JUDGMENT
Ajit Kumar Sengupta, J.
1. In this application under Article 226 of the Constitution of India, the petitioner challenged, inter alia, the legality and/or validity of a notice dated March 19, 1976, issued under Section 148 of the Income-tax Act, 1961, for the assessment year 1959-60. The case of the writ petitioner is that the petitioner is an investment company having income from dividends and interest on deposits. This application relates to the assessment of the petitioner under the Indian Income-tax Act, 1922 (hereinafter referred to as “the old Act”), for the assessment year 1959-60, for which the relevant accounting year ended on March 31, 1959. The petitioner maintained its accounts according to the mercantile system of accountancy.
2. As on March 31, 1949, the petitioner had 40,000 equity shares in Rajasthan Trading Co. Ltd. In March, 1949, Rajasthan Industries Ltd. (hereinafter referred to as “”the new company”) came into existence with a share capital of 36,300 ordinary shares of Rs. 10 each, out of which 36,266 shares were acquired by the said Rajasthan Trading Co. Ltd. by paying Rs. 100 per share towards premium. In March, 1949, the said Rajasthan Trading Co. Ltd. (hereinafter referred to as “the defunct company”) went into liquidation. On the liquidation of the said Rajasthan Trading Co. Ltd., the petitioner received 4,820 ordinary shares of the said new company which was duly disclosed in the balance-sheet of the petitioner as on March 31, 1950.
3. By a resolution passed at the meeting of the shareholders of the new company held on March 18, 1959, it was, inter alia, resolved that a sum of Rs. 32,67,000 standing to the credit of the share premium account be capitalised and the same be applied in paying up 36,300 ordinary unissued shares of Rs. 90 each and the said shares be issued to the members as fully paid bonus shares to rank pari passu in all respects with the existing ordinary shares and the said shares be allowed to the holder of 36,300 shares in the capital of the company in proportion to one ordinary share of Rs. 90 each for every one already issued ordinary shares held by such member on March 18, 1959, and that the ordinary shares so distributed for all purposes be treated as an increase of the nominal amount of the capital of the company held by each such person and not as income. Pursuant to the said resolution of the shareholders and the resolution of the board of directors of the new company, the petitioner received 4,840 bonus shares of Rs. 90 each fully paid in respect of the said 4,840 shares held by it. By the said resolution of the new company dated March 18, 1959, it was further resolved that the said 36,300 shares of Rs. 10 each and 36,300 bonus shares of Rs. 90 each be consolidated into 36,300 ordinary shares of Rs. 100 each and that every one share of Rs. 90 be consolidated with every one ordinary share of Rs. 10 into one share of Rs. 100 each.
4. Such allotment of the said bonus shares and consolidation of the bonus and existing shares as aforesaid by the new company was duly disclosed by the petitioner in its balance-sheet and the profit and loss account for the year ended March 31, 1959. The petitioner referred to us and relied upon its audited balance-sheet and the profit and loss account for the year ended March 31, 1959, at the time of hearing of the application.
5. In respect of the said assessment year 1959-60, the petitioner filed its return under the old Act before respondent No. 1 who then had jurisdiction over the petitioner. Along with the said return, the petitioner filed its audited profit and loss account and balance-sheet, details of dividends, dividend warrants, details of interest and expenses, etc. In the said return, the petitioner disclosed fully and truly all its income and all material and primary facts relevant and necessary for the purpose of its assessment under the old Act for the assessment year 1959-60. In the course of the assessment proceedings, the petitioner’s representative, Sri S. S. Lakhotia and Sri B. G. Shinde, appeared before respondent No. 1 from time to time in response to notices issued under Section 23(2) of the old Act and discussed the case with him.
