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PETITIONER: GANGA SARAN AND SONS PVT. LTD. CALCUTTA

       Vs.

RESPONDENT: INCOME TAX OFFICER & ORS.

DATE OF JUDGMENT23/04/1981

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. VENKATARAMIAH, E.S. (J)

CITATION:  1981 AIR 1363            1981 SCR  (3) 564  1981 SCC  (3) 143        1981 SCALE  (1)883  CITATOR INFO :  R          1987 SC1897  (31)

ACT:      Income  Tax   Act  1961,   S.  147-Income   Tax-Escaped assessment-Duty of  assessee to disclose fully and truly all material facts  necessary for  his assessment for that year- Meaning of.      Director in  sole charge  of management  of business of assessee-Paid remuneration  for services-Utilisation  of the remuneration by  director-Assessee whether  under obligation to disclose  to the  Income Tax Officer in the course of its assessment.

HEADNOTE:      The assessee  was incorporated  as  a  Private  Limited Company in  March, 1947  with G as its Managing Director and it took  over the business of the trading company carried on by ’D’  in Delhi.  D was  the brother-in-law  of G  and  was placed in  charge of  the management  of the business of the Delhi Branch of the assessee and he was paid a salary of Rs. 1000 per  month, commission at the rate of 1 per cent on the sales of  the Delhi  Branch and  bonus equivalent  to  three months salary.      The assessments  of the  assessee for the years 1949-50 to 1959-60  were finalised  on the basis of the decisions of the Income-Tax Tribunal and the amounts paid to the Managing Director and  the other  Directors including  D  by  way  of salary,  commission  and  bonus  were  allowed  in  full  as permissible deductions  and so  was the interest paid on the credit balances in their respective accounts.      On the  28th March, 1968, the Income Tax Officer issued a notice  under Section  148 of  the Income  Tax  Act,  1961 seeking to  reopen the  assessment of  the assessee  for the assessment year 1959-60 on the ground that the income of the assessee had  escaped assessment at the time of the original assessment. The  Income Tax  Officer, however, did not state the reasons  which had  led to the belief that the income of the assessee had escaped assessment by reason of omission or failure to  disclose material  facts nor  did  he  give  any reasons though requested by the assessee.      The assessee’s  writ petition  challenging the validity of the  notice was  allowed by a Single Judge and the notice

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issued by  the Income  Tax Officer  was quashed. It was held that there was no omission or failure on the part of the 565 assessee  to   disclose  material   facts  relating  to  his assessment and  that there was no reason to believe that any part of the income of the assessee had escaped assessment at the time  of the  original assessment  by  reason  of  wrong allowance of  the remuneration  paid to  D as  a permissible deduction.      The Division Bench allowed the appeal, holding that the Income  Tax   Officer  had   reason  to   believe  that  the remuneration paid  to  D  had  been  wrongly  allowed  as  a permissible deduction  by reason  of omission  or failure on the part  of the assessee to disclose the material facts and the notice issued by the Income Tax Officer was justified.      Allowing the appeal to this Court, ^      HELD: 1.  (i) Neither  of the  two conditions necessary for attracting  the applicability  of  Section  147(a),  was satisfied. The  notice issued  by the  Income Tax Officer is therefore without jurisdiction. [574 G]      (ii) It  is not possible to sustain the conclusion that the assessee  omitted or  failed to disclose fully and truly any material facts relating to his assessment.                                                      [574 F]      2.  (i)  Before  the  Income  Tax  Officer  can  assume jurisdiction to  issue  notice  under  Section  147(a),  two distinct conditions  must be  satisfied. First, he must have reason to  believe that  the  income  of  the  assessee  has escaped assessment  and secondly,  he must  have  reason  to believe that such escapement is 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. If either of  these conditions  is not  fulfilled,  the  notice issued  by   the  Income   Tax  Officer   would  be  without jurisdiction. [571 F]      (ii) The  important words under Section 147(a) are "has reason to  believe" and  these words  are stronger  than the words "is  satisfied.". The belief entertained by the Income Tax Officer  must not be arbitrary or irrational. It must be reasonable or  in other  words it  must be  based on reasons which  are   relevant  and   material.  The   Court,  cannot investigate into  the adequacy or sufficiency of the reasons which have weighed with the Income Tax Officer, in coming to the belief,  but the  Court can  examine whether the reasons are relevant  and have a bearing on the matters in regard to which he  is required  to entertain the belief before he can issue notice  under Section  147(a). If there is no rational and intelligible  nexus between  the reasons and the belief, so that,  on such  reasons, no  one properly  instructed  on facts and  law could  reasonably entertain  the belief,  the conclusion would  be inescapable that the Income Tax Officer could not have reason to believe that any part of the income of the  assessee had  escaped assessment and such escapement was by  reason of the omission or failure on the part of the assessee to  disclose fully and truly all material facts and the notice  issued by  him would be liable to be struck down as invalid. [571 G-572 C]      3. Even  a close  relative who  is  in  management  and charge of  a business on a full time basis is entitled to be paid  remuneration   and,  in   fact,  it  would  be  wholly unreasonable to expect him to work free of charge. [573 C] 566      In the  instant case  D was the brother-in-law of G the Managing Director  of the  assessee  but  this  circumstance

