment
after giving the assessee an opportunity to cross-examine the parties ex-
amined by the ITO, on the basis of whose statement he had come to the F
conclusion that a sum of Rs.l.,50,000 had been secretly paid lo the
mortgagee by the mortgagor. The ITO after giving the necessary oppor-
tunity to the assessce made fresh order of assessment including that the
sum of Rs.1,50,000, after holding that the said sum had escaped assessment
, j
on account of the omission of the assessee to disclose truly and fully the G
material facts at the time of original assessment. The following three
questions were referred for the opinion to the High Court.

"(1) Whether assessment under section 34 was valid and proper?

(2) Whether the Income-tax Officer rightly acted in giving effect H
50 SUPREME COURT REPORTS {1993] SUPP. 1 S.C.R.

A to the order of the Appellate Assistant Commissioner setting
aside the assessment to redo the same according to law after
giving an opportunity to the appellant to place all his cards
before the department?

(3) Whether Rs.1,50,000 is taxable as income of the year of the
B account? 11

(p.471)

The High Court answered the first two questions against the assessee and
the third question against the department. Both the assessee and the
c revenue filed appeals.

On behalf of the assessee, it was urged before this Court, that since
at the time when original assessment proceedings, for the relevanf year,
were pending before the ITO, he had before him information given to him
D by the Income-tax Officer, Erode regarding the secret transaction and yet
he did not choose to act on that information or conduct any further enquiry
of investigation before concluding the assessment, it was not open to him
thereafter to initiate proceedings under Section 34. A Bench of three
learned Judges of this Court repelled the contention and observed thus:

E ".... On the facts found by the Tribunal, it is established that the
assessee's father had clearly suppressed the receipt of Rs.1,50,000
from the mortgagor. The assessee had a duty to disclose fully and.
truly all material facts necessary for this assessment. Herein we are
not dealing with a case coming under section 34(1)(b). All that we
F have to see is whether the requirements of section 34(1)(a) are
satisfied. This court in Calcutta Discount Co. Ltd. v. Income-tax
Officer, Companies District I, Calcutta, ruled that to confer juris·
diction on the Income-tax Officer to take action under section
34(1)(a) two conditions must be satisfied, viz., (1) he has reason
to believe that there was under-assessment, and (2) that he must
G have reason to believe that the under-assessment has resulted from
non-disclosure of material facts. On the facts found, under-assess·
ment is established and it is also established that under-assessment
·was due to non-disclosure of material facts. There can be no doubt
that at the time he issued notice under section 34(1)(a) on the
H basis of the material before him, the Income-tax Officer could have
PHOOL CHAND v. 1.T.O. [DR. ANAND,J.] 51

formed the necessary belief. In the notice issued he says that he A
had formed that belief. In our opinion, the requirements of section
34(1)(a) are fully satisfied. The fact that there was some vague
information before the Income-tax Officer that the assessee's
father had secretly received a sum of Rs.1,50,000 from the
mortgagor was by itself not sufficient to bring to tax that amount
B
particularly in view of the fact that the assessee had stoutly denied
that fact and the court records did not support that information.
It is true that the Income-tax Officer could have made further
enquiry into the matter but the fact that he did not make any
further enquiry does not take the case oat of section 34(1)( a)
particularly when the assessee had failed to place truly and fully C
all the material facts before him .... "

(p.471-2)

The above observations apply with full force to the facts of the D
present case and also go to show as to how the judgment in Burlap's case
(supra) is required to be understood.

Again, in A.LA. Finn v. CIT, 189 (1991) ITR 285, a three Judges
bench of this Court, to which one of us (S.C. Agrawal, J.,) was a party,
after an elaborate discussion of the subject opined that the jurisdiction of E
the Income Tax Officer to reassess income arises if he has in consequence
?f specific and relevant information coming into his possession subsequent
to . the previous concluded assessment, reason to believe, that income
chargeable to tax and had escaped assessment. It was held that even if the
information be such that it could have been obtained by the I.T.O. during F
the previous assessment proceedings by conducting an investigation or an
enquiry but was not in fact so obtained, it would not affect the jurisdiction
of the Income Tax Officer to initiate reassessment proceedings, if the twin
conditions prescribed under Section 147 of the Act are satisfied.