6. By an order of assessment dated February 15, 1960, made under Section 23(3) of the old Act, respondent No. 1 assessed the petitioner for the assessment year 1959-60 on a total income of Rs. 4,72,029. In so assessing respondent No. 1 wrongly revalued the dividend received in specie from Messrs. Pilani Investment Corporation Ltd. in the form of 7,963 ordinary shares of Rs. 10 each of Gwalior Rayon and Silk Manufacturing Company Limited and 253 shares of Rs. 125 each of Hind Cycles Ltd.
7. Being aggrieved by the said order of assessment, the petitioner preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Indore Range, Indore, Camp Gwalior, who by an appeal order dated December 29, 1960, dismissed the said appeal. The petitioner preferred a further appeal before the Income-tax Appellate Tribunal who by its appeal order dated August 20, 1962, dismissed the said appeal.
8. Upon an application made by the petitioner under Section 66(1) of the old Act, the Income-tax Appellate Tribunal drew up a statement of case dated January 31, 1966, and referred the following question of law arising out of its said appellate order, to the High Court of Madhya Pradesh :
Question of law
“Whether, on the facts and in the circumstances of’the case, the dividend income of the assessee-company should be taken to be :–
(i) The value of the shares received as dividend as fixed in the resolution declaring the dividend, or
(ii) the market value of the shares on the date of declaration of dividend, or
(iii) the market value of the shares on the date on which dividend was actually received by the company ?”
9. The said reference marked as Miscellaneous Case No. 123 of 1986 was decided by the High Court of Madhya Pradesh by an order and judgment dated August 25, 1967.
10. Some time in December, 1975, the petitioner received from respondent No. 2 a purported letter dated November 25, 1975, wherein respondent No. 2 alleged, inter alia, that the said premium of Rs. 100 per share received as aforesaid by the new company from the defunct company was appearing in the balance-sheet of the new company up to March 31, 1958. During the year ended on March 31, 1959, the new company capitalised the said premium by the issue of the said bonus shares of Rs. 90 each and consolidation thereof with the existing share of Rs. 10 as aforesaid. The said premium amount represented accumulated profit of the defunct company which was kept undistributed with the new company up to March 31, 1958. The distribution of the accumulated profits of the defunct company took place only in March, 1959, when the said premium was capitalised and the said bonus shares were issued, as aforesaid. In the circumstances, the petitioner was required to show cause why the amount of bonus shares received at Rs. 90 per share in respect of the said 4,840 shares aggregating to Rs. 4,35,600 should not be treated as dividend under Section 2(6A)(c) of the old Act for the year 1959-60 and why the said assessment of the petitioner for the said assessment year should not be reopened under Section 147(a) of the Income-tax Act, 1961 (hereinafter referred to as “the new Act”).
11. By a letter dated January 21, 1976, the petitioner stated before respondent No. 2, in reply to his letter dated November 25, 1976, inter alia, that, the said bonus shares issued by the new company as aforesaid was not dividend within the meaning of Section 2(6A)(c) of the old Act, inasmuch as the said bonus shares, were declared and issued by the new company which did not go into liquidation and, therefore, the same was not distributed to the shareholders of a company on its liquidation and the same was not distributed out of any accumulated profits of the new company. In any event assuming but not accepting that the said original 4,840 shares of the now company received, as aforesaid, by the petitioner from the defunct company on its liquidation might represent any part of the accumulated profit of the defunct company, the same should not form the subject-matter of assessment for the assessment year 1959-60 but could have been considered only in the year in which the said 4,840 original
shares, were received by the petitioner, as aforesaid. The petitioner denied and disputed that there was any accumulated profit of the defunct company as alleged. The assumption that the bonus shares represented the accumulated profits of the defunct company was wrong and was without any basis and material whatsoever. Moreover, merely because one company acquires shares in another company at a premium, the amounts of premium cannot be said to represent the accumulated profits of the company acquiring the shares and it could not be said that the accumulated profits were transferred to the company whose shares are acquired. The accumulated profit, if any, of the defunct company could not be treated as the accumulated profit of the new company and the issue of the bonus shares by the new company, as aforesaid, could not, both on facts and in law, be held to be distribution of accumulated profits of the defunct company to the erstwhile shareholders of the defunct company. In any event, the petitioner stated in the said letter that all material and primary facts relating to the receipt of the said shares by the petitioner, both original shares and the bonus shares, were fully and truly disclosed by the petitioner and there was no omission or failure on the part of the petitioner to disclose fully and truly any primary and relevant fact and material relevant for the assessment year 1959-60. In the premises, the provisions of Section 147(a) of the new Act did not and could not apply and no income of the petitioner chargeable to tax in the said assessment year escaped assessment within the meaning of Section 147 of the new Act and the conditions precedent necessary for assumption of jurisdiction under Section 147(a) of the new Act did not exist and could not be satisfied and, therefore, the said assessment should not be reopened under Section 147(a) of the new Act.
