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PETITIONER: INDO-ADEN SALT MFG. & TRADING CO. PVT. LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, BOMBAY

DATE OF JUDGMENT12/03/1986

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) SINGH, K.N. (J)

CITATION:  1986 AIR 1857            1986 SCR  (1) 627  1986 SCC  Supl.  279     JT 1986   642  1986 SCALE  (1)555

ACT:      Jurisdiction to  reopen assessment  by the  Income  Tax Officer, when  arises -  Reopening assessment  on the ground that the assessee had obtained depreciation at 6 per cent on the assets  as masonry  works, but  the assets  consisted of earth  work   wholly  or  substantially  -  Whether  escaped assessment Duty  of the  assessee to  disclose primary facts and truly Income Tax Act, 1961, section 147 (a).

HEADNOTE:      A partnership  firm business  carried on  by M/s.  Indo Aden Salt Works Co. was taken over by the appellant-assessee by an  agreement dated 24.8.1949. During the assessment year 1950-51, the  said Agreement as well as the Valuation Report of the assets had been filed before the assessing authority. The Income Tax Officer did not discuss the point whether the assets were  constructed of  masonry or made of earth but on the assessee’s  letter conveying  its agreement that for the purpose  of  depreciation  the  value  should  be  taken  as Rs.20,31,000 in  the  aggregate,  in  the  assessment  order allowed 6 per cent depreciation. Later it was found that 93% of the  construction works were made of earth and only 7% of masonry and  that 59%  of piers were made of masonry and 41% of them  were made  of earth  were allowed  12% depreciation which rate  is available  only if  constructed  entirely  or mainly of  wood. The  Income Tax  Officer,  on  these  facts proposed to  reopen the assessment on escaped income for the years 1955-56 to 1962-63. The jurisdiction of the Income Tax Officer to reopen the assessment under section 147(a) of the Income Tax  Act, 1961 and the High Courts’ declining to call for a  statement of  case on  a question of law by rejecting the application  under section  256(2) of  the Act are under challenge in  the appeals  on  certificate  granted  by  the Bombay High Court.      Dismissing the appeals, the Court, 628 ^      HELD: 1.1  If there  are some  primary facts from which reasonable belief  could be  formed that there was some non- disclosure or  failure  to  disclose  fully  and  truly  all material facts,  the Income  Tax Officer has jurisdiction to

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reopen the  assessment. Assessee  knows all the material and relevant facts  - the  assessing  authority  might  not.  In respect of the failure to disclose, the omission to disclose may be  deliberate or  inadvertent. That was immaterial. But if there  is omission  to  disclose  material  facts,  then, subject to  the other  conditions, jurisdiction to reopen is attracted. [632 D-F]      1.2 The  obligation of the assessee is to disclose only primary facts  and not  inferential facts.  What  facts  are material facts would depend upon the facts and circumstances of each  case. Further,  whether there  has been  such  non- disclosure of  primary facts  which has caused escapement of income in the assessment was basically a question of fact.      In this  case, what  portion of  the asset consisted of earth and  what portion  or proportion  consisted of masonry work was  indubitably a  material fact  for the  purpose  of calculating the  depreciation. If over depreciation has been allowed on  the basis  that the  entire  work  consisted  of masonry work,  income might  have been  under-assessed.  The Income Tax  Officer can  reasonably be said to have material to form that belief. [631 E-F]      1.3 Mere  production of  evidence before the Income Tax Officer and  leaving him to find out the position by further probing  is   not  enough.   The  assessee  must  make  full disclosure truly. There may be omission or failure to make a true and  full disclosure,  but if  some  material  for  the assessment lay  embedded in  the evidence  which the revenue could have  uncovered but  did not,  then, it is the duty of the assessee  to bring  it to  the notice  of the  assessing authority. [632 D]      Calcutta  Discount  Co.  Ltd.  v.  Income  Tax  Officer Companies District  I, Calcutta  & Another,  41 I.T.R.  191; Hazi Amir  Mohd. Mir  Ahmed v.  Commissioner of  Income-Tax, Amritsar, 110  I.T.R. 630;  Income Tax Officer I Ward, Distt VI Calcutta  & Ors.  v. Lakhmani  Mewal Das, 103 I.T.R. 437; and Malegaon  Electricity Co.  P. Ltd.  v.  Commissioner  of Income Tax, Bombay, 78 I.T.R. 466 applied. 629

