JUDGMENT
SUHAS CHANDRA SEN, J. :
The Tribunal has referred the following question of law under s. 256(1) of the IT Act, 1961 to this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was not justified in initiating the proceeding under s. 147(a) of the IT Act, 1961, for the asst. yr. 1967-68 ?”
2. In this proceeding the assessment year involved is 1967-68 for which the relevant year of account is the year ended on 31st March, 1967.
The ITO has stated in his assessment order that the original assessment was completed on 26th August, 1971 on the basis of the return and statements and claims made by the assessee. In the original assessment the assessee claimed depreciation of Rs. 1,00,013 on addition of 50 jeeps made in December, 1966 and January, 1967 and the same was allowed by the ITO on the basis of the assessees claim that these were used for the purpose of the assessees business. Subsequently it came to the knowledge of the Department that until 1966 the assessee did not possess any jeep and these were purchased for election purpose only. Hence, the assessment was reopened under s. 147(a) with the approval of the Commissioner to withdraw the depreciation allowed in the assessment for not disclosing by the assessee truly and fully the material facts necessary for assessment.
3. The following reasons were recorded by the ITO for reopening the assessment in the notice issued under s. 147(a) of the IT Act, 1961 :
“The assessee purchased 50 jeeps in 1966. At the time of assessment it was claimed that these jeeps were used for business of the assessee. Accordingly the ITO allowed depreciation of Rs. 1,00,132 and drivers salary of Rs. 369 totalling Rs. 1,00,501 relating to the jeeps in the assessment. After investigation it was found that the jeeps were not used for business of the assessee and were purchased for use of the candidates for general election which was held in 1967. Hence, the expenses claimed by the assessee do not relate to the business of the assessee.
I have, therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the asst. yr. 1967-68, income chargeable to tax has escaped assessment for this year. Hence proposal under s. 147(a).”
4. The ITO has observed in the assessment order that “the business of the assessee was production and sale of cement, castings and rendering services to different concerns and the same business is being continued till this date. Helping the voters in the election is not a business activity. These jeeps were never utilised in the business of the assessee, not did the assessee start any new business in which these jeeps could be utilised. Depreciation is allowed only for wear and tear of assets due to their use in the business. Unless the assets are used in the business no depreciation is allowable ….. In this case the assessee could not show that these jeeps were used for the purpose of its own business. These were utilised only for use of the voters during this year. By no stretch of imagination it can be said that helping the political parties in general election is for the purpose of the assessees business. Even donation to political parties has been held as not an expenditure made for the purpose of the business. [Indian Steel and Wire Products Ltd. vs. CIT (1968) 69 ITR 379 (Cal)].
5. The AAC on appeal held that “in the instant case prior to the previous year under consideration the appellant did not own any jeep it was only in the months of December, 1966 and January, 1967 that is shortly before the general election of 1967 that the appellant-company purchased 50 jeeps. Admittedly the jeeps were purchased with the sole object of assisting a political party in the general election and not for the purpose of business. In course of the original assessment proceedings the appellant failed to disclose fully and truly the material facts which were necessary for its assessment that the jeeps had been acquired not for the purpose of its own business but for a quite different purpose, viz., helping a political party in the general election. In my opinion the fact that the jeeps were acquired not for the purpose of business but to help a political party was a material fact necessary for assessment, which fact was not disclosed by the appellant fully and truly as a result of which income chargeable to tax had escaped assessment in the original assessment.
6. The Tribunal on further appeal observed that “the assessees representative submitted that the original return of income was filed on 26th September, 1967 and the assessment was completed on 26th August, 1971. The assessee filed details of the depreciation along with return of income amounting to Rs. 14,86,218. The assessee had given details of the claim giving description of the assets, written down value as on 1st April, 1966, additions during the year, write off during the year, normal depreciation, extra shift allowance, rate of depreciation and the said statement give the total additions of Rs. 10,83,035 are consisted of Rs. 10,00,132 as additions on account of purchase of jeeps. The ITO after scrutinising the claim allowed the depreciation only to the extent of Rs. 14,39,085 as per annexure B of the assessment order. The assessment for the asst. yrs. 1968-69 and 1969-70 were also taken up by the ITO simultaneously and orders were passed on the same date in respect of these assessments. In the assessment for the asst. yr. 1968-69, the ITO allowed the loss on sale of 44 jeeps which were purchased in the earlier accounting year to the extent of Rs. 1,31,108. In the subsequent assessment year i.e., 1969-70 also the ITO allowed the loss of Rs. 3,662 on sale of jeeps. In all these years the assessee filed full details in support of the claim of the depreciation. The subsequent reopening of the assessment under s. 147 by the ITO is not justified because the assessee disclosed all materials and primary facts at the time of original assessment and after recording the deposition of some employees made the assessment. The depreciation has wrongly been withdrawn by the ITO because under s. 32 of the Act all prescribed particulars were filed. The assessee-company had furnished all details at the time of assessment and the ITO scrutinised all the details and then allowed the depreciation. Under these circumstances, there is no omission or failure on the part of the assessee to disclose all material facts necessary for the assessment. So long as the details regarding the depreciation were before the Assessing Officer, the question whether the depreciation was legally allowable or not is an inference to be arrived at by the ITO by applying the legal principles and the provisions of the Act. These is, therefore, hardly any scope to invoke the provisions of s. 147(a) of the Act.