12. At the hearing before us, it has been contended that the facts regarding the issue of the said bonus shares by the new company and the consolidation of the said bonus shares with the existing already issued shares, as aforesaid, had been fully and truly disclosed in the course of the original assessment proceedings for the said assessment year. The capitalisation of the share premium by the new company and issue of bonus shares by it was not distribution of the accumulated profit by the order of the defunct company on its liquidation, which liquidation took place a decade before the issue of bonus shares. The said capitalisation of share premium by the new company was not income or dividend within the meaning of the old Act and was and is not chargeable to tax thereunder. Thus it was urged on behalf of the petitioner that the reassessment proceedings were without jurisdiction and should be dropped.
13. Learned counsel for the petitioner further states that in any event no income for the said assessment year 1959-60 had escaped assessment. It appears that the said proceedings under Section 147 of the new Act have been initiated in respect of the said additional ordinary shares issued as capital bonus shares by the said new company. The petitioner states that the said additional ordinary shares of Rs. 90 each issued as capital bonus shares by the said new company cannot be treated as dividend under Section 2(6A)(c) of the old Act as the said bonus shares were not received by the petitioner on the liquidation of the said new company nor did the account relating to the said bonus shares represent any accumulated profits of the new company.
14. From the contents of the notice it appears that in March, 1949, the writ petitioner held 40,000 equity shares of Rajasthan Trading Co. Ltd. and also in March, 1949, Rajasthan Trading Co. Ltd. acquired 36,266 equity shares of Rs. 10 each of Rajasthan Industries Ltd. at a premium of Rs. 100 each (total cost Rs. 110 each) and Rajaslhan Trading Co. Ltd. went into liquidation.
15. On the liquidation of Rajasthan Trading Co. Ltd., the writ petitioner, in March, 1950, was allotted 4,920 ordinary shares of Rajasthan Industries Ltd. of Rs. 10 each.
16. For the accounting year relevant to the assessment year 1958-59, the balance-sheet on March 31, 1958, showed the said shares of Rajasthan Industries Ltd. at a face value of Rs. 10 each. On March 18, 1959, a resolution of Rajasthan Industries Ltd. was passed to capitalise the share premium amount to issue 36,300 shares of Rs. 90 each.
17. On March 31, 1959, the balance-sheet for the assessment year 1959-60 disclosed the face value of the said shares at Rs. 100 each.
18. In December, 1975, the Income-tax Officer allowed that premium represented accumulated profit of Rajasthan Trading Co. Ltd. which was distributed in March, 1959, and accordingly dividend under Section 2(6A)(c) of 1922 Act escaped assessment. On March 19, 1976, a notice under Section 148 for the assessment year 1959-60 was issued.
19. In the course of the hearing, we directed the respondents to produce the reasons that ought to have been recorded for the initiation of the proceedings under Section 148 of the Act. The reasons recorded are set out as follows :
“Rajasthan Trading Company (hereinafter referred to as ‘the defunct company’) bought 36,266 shares of another company styled Messrs.