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal Nos. 800- 807 (NT) of 1974.      From the  Judgment and  Order dated  21st June, 1973 of the Bombay  High Court  in Income  Tax Application  No.6  of 1972.      P.G.  Gokhale,  B.R.  Agarwal  and  V.  Menon  for  the Appellant.      S.C. Manchanda,  K.C. Dua and Ms. A. Subhashini for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI  MUKHARJI,   J.   These   appeals   are   by certificate from  the decision  of the  High Court of Bombay dated 21st  June, 1973  whereby the  High Court had declined the application made under section 256 (2) of the Income Tax Act,  1961   (hereinafter  called  ’the  Act’)  wherein  the assessee sought  two questions  to be  referred to  the High Court. The questions were:           (1) Whether, on the facts and in the circumstances           of the  case, the  re-assessment proceedings under           section 147  (a)  of  the  Income-tax  Act,  1961,           initiated  by   the  Income-tax  Officer  for  the           assessment years  1955-56 to  1962-63 against  the           assessee were valid in law ?

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         (2) Whether, on the facts and in the circumstances           of the  case, the  Tribunal was  justified in  up-           holding the  action under  section 147(a)  of  the           Income Tax  Act, 1961  for  the  assessment  years           1955-56 to 1962-63 ?           The real  question, therefore,  is  whether  there were facts  from which  it could  be believed that there was failure or omission to disclose fully and truly all material facts necessary  for the  assessment as  a result  of  which income has  escaped assessment. The assessment was sought to be re-opened  for the  years 1955-56 to 1962-63 (for failure to disclose fully and truly all material facts). It is well- settled that  the obligation  of the assessee is to disclose only primary 630 facts and  not inferential facts - See Calcutta Discount Co. Ltd. v.  Income Tax  Officer Companies  District I, Calcutta and Another,  41 I.T.R.  191. There  must be, therefore, (a) full disclosure,  and (b)  true disclosure  of all  material facts. What  facts are  material for a particular case would depend upon  the facts  and circumstances  of each case, (c) there must  be escapement  of tax or under assessment due to such failure or omission.      In this  case the  reason for  the belief of the Income Tax Officer  was that the assessee had obtained depreciation at 6 per cent on the assets which were masonry works but the assets  really   consisted   of   earth   work   wholly   or substantially. If  that was  the position  then the assessee was  not  entitled  to  depreciation  as  was  granted.  The question, is,  whether the assessee had disclosed the nature of the  masonry work and whether the nature of the asset had been fully and truly disclosed.      The assessee’s  case was  that a  partnership  business carried on  by M/s.  Indo-Aden Salt Works Co. was taken over by the  assessee by an agreement dated 24th August, 1949 and during the  assessment year 1950-51 the said agreement dated 24th August,  1949 as  well as the Valuation Report had been filed before  the assessing  authority. It  is, further, the case of assessee that there was discussion on this Valuation Report. It further appears from the assessment Order and the affidavit that  the Valuation  Report was  discussed and the amount of  depreciation was  more or  less agreed to between the parties.  The revenue’s case, on the other hand, is that which portion  of the  assets consisting of masonry work and which of  earth work  was not  discussed or  disclosed.  The assessee’s contention  before the  revenue  authorities  was that the  primary facts were discussed fully and it was open to the  revenue to  examine into  this aspect greater and it was not  possible after the lapse of such a long time to say actually whether  what portion  of asset  consisted of earth work has  been disclosed  or not.  It appears, however, from the order  of the Tribunal that by its last letter addressed to the  Income Tax  Officer the  assessee had  conveyed  its agreement that  for the  purpose of  depreciation the  value should be  taken as  Rs.20,31,000 in  the aggregate,  in the assessment.  The   Tribunal  has,  further,  found  that  in granting the depreciation the I.T.O. did not discuss 631 the point  whether the assets were constructed of masonry or made  of   earth  and   the  I.T.O.   did  not  exclude  for depreciation the  value of  reservoirs, salt  pans and piers and condensers  and channels  made of  earth but allowed the depreciation claim  of the  assessee on  the entire value of the reservoirs,  salt pans  and  piers  and  condensers  and channels  at   6%  even   though  these   were  only  partly