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cannot lead to an inference that the payment of remuneration to D  who was solely managing and looking after the business of the Delhi Bench of the assessee was sham and bogus. There is nothing unusual in D giving a loan to his brother-in-law, the Managing  Director or  making gifts to the son, wife and daughter-in-law of  the Managing Director who were his close relatives. Any inference that the payment of remuneration to D was  sham and bogus cannot be drawn merely from the manner in which  he expended the amount of remuneration received by him, particularly  when the  persons to  whom he gave a loan and made gifts were his close relatives.                                                [573 E-574 B]      4. The statements of account of D with the assessee for the relevant accounting year as also the previous years were with the  Income Tax  Officer at  the time  of the  original assessment and  these statements  of account  clearly showed that out  of the  amount of  remuneration  credited  to  his account, he  had made  gifts to  the sons of G on 31st July, 1957 and  given a loan to G on the 25th August, 1958 and the Income Tax  Officer was  fully aware that G was the Managing Director of  the assessee.  The assessee could not therefore be said  to be under an obligation to disclose to the Income Tax Officer  in the  course of  its assessment as to how the director who  was in  sole charge  of the  management of the business  of   the  assessee,   and  who   was  being   paid remuneration  for  the  services  rendered  by  him  to  the assessee, had  utilised the  amount of remuneration received by him. [574 C-F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1146 of 1973.      From the judgment and order dated the 1st, June 1972 of the Calcutta  High Court  in Appeal  No. 150 of 1971 arising out of Matter No. 262 of 1968.      Debi Pal, A.K. Verma and K.J. John for the Appellant.      V.S. Desai,  Champat Rai and Miss A. Subhashini for the Respondents.      The Judgment of the Court was delivered by      BHAGWATI, J.  This appeal  by certificate  is  directed against an  order passed  by a  Division Bench  of the  High Court of Calcutta allowing an appeal against a decision of a Single Judge which quashed and set aside a notice dated 28th March 1968  issued by  the Income  Tax Officer under section 148 of the Indian Income Tax Act, 1961 seeking to reopen the assessment of  the assessee for the assessment year 1959-60. The facts  giving rise  to the appeal are a little important and they may be briefly stated as follows. 567      Prior to  March 1947,  one Deo  Datt Sharma  carried on business in Delhi in the name of Sharma Trading Company. The business was  quite a  prosperous one  and the  record shows that Deo  Datt Sharma  was making an average profit of about Rs. 36,000  per  year.  In  March  1947,  the  assessee  was incorporated as  a private  limited company with Ganga Saran Sharma as  its  managing  director  and  it  took  over  the business of  Sharma Trading  Company as  a going  concern in consideration of  allotment of  1703  shares  in  the  share capital of  the assessee  to  Deo  Datt  Shrama.  The  share capital of  the assessee  consisted of  8500 shares  out  of which 1703 shares were allotted to Deo Datt Sharma, 5 shares were held  by Ganga  Saran Sharma  and  3500  shares,  by  a company called  Narendra Trading Company controlled by Ganga