Rajasthan Industries Ltd. (hereinafter referred to as ‘the new company’) which was floated on March 3, 1949, with a share capital consisting of 36,300 shares of Rs. 10 each. Whereas the face value of the share of the new company was Rs. 10 only, the shares were acquired by paying Rs. 100 per share towards premium. Thus, the defunct company paid in all Rs. 39,89,260 for purchasing 36,266 shares of the new company (Rs. 3,62,660 at the rate of Rs. 10 per share and Rs. 36,26,600 premium at Rs. 100 per share). In May, 1949, Rajasthan Trading Co. Ltd. went into liquidation and on its liquidation distributed 4,840 shares of the new company to its shareholder, Ujjain General Trading Society Ltd. In March, 1959, the new company converted the said shares of Rs. 10 each into shares of Rs. 100 each by utilising the share premium account.
20. It will be seen from the foregoing details that the premium amount actually represented the share capital and accumulated profits of Rajasthan Trading Co. Ltd. (“the defunct company”) which should have been distributed to its shareholders on its liquidation in May, 1949. As a matter of fact, the shareholders received only 36,266 shares of Rs. 10 each which were acquired in their names, as earlier mentioned, on its liquidation which accounts for a total distribution of Rs. 3,62,660 only. The balance value of the assets which was not less than Rs. 36,26,600, the amount which was kept with Rajasthan Industries Ltd. in March, 1949, as premium, remained undistributed amongst the shareholders of Rajasthan Trading Co. This distribution took place only in March, 1959, when Messrs. Rajasthan Industries Ltd. capitalised the premium at the rate of Rs. 90 per share.
21. The question for consideration is whether the bonus of Rs. 90 per share received in March, 1959, by the shareholders of the new company represented dividend under Section 2(6A)(c). For invoking the provisions of Section 2(6A)(c) it is necessary that-
(i) The company should go into liquidation.
(ii) The company should have accumulated profits.
(iii) The accumulated profits should be distributed amongst its shareholders.
22. In the instant case, there is no dispute that the first condition is fulfilled inasmuch as the defunct company went into liquidation. As regards the second condition, there is evidence to show that the defunct company had substantial accumulated profits which alone could have been utilised in paying the share premium of Rs. 36,26,600. As regards the third
condition, it will be seen that the shareholders of the defunct company received only Rs. 3,62,660 against the total value of the assets of the defunct company amounting to about Rs. 40 lakhs. The balance consisting partly of share capital and partly of accumulated profits, instead of being returned to its shareholders, was transferred to the new company in the shape of premium of shares. The said accumulated profits were distributed only in March, 1959, when the bonus of Rs. 90 per share was received by the shareholders of the new company, a shareholding which was acquired only by virtue of their holding the shares of the defunct company. In the circumstances stated above, it will be reasonable to say that when the premium was capitalised and the shareholder received the bonus of Rs. 90 per share the third condition was also fulfilled.
23. The assessee was asked to show cause why the aforesaid bonus should not be taxed as dividend under Section 2(6A)(c) in the assessment year 1959-60. In its submission dated January 21, 1976, the assessee, inter alia, has contended that there was neither any accumulated profit of the defunct company nor was there any distribution of the said accumulated profits amongst its shareholders in the assessment year 1959-60. Further, it was claimed that there was no omission or failure on the part of the assessee to disclose all the primary facts and, therefore, no action under Section 147(a) for the assessment year 1959-60 lies.