From a combined review of the judgments of this Court, it follows G
that an Income-tax Officer acquires jurisdiction to reopen assessment
under Section 147(a) read with Section 148 of the Income Tax 1961 only
if on the basis of specific, reliable and relevant information coming to his
possession subsequently, he has reasons which he must record, to believe
that by reason of omission or failure on the part of the assessee to make a H
52 SUPREME COURT REPORTS [1993) SUPP. 1 S.C.R.

A true ana full disclosure of all material facts necessary for his assessment
during the concluded assessment proceedings, any part of his income,
profit or gains chargeable to income tax has escaped assessment. He may
start reassessment proceedings either because some fresh facts come to
light which where lnot previously disclosed or some information with
regard to the facts previously disclosed comes into his possession which
B tends to expose the untruthfulness of those facts. In such situations, it is
not a case of mere change of opinion or !he drawing of a different inference
from the same facts as were earlier available but acting on fresh informa-
tion. Since, the belief is that of the Income-tax Officer, the sufficiency of
reasons for forming the belief, is not for the Court to judge but it is open
C to an assessee to establish that there in fact existed no belief or that the
belief was not at all a bona fide one or was based on vague, irrelevant and
non-specific information. To that limited extent, the Court may look into
t.he. conclusion arrived at by the Income-tax Officer and examine whether
there was any material available on the record from which the requisite
D belief could be formed by the Income-tax OffJcer and further whethyr that
material had any rational connection or a live link for the formation of the
requisite belief. It would be immaterial whether the Income-tax Officer at
the time of making the original assessment could or, could not have found
by further enquiry or investigation, whether the transaction was genuine or
not, if one the basis of subsequent information, the Income-tax Officer
E arrives at a conclusion, after satisfying the twin conditions prescribed in
Section 147(a) of the Act, that the assessee had not made a full and true l
disclosure of the material facts at the time of original assessment and
therefore income chargeable to tax had escaped assessment. The High
Courts which have interpreted Burlap Dealer's case (Supra) as laying down
F law to the contrary fell in error and did not appreciate the import of that
judgment correctly.

We are not persuaded to accept the argument of Mr. Sharma that
the question regarding truthfulness or falsehood of the transactions
reflected in the return can only be examined during the original assessment
G proceedings and not at any stage subsequent thereto. The argument is too
broad and general in nature and does violence to the plain phraseology of
Sections 147(a) and 148 of the Act and is against the settled law by this
Court. We have to look lo the purpose and intent of the provisions. One
of the purposes of Section 147, appears to us to be, to ensure that a party
H
PHOOL CHAND v. I.T.O. [DR, ANAND, J.] 53

cannot get away by wilfully making a false or untrue statement at the time A
of original assessment and when that falsity comes to notice, to turn around
and say "you accepted my lie, now your hands are tied and you can do
nothing". It would be traversty of justice to allow the assessee that latitude.

In our opinion, therefore, in the facts of the present case the Income-
tax Officer Azarngarh rightly initiated the reassessment proceedings on the B
1 basis of subsequent information, which was specific relevant and reliable,
and after recording the reasons for formation of his own belief that in the
original assessment proceedings, the assessee had not disclosed the
material facts truly and fully and therefore income chargeable to tax had
escaped assessment. He, therefore, correctly invoked the provisions of C
Sections 147(a) and 148 of the Act. The High Court was, thus, perfectly
justified in dismissing the writ petition. There is no merit in this appeal
which fails and is dismissed but with no order as to costs.

Before parting with the judgment, we would like to observe that since D
the appeal has remained pending in this Court since 1977, it would be in
the interest of justice and fitness of things, that the assessee be granted six
weeks time from today to furnish his reply to the show cause notice issued
by the Income-tax Officer Azamgarh and the ITO should conclude the
reassessment proceedings expeditiously. We make an order accordingly.
We would like to clarify that nothing said by us hereinabove should be E
construed as any expression of opinion on the merits of the reassessment
since we have referred to various facts and law only with a view to
determine whether or not the Income-tax Officer, Azamgarh, v.as justified
in law to initiate the reassessment proceedings under Sections 147(a) and
148 of the Income-tax Act, 1961 in the facts and circumstances of this case. F

R.P. Appeal dismissed.

. )