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Saran Sharma  and his  wife. It  may be  pointed out at this stage that  Deo Datt  Sharma was the brother-in-law of Ganga Saran Sharma.  When business  of Deo  Datt Sharma  was taken over by the assessee, Deo Datt Sharma was appointed Director of the  assessee along  with two  other  persons.  Deo  Datt Sharma was placed in charge of management of the business of Delhi Branch of the assessee and he was paid a salary of Rs. 1000 per  month, commission at the rate of 1 per cent on the sales of  the Delhi  Branch and  bonus equivalent  to  three months’  salary.  Ganga  Saran  Sharma  and  the  other  two directors were also paid salary, commission and bonus but it is not  necessary to  set out  the quantum of the emoluments paid to  them, because  in this appeal we are concerned only with the emoluments paid to Deo Datt Sharma and not with the emoluments paid to other directors.      The Income  Tax Officer while assessing the assessee to tax for  the assessment year 1949-50 disallowed the claim of the assessee  for deduction  in respect  of payments made to the managing  director and  other directors  on  account  of commission  and   bonus.  On  appeal  by  the  assessee  the Appellate Assistant  Commissioner disagreed  with  the  view taken by  the Income  Tax Officer  and  allowed  the  entire amount paid  to the managing director and other directors by way of  commission and  bonus. So  far as Deo Datt Sharma is concerned, the  Appellate  Assistant  Commissioner  observed that having  regard to  the fact that this very business was carried on  by Deo  Datt Sharma  prior to its taking over by the assessee  and it was a prosperous business earning on an average about  Rs. 36,000  per year and after taking over of the business  by the  assessee, Deo Datt Sharma continued to be in sole management of the 568 business of  the Delhi  Branch, the aggregate amount paid to him could  not at  all be  regarded  as  excessive  and  was allowable as a permissible deduction. Thus the entire amount paid by  the assessee  to the  managing director  and  other directors   was   allowed   by   the   Appellate   Assistant Commissioner as  a deduction in computing the taxable income of the  assessee. The  assessee had thereafter no difficulty in claiming  deduction of  the amount  paid to  the managing director  and   other  directors   on  account   of  salary, commission and bonus, but again in the assessment year 1956- 57, the  Income Tax Officer disallowed a substantial portion of the  remuneration paid  to the  managing director and the assessment made  by the  Income Tax Officer was confirmed in appeal  by  the  Appellate  Assistant  Commissioner  and  in further appeal  by the  Income Tax Tribunal. This led to the making of  a reference  and  the  High  Court  answered  the question referred  to it  in favour of the assessee and held that the  disallowance of a portion of the remuneration paid to the managing director was not justified. While making the assessment for  the assessment  year 1957-58, the Income Tax Officer once  again disallowed  a part  of the  remuneration paid to  the  managing  director  as  also  the  amounts  of interest paid  to the directors on the balances lying to the credit of  their respective  accounts with  the assessee  on account of  undrawn remuneration.  The  Appellate  Assistant Commissioner in  appeal held  that the  interest paid to the directors on  the balances  lying to  the  credit  of  their respective accounts  was an  allowable  expenditure  but  he sustained the  disallowance of a portion of the remuneration paid  to  the  managing  director.  The  assessee  thereupon preferred  a  further  appeal  to  the  Tribunal  and  after considering all the facts and circumstances of the case, the Tribunal came  to the  conclusion that the remuneration paid