24. On the first point, the fact that the defunct company could pay and did actually pay a sum of Rs. 36,26,600 by way of share premium to the new company only two months before its liquidation conclusively indicates that it had accumulated profits. As regards the second point, that there was no distribution by the defunct company in 1959-60, the fact remains that what the assessee got in 1959 represented only a distribution of the accumulated profits of the defunct company that had found its way into the coffers of the new company by way of share premium. The time lag of ten years between the date of liquidation and the date of distribution is not relevant for the purpose. As regards the third point that there was no omission or failure on the part of the assessee to disclose the primary facts, it is seen from the relevant balance-sheet of the assessee that there was an increase in the face value of the impugned shares. This point of increase in the face value of the shares could be noticed only when the enhanced face value was compared with that of the earlier year and the same is not evident from a study of the balance-sheet of the relevant previous year. The book value of the shares in the accounts of the assessee remained the same and the attendant circumstances under
which the face value of the shares was enhanced was nowhere disclosed. The balance-sheet throws no light on the fact that the ten rupee share of the new company has been converted into a hundred rupee share ; nor did the assessee disclose at the time of the assessment proceedings any particulars about the aforesaid conversion far less how that conversion came to happen. The material facts were not disclosed by the assessee at the time of assessment and were obtained after completion of the assessment from information received.
25. In view of the above reasons, I believe that the dividend income of the assessee within the meaning of Section 2(6A)(c) of the Indian Income-tax Act, 1922, for the assessment year 1959-60, escaped assessment by reason of the failure or omission on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment for the assessment year 1959-60.”
26. The facts of the case are somewhat involved. A short resume is necessary for appreciation as to whether there could be, firstly, reasons for a belief as to any failure on the part of the assessee to disclose material facts and, secondly, reasons to believe that there was any escapement of income.
27. The assessee was a shareholder of Rajasthan Trading Company Ltd. (R. T. C. L.). It received from Rajasthan Trading Company Ltd. 4,840 shares of another company Rajasthan Industries Ltd. (R. I. L.) from Rajasthan Trading Company Ltd. in May, 1949, as distribution of assets of Rajasthan Trading Company Ltd. on its liquidation. The shares of Rajasthan Industries Ltd. so received by the assessee had been bought by the defunct Rajasthan Trading Company Ltd. on March 3, 1949, i.e., the date Rajasthan Industries Ltd. was floated. The shares of Rs. 10 each were purchased at a premium of Rs. 100 per share. Therefore, the investment of Rajasthan Trading Company Ltd. on March 3, 1949, was Rs. 110 per share. But as narrated the assessee as a shareholder of Rajasthan Trading Company Ltd. received in May, 1949, on the liquidation of Rajasthan Trading Company Ltd. the said 4,840 shares at face value of Rs. 10 each. In March, 1959, Rajasthan Industries Ltd. capitalised the premium account and issued bonus shares whereupon the assessee on the strength of the original 4,840 shares received corresponding bonus shares of face value equal to the premium. These bonus shares appeared in the balance-sheet for the accounting year ended on March 31, 1959, relevant to the assessment year 1959-60 (year under consideration). These bonus shares would have been issued to Rajasthan Trading Industries Ltd. were it not wound up.
28. In the original assessment, the Assessing Officer could not but have noticed the receipt of the bonus shares as they were reflected in the balance-sheet of the assessee. It was an open fact that the original shares were received on distribution by Rajasthan Trading Company Ltd. to the assessee as its shareholder, on its liquidation. Now, on the basis of these facts, the Revenue has proceeded to allege that the assessee in the original assessment did not disclose to the Assessing Officer that these bonus shares are generated by its original holding of 4,840 shares which it had received on distribution on liquidation of Rajasthan Trading Company Ltd. and further the assessee is impliedly alleged of not informing the Assessing Officer at the time of original assessment that these bonus shares should be related to the distribution of assets in liquidation of Rajasthan Trading Company Ltd, and further that the company in liquidation, i.e., Rajasthan Trading Company Ltd., should be taken to have accumulated profits equivalent to the value of the bonus shares assigned to the assessee in the distribution of its assets. This is in short the case of the Revenue on the factual plane. The first thing that the bonus shares are generation of the original 4,840 shares of Rajasthan Industries Ltd. received from the defunct company Rajasthan Trading Company Ltd. on its winding up is a fact that was plainly on the records of the Assessing Officer. The reasons recorded show that the Assessing Officer has not brought any particulars to show that the defunct company, Rajasthan Trading Company Ltd., had accumulated profits on the date of liquidation or to show the extent thereof. It appears that he has inferred that when the premium is transformed into additional share capital against which bonus shares are issued, the investment in purchase of the shares on premium money represents accumulated profits and the return of the share premium money by way of bonus shares would be return of the premium. In the present case, since the purchaser company is no more in existence, its assignee, the assessee, had received the bonus shares as further distribution of its assets and thus the bonus shares received should be deemed to have been received as dividend equivalent to the value of the bonus shares under Section 2(6A)(c), the bonus shares representing accumulated profits of the defunct company.