The Tribunal after considering the submissions of the assessee and also of the Department and after considering the recorded reasons observed that “from the reasons recorded by the ITO it is clear that after the assessment was over he made investigation and came to know that the depreciation was not correctly allowed. But s. 147 provides that if (a) the ITO has reason to believe that by reason of commission or failure on the part of the assessee to make a return under s. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year or (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, assess or reassess such income or recompute the loss or the depreciation allowance. In this case the assessee filed full particulars of depreciation and expenses along with the return of income and as such the assessee has disclosed the material facts necessary for making the assessment. Further, the ITO must get the information after the assessment is over. In the case of the assessee the ITO did not get any information, but he investigated into the fact and then came to know that the depreciation was claimed wrongly. The ITO, in our view, cannot make investigation piecemeal. It was imperative upon him to make full investigation into the facts when he was examining the particulars of depreciation and expenses.”
The Tribunal ultimately concluded that “subsequent investigations, as is clear from the reasons recorded by the ITO, are not justified for initiating action under s. 147(a) of the Act. The information must come in possession of the ITO after the assessment is made. So the basis of initiating the proceedings under s. 147 is the information and not the investigation. Therefore, having regard to all the facts of the case we hold that the ITO was not justified in initiating action under s. 147(a) of the Act.”
7. I fail to see, why the ITO cannot make an investigation after the assessment is over. The duty of the assessee is to disclose fully and truly all material facts necessary for the purpose of assessment. The assessee was claiming depreciation under s. 32 of the IT Act, 1961. Depreciation can only be allowed in respect of buildings, plant and machinery, furnitures used for the purpose of business by the assessee. The assessee in this case had purchased jeeps. The assessee had furnished particulars of such jeeps. But the assessee did not disclose the fact, which was within the assessees knowledge, that the jeeps were purchased not for the purpose of the assessees business but for the purpose of some other activity, namely, for making these available to a political party in connection with the general election held that year. This material fact was within the knowledge of the assessee but the same was not disclosed. The plea that the ITO might have made an enquiry at that stage to find out the truth will not absolve the assessee from its duty to disclose all material facts fully and truly for the purpose of assessment. Moreover, the Tribunals distinction between information and investigation is not correct. The Tribunal appears to have taken the view that reopening of assessment proceeding can be done under s. 147(a) on the basis of information but no reopening can be done on the basis of facts gathered on further investigation. If the ITO makes an investigation and gets some information, which goes to show that the assessee had not disclosed fully and and truly all material facts there is no reason why the ITO cannot reopen the case under s. 147(a).
8. Mr. Pal has sought to argue, whether there is full and true disclosure of material facts is a question of fact. There cannot be any dispute about this proposition. The Tribunal has not found that there was no information in the possession of the ITO, which could enable him to reopen the case. On the contrary, the Tribunal has found that the information that had come into possession of the ITO, was as a result of investigation after the assessment. This, according to the Tribunal, was not permissible. This investigation should have been made at the very stage of assessment.
9. I am unable to accept this as a proposition of law. Sec. 147 casts a duty upon the assessee to disclose full and truly all material facts necessary for the purpose of assessment. This duty of making a full disclosure is not absolved by the ITOs failure to find out the truth by making thorough investigation into the statements made by the assessee. The ITO may accept the statements made by the assessee as true or make enquiries at the assessment stage. Later on, he may come across materials which go to show that the assessee had not made full or true disclosures of material facts in the course of assessment proceedings. There is nothing in s. 147 to suggest that the ITO cannot reopen the assessment in a case like this because he failed to investigate and find out the truth at the assessment stage. If it is a question of inference to be drawn from the basic facts, the ITO cannot reopen the assessment merely because he failed to draw the correct inference from the materials disclosed by the assessee. But, if the assessee does not disclose the basic facts fully or correctly then the assessee cannot be heard to say that it was for the ITO find out the truth.
10. In the case of Calcutta Discount Co. Ltd. vs. ITO & Anr. (1961) 41 ITR 191 (SC), there was no allegation that the assessee had not disclosed material facts fully and truly. The Supreme Court emphasized the fact that all primary facts were fully and truly disclosed in that case. In that case it was observed at page 206 of the report “It is pertinent to note that in paragraph 4 of his affidavit Kanakendra Narayan Banerjee refers to the Memorandum of Association and states that by its Memorandum of Association the company has been authorised to carry on the various kinds of business which have been specified in sub-ss. (1) and (2) of cl. 3 of the said Memorandum of Association. He does not say that the Articles or the Memorandum of Association were not shown during the assessment proceedings for the years 1942-43, 1943-44 and 1944-45. If he had any reason to believe that these were not shown he would have certainly mentioned that fact. For, that would undoubtedly amount to non-disclosure of a material fact.”
11. In the case of CIT vs. T. S. PL. P. Chidambaram Chettiar (1971) 80 ITR 467 (SC), when the assessment proceedings of the assessee were pending before the ITO, Trichy, he had received information from the ITO, Erode, that the assessee had secretly received a sum of Rs. 1,50,000 in the course of the relevant accounting year. At the time of the assessment proceedings the assessee, however, denied having received any money secretly in course of the proceeding for assessment. After the completion of the assessment, the Assessing Officer made further enquiry into the information received from the ITO, Erode, and came to believe that the sum of Rs. 1,50,000 had escaped assessment by reason of the omission of the assessee to disclose fully and truly all material facts necessary for his assessment. The Supreme Court observed “It is true that the ITO could have made further enquiry into the matter but the facts that he did not make any further enquiry does not take the case out of s. 34(1)(a) particularly when the assessee had failed to place truly and fully all the material facts before him.”
If the ITO had formed the requisite belief that the assessee had not fully and truly disclosed all the material facts at the time of assessment, the ITO had jurisdiction to reopen the case. The belief may be formed on the basis of materials found on investigation subsequent to the assessment proceedings.
12. In that view of the matter the question referred is answered in the negative and in favour of the Revenue.
There will be no order as to costs.
BHAGABATI PRASAD BANERJEE, J. :
I agree.