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to the  managing director as also to the other directors was not at  all excessive and no portion of it could justifiably be  disallowed.  The  result  was  that  not  only  was  the remuneration paid  to the  managing director  and the  other directors allowed  in full  as a  permissible deduction  but also the  amount of  interest paid on the credit balances in their respective  accounts was  allowed to  be deducted as a permissible expenditure.  Obviously, and  this could  not be disputed on  behalf of  the Revenue,  the  accounts  of  the managing director  and other  directors including  Deo  Datt Sharma showing  the amount  of remuneration credited and the withdrawals debited  in each  year were  produced before the Income Tax  Officer and  he was aware that only a very small amount  was   withdrawn  by  Deo  Datt  Sharma  out  of  the remuneration credited in his account. The 569 record also  shows that  on a  query made  by the Income Tax Officer the  assessee furnished  inter alia  the  assessment file number  of Deo  Datt Sharma  who was  being assessed in Delhi. The  assessment for  the assessment year 1958-59 also followed the same course upto the stage of appeal before the Income Tax  Tribunal and  ultimately the  amount of interest paid to  the directors  on  the  credit  balances  in  their respective accounts  was allowed  as a permissible deduction to the  assessee. The  assessment of  the assessee  for  the subsequent year  1959-60 was  thereafter  completed  on  the basis of the decision of the Income Tax Tribunal for the two earlier  assessment  years  and  the  amounts  paid  to  the managing director  and other  directors including  Deo  Datt Sharma by  way of  salary, commission and bonus were allowed in full  as permissible  deductions and  so was the interest paid on the credit balances in their respective accounts.      On 28th  March, 1968  the Income  Tax Officer  issued a notice under section 148 of the Income Tax Act, 1961 seeking to reopen  the assessment of the assessee for the assessment year 1959-60  on the  ground that the income of the assessee had  escaped   assessment  at   the  time  of  the  original assessment. Since a period of four years had already elapsed from the  close of the assessment year 1959-60 and no notice could be  issued under  section 147 (b), it was obvious that the notice  issued by  the Income  Tax Officer  was based on section 147  (a), and it could be justified only if it could be shown  that the  Income Tax Officer had reason to believe that, by  reason of  omission or  failure  on  the  part  of assessee to  disclose any  material facts, the income of the assessee had  escaped assessment.  The  Income  Tax  Officer however did  not indicate  in the notice as to what were the reasons which  had led him to believe that the income of the assessee had  escaped assessment  by reason  of omission  or failure to  disclose material  facts nor  did  he  give  any reasons though  requested by  the assessee  to  do  so.  The assessee thereupon  preferred a  writ petition  in the  High Court of  Calcutta challenging the validity of the notice on the ground that there was no omission or failure on the part of the  assessee to  disclose any material facts at the time of the  original assessment and that in any event, there was no reason  to believe  that any  part of  the income  of the assessee had  escaped assessment  by reason of such omission or failure.  The writ  petition was  admitted and  rule  was issued by  a single  Judge of  the Calcutta  High Court. The Income  Tax  Officer,  possibly  on  service  of  the  rule, addressed a  letter dated  19th June  1968 to  the  assessee stating that 570 the notice  was issued  by him  because  he  had  reason  to

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believe that  the payment of remuneration to Deo Datt Sharma was bogus  and false.  The Income Tax Officer also stated in the affidavit  filed by  him in  reply to  the writ petition that after  the assessment of the assessee was completed for the assessment  years upto  1963-64, the  Income Tax Officer came to learn that Deo Datt Sharma was the brother-in-law of Ganga Saran  Sharma, managing  director and  that  Deo  Datt Sharma had  disposed of the income received by him by way of remuneration from the assessee, in the following manner:           1.   On 31st July 1957 he made a                gift to Shri Narendra Sharma                son of Shri Ganga Saran                Sharma, Managing Director                of the Company.               Rs. 12,550.00           2.   On 25th August 1958 he made                a loan to Ganga Saran Sharma. Rs. 2,25,000.00                                              ---------------                                         Total    2,37,550.00                                              --------------- and thereafter, out of the amount lying to his credit in the account with the assessee, he had made the following gifts:                On 5th December 1960 gift to                Brahma Devi wife of Ganga                Saran Sharma                  Rs.1,01,101.00                On 21st December 1960 gift to                Indu Sharma daughter-in-law of                Ganga Saran Sharma            Rs.  15,101.00                On 26th December 1961 gift to                Hemlata Sharma daughter-in-law                of Ganga Saran Sharma.        Rs.  50,101.00 The Income  Tax Officer  stated that out of the total amount of remuneration  of Rs. 3,51,000 received by Deo Datt Sharma during the  period upto  31st March 1962, he had paid tax in the sum  of about  Rs. 65,000/- and spent a total sum of Rs. 2,37,550 on  account of  gifts and loan as aforesaid and the withdrawals made  by him  for his  own purposes thus did not amount  to  more  than  Rs.  4000  per  year.  These  facts, according to the Income Tax Officer, showed 571 that the  remuneration paid  to  Deo  Datt  Sharma  was  not genuine and  was sham  and bogus  and  the  amount  of  such remuneration alleged  to have  been paid  to Deo Datt Sharma was wrongly allowed as a permissible deduction and hence the assessment of  the assessee  was liable  to be  reopened  by issue of a notice under section 147 (a).      The learned single Judge of the Calcutta High Court who heard the  writ petition  took the  view that  there was  no omission or  failure on the part of the assessee to disclose any material  facts relating  to his  assessment and that in any event,  there was  no reason to believe that any part of the income  of the  assessee had  escaped assessment  at the time of the original assessment by reason of wrong allowance of the remuneration paid to Deo Datt Sharma as a permissible deduction. The  writ petition was accordingly allowed by him and the  notice issued by the Income Tax officer was quashed and set aside. The Income Tax Officer thereupon preferred an appeal before  a Division  Bench of  the Calcutta High Court and the  learned  Judges  constituting  the  Division  Bench allowed the  appeal, holding that the Income Tax Officer had reason to  believe that  the amount  of remuneration paid to Deo Datt  Sharma had  been wrongly  allowed as a permissible deduction by  reason of  omission or  failure on the part of the assessee  to disclose  the material  facts set out above and  the  notice  issued  by  the  Income  Tax  Officer  was justified. The  assessee  thereupon  preferred  the  present