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constructed  of  masonry  and  partly  made  of  earth.  The Tribunal has noticed that 93% of the construction works were made of earth and only 7% of masonry, and the facts that 41% of the  piers were made of earth and only 59% of masonry was not challenged  before the  A.A.C. and  were not  in dispute before  the   Tribunal.  There   is  also  no  dispute  that depreciation at  6% is  available only  in respect  of  such assets constructed  of masonry  and not if made of earth. It was also  not in  dispute  that  depreciation  on  piers  is available at  12% only  if constructed entirely or mainly of wood. The  fact that  for the  assessment years  1955-56  to 1962-63 excessive depreciation allowance had been allowed in the original  assessments and  income chargeable  to tax had escaped assessment and/or was under-assessed for these years was also not in dispute.      The only  question, therefore,  is, whether  there  was failure on  the part  of the  assessee to disclose fully and truly all material facts necessary for assessment and future whether such  income escaped  assessment  and  whether  such escapement or  under-assessment has  been caused as a result of the  failure or  omission on  the part of the assessee to disclose fully  and truly all material facts. What facts are material facts would depend upon the facts and circumstances of a  particulate case.  This follows from the scheme of the section and  is well-settled  by  the  authorities  of  this Court.      It is  the admitted  position that the assessee had not disclosed either  by valuation report or by statement before the I.T.O.  as to  what portion  consisted of earth work and what portion  or proportion  consisted of  masonry work. For the purpose of calculating depreciation that indubitably was a material  fact. If  over depreciation  has been allowed on that basis  i.e. that  the entirety of the work consisted of masonry work,  income might  have been  under-assessed.  The Income tax  Officer can  reasonably be said to have material to form  that belief.  That position is also well-settled by the scheme of 632 the section, and concluded by the authorities of this Court.      The assessee’s contention is that the I.T.O. could have found out  the position  by further  probing. That, however, does not  exonerate the  assessee to  make  full  disclosure truly. The explanation 2 to section 147 of the Act makes the position abundantly  clear. The  principles have  also  been well-settled and  reiterated in  numerous decisions  of this Court. See  Hazi Amir  Moh. Mir  Ahmed  v.  Commissioner  of Income-tax, Amritsar,  110 I.T.R. 630 and Income-Tax Officer I Ward,  Distt. VI  Calcutta & Others v. Lakhmani Mewal Das, 103 I.T.R.  437.  Hidayatullah,  J.  as  the  learned  Chief Justice then  was,  observed  in  Calcutta  Discount’s  case (supra) that  mere production of evidence before the Income- tax Officer  was not  enough, that  there may be omission or failure to make a true and full disclosure, if some material for the  assessment lay  embedded in  the evidence which the revenue could  have uncovered  but did  not, then, it is the duty of  the assessee  to bring  it to  the  notice  of  the assessing authority.  Assessee knows  all the  material  and relevant facts  - the  assessing  authority  might  not.  In respect of the failure to disclose, the omission to disclose may be  deliberate or  inadvertent. That was immaterial. But if there  is omission  to  disclose  material  facts,  then, subject to  the other conditions, jurisdiction to re-open is attracted. It is sufficient to refer to the decision of this Court in  Calcutta Discount’s case (supra) where it had been held that  if  there  are  some  primary  facts  from  which

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reasonable belief  could be  formed that there was some non- disclosure or  failure  to  disclose  fully  and  truly  all material facts,  the I.T.O.  has jurisdiction  to reopen the assessment. This position was again reiterated by this Court in Malegaon  Electricity Co.  P.  Ltd.  v.  Commissioner  of Income-Tax, Bombay, 78 I.T.R. 466.      Further more  bearing these  principles in mind in this particular case  whether there  has been such non-disclosure of primary  facts which  has caused  escapement of income in the assessment was basically a question of fact.      The High  Court was  right in  declining to  call for a statement of  case  on  a  question  of  law.  The  appeals, therefore, fail.  However, there  will be  no  order  as  to costs. S.R.                                      Appeals dismissed. 633