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appeal in  this  Court  after  obtaining  a  certificate  of fitness from the High Court of Calcutta.      It is  well settled as a result of several decisions of this Court  that two  distinct conditions  must be satisfied before the  Income Tax  Officer can  assume jurisdiction  to issue notice  under section  147 (a).  First, he  must  have reason to  believe that  the  income  of  the  assessee  has escaped assessment  and secondly,  he must  have  reason  to believe that such escapement is 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. If either of  these conditions  is not  fulfilled,  the  notice issued  by   the  Income   Tax  Officer   would  be  without jurisdiction. The  important words under section 147 (a) are "has reason  to believe"  and these  words are stronger than the words  "is satisfied".  The belief  entertained  by  the Income Tax  Officer must  not be arbitrary or irrational. It must be  reasonable or  in other  words it  must be based on reasons which  are relevant  and  material.  The  Court,  of course, cannot  investigate into the adequacy or sufficiency of the reasons which 572 have weighed  with the  Income Tax  Officer in coming to the belief, but  the Court  can certainly  examine  whether  the reasons are  relevant and  have a  bearing on the matters in regard to  which he  is required  to  entertain  the  belief before he  can issue  notice under section 147 (a). It there is no  rational and  intelligible nexus  between the reasons and the  belief, so  that, on  such reasons, no one properly instructed on  facts and  law could reasonably entertain the belief, the  conclusion would be inescapable that the Income Tax Officer  could not  have reason to believe that any part of the  income of  the assessee  had escaped  assessment and such escapement  was by reason of the omission or failure on the part  of the  assessee to  disclose fully  and truly all material facts  and the notice issued by him would be liable to he struck down as invalid.      Now here  on the facts as admitted or found it is clear that Deo Datt Sharma was carrying on the same business prior to the  incorporation of  the assessee  as a private limited company and this business was yielding him an average profit of  about   Rs.  36000  per  year.  When  the  assessee,  on incorporation, took  over the  business as  a going  concern from Deo  Datt Sharma  it appointed  Deo Datt  Sharma  as  a director and  placed him in sole charge of the management of the Delhi  Branch of  the business. In fact, it could not be disputed on  behalf of  the Revenue that Deo Datt Sharma was looking after  the business  of  the  Delhi  Branch  of  the assessee in  the same  manner in  which he was doing when he was sole  proprietor of  the business and for this work done by him,  Deo Datt  Sharma was paid salary at the rate of Rs. 1000 per  month, commission  at the  rate of one per cent on the sales  of the Delhi Branch and bonus equivalent of three months’ salary.  The amount of remuneration paid to Deo Datt Sharma was  thus not  without consideration; in fact, it was paid for  valuable services  rendered by  Deo Datt Sharma in solely managing  the business  of the  Delhi Branch  of  the assessee. Now  once it  is conceded that Deo Datt Sharma was in sole  charge and  management of the business of the Delhi Branch of  the assessee  and was rendering full time service to the assessee in that capacity, it is difficult to see how any one could reasonably come to the belief that the payment of remuneration  made to him was sham and bogus. Surely, the Income Tax  officer could  not expect  Deo  Datt  Sharma  to devote his full time and energy to the business of the Delhi

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Branch of  the assessee without any remuneration whatsoever. The actual  remuneration paid to Deo Datt Sharma was in fact found  to   be  genuine  and  reasonable  by  the  Appellate Assistant Commissioner 573 while disposing  of the  appeal  of  the  assessee  for  the assessment year  1949-50 as  also by the Income Tax Tribunal while disposing  of the appeal for the assessment year 1957- 58. It  is true  that Deo Datt Sharma was the brother-in-law of  Ganga   Saran  Sharma,  the  managing  director  of  the assessee, but  this circumstance  cannot by  any stretch  of imagination  lead  to  an  inference  that  the  payment  of remuneration to  Deo Datt Sharma who was solely managing and looking after  the business  of  the  Delhi  Branch  of  the assessee was sham and bogus. Even a close relative who is in management and  charge of a business on a full time basis is entitled to  be paid  remuneration and, in fact, it would be wholly unreasonable to expect him to work free of charge.      The Revenue,  however, relied strongly on the fact that out of  the total  amount of  remuneration of  Rs.  3,51,000 received by Deo Datt Sharma and credited to his account with the assessee,  he had  not withdrawn more than Rs. 4,000 per year for  himself and  an aggregate  sum of Rs. 2,37,550 was expended by  him in  giving a loan to Ganga Saran Sharma and making gifts  to the son, wife and daughters-in-law of Ganga Saran Sharma  on diverse  dates between  31st July, 1957 and 26th December  1961. We  fail to  see how this fact can lend itself to  the inference that the payment of remuneration to Deo Datt Sharma was bogus and not genuine. It is an admitted fact that  Deo Datt  Sharma was  the brother-in-law of Ganga Saran Sharma and there is nothing unusual in Deo Datt Sharma giving a  loan to  Ganga Saran  Sharma or making gift to the son, wife  and daughters-in-law  of Ganga  Saran Sharma  who were  his   close  relatives.  It  is  indeed  difficult  to appreciate how  any inference  can reasonably  be drawn that the payment  of remuneration to Deo Datt Sharma was sham and bogus merely from the manner in which he expended the amount of remuneration  received  by  him,  particularly  when  the persons to whom he gave a loan and made gifts were his close relatives. It  is possible  that Deo  Datt Sharma  had other financial resources  apart from  the remuneration derived by him from  the assessee  and he  therefore decided  to give a loan and  make gifts  to his  close  relatives  out  of  the remuneration received  by him for valuable services rendered to the  assessee. In  fact, if  he had  no  other  financial resources, it  is extremely  difficult-one might say, almost impossible-to believe  that he  worked for  the assessee and managed and looked after the business of the Delhi Branch on a full  time basis  without any remuneration or in any event on a 574 paltry remuneration  of Rs. 4,000 per year when the managing director and  other directors who were working like him were getting much more from the assessee and as the proprietor of the business  prior to  its taking  over by the assessee, he was earning  an average  profit of  about Rs.  36,000/-  per year. We  are clearly  of the  view that  on these facts the Income Tax  Officer could have no reason to believe that the payment of  remuneration to  Deo Datt  Sharma was  sham  and bogus and  that the  amount of  remuneration paid to him was wrongly allowed as a permissible deduction.      We may  point out  that,  in  fact,  the  statement  of account of  Deo  Datt  Sharma  with  the  assessee  for  the relevant accounting  year as  also the  previous years  were with the  Income Tax  Officer at  the time  of the  original

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assessment and  these statements  of account  clearly showed that out  of the  amount of  remuneration  credited  to  his account, he  had made  a gift  of Rs.  12,550 to  the son of Ganga Saran Sharma on 31st July 1957 and given a loan of Rs. 2,25,000 to  Ganga Saran Sharma on 25th August, 1958 and the Income Tax  Officer was  fully aware that Ganga Saran Sharma was the  managing director  of the  assessee. It is possible and we  may assume  it in  favour of  the Revenue,  that the subsequent gifts  made by  Deo Datt  Sharma to  the wife and daughters-in-law of Ganga Saran Sharma were not disclosed to the  Income   Tax  Officer  at  the  time  of  the  original assessment, but these gifts being subsequent to the relevant accounting year,  the assessee was not bound to disclose the same to the Income Tax Officer. Moreover, it is difficult to appreciate how  the assessee  could be  said to  be under an obligation to  disclose to  the Income  Tax Officer  in  the course of  its assessment  as to  how a  director who was in sole charge  of  the  management  of  the  business  of  the assessee  and  who  was  being  paid  remuneration  for  the services rendered  by him  to  assessee,  had  utilised  the amount of  remuneration received  by him. We do not think it possible to sustain the conclusion that the assessee omitted or failed  to disclose  fully and  truly any  material facts relating to his assessment.      We must  in the  circumstances hold that neither of the two conditions necessary for attracting the applicability of section 147(a)  was satisfied  in the  present case  and the notice issued  by the  Income Tax Officer must be held to be without jurisdiction.      We accordingly allow the appeal, set aside the judgment of the Division Bench and restore that of the learned single Judge quashing 575 and setting aside the notice dated 28th March 1968 issued by the Income  Tax Officer  against the  assessee. The  Revenue will pay the costs of the assessee throughout. N.V.K.                                        Appeal allowed 576