29. Here even if it is accepted that the inference of the Assessing Officer is correct, the question remains whether it was the liability of the assessee to inform the Assessing Officer in the original assessment of such probable inference. On the factual plane, the assessee did not have to enlighten the Assessing Officer in any respect, because the liquidation of the company
whose shares the assessee held, the receipt by the assessee of the instant shares on distribution of assets of the said defunct company and the subsequent issue of bonus shares are all known facts and on the records of the Revenue. The balance-sheet also disclosed the receipt of the bonus shares. Therefore, there were no material facts wanting at the time the original assessment was completed. The only thing that the assessee could have done for the benefit of the Assessing Officer was to instruct the Officer that the distribution of the assets of the defunct company, Rajasthan Trading Company Ltd., in 1949 should be linked up with the issue of the bonus shares. The question arises on whom lies this task of Unking up the two events when both events are facts disclosed and on record.
30. The only view that can be taken in all fairness and, consistent with the judicial pronouncement on the degree, extent and nature of the assessee’s liability of disclosing facts, is that there was no failure, prima facie, in the matter of disclosure of facts.
31. The facts that go into the making of an assessment have been distinguished by the Supreme Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. There are facts without which the Assessing Officer cannot come to a proper inference for the purpose of assessment because such facts are facts the scrutiny and examination of which alone can lead to a correct assessment. If any of such facts are withheld in a manner calculated to create a blind for the Assessing Officer, such facts have been described by the Supreme Court as primary facts. From such primary facts, the Assessing Officer draws certain inferences, they may provoke him to enquire into the truth of them. The cumulative effect of such primary facts leads to inferential facts for the purpose of making the assessment. On the basis of the primary facts what inferences ultimately are drawn by the Income-tax Officer are inferential facts. The primary facts thus may lead to inference of further facts or may lead to inference purely on the legal plane as to the effect of the primary facts.
32. The assessee’s duty is restricted only to disclosing before the Officer all such primary facts. Thus, the assessee will be liable to state all primary facts including particular entries, any portion of documents and other evidence which could have been discovered by the assessing authority from the documents and other evidence produced before him. In other words, it is not open to the assessee just to produce the accounts and tell the Assessing Officer “examine them and find out facts necessary for your purpose. My duty is in disclosing the account books or the documents”.
33. The decision of the Supreme Court makes it clear that the assessee has no duty beyond making full and truthful disclosure of all primary
facts.
34. In this connection, this passage from the judgment of Das Gupta J., speaking for the majority view, appearing at page 201 of the Reports is worth quoting-
“Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else –far less the assessee–to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences–whether of facts or law–he would draw from the primary facts.
If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?”
35. In the instant case, it is found that what the assessee could have disclosed at the most was the fact that the assessee received the bonus shares out of the share premium relating to the original shares. The other facts were all open facts ; the original holding has been disclosed not only in the return of the year but in the returns of past assessments. The mode of acquisition of the original shares was also known to the Assessing Officer as it was part of the record of the assessment itself. These are the primary facts. Now, inference from such facts was left to the Assessing Officer who completed the original assessment.
36. Even if it can be the case that the assessee had the duty to draw the attention of the Assessing Officer to the probability of the bonus shares being attributable to the accumulated profits of the liquidated company, the question remains whether the Assessing Officer could have or did have reasons to believe that the bonus shares, in fact, represented profits of the company in liquidation and in that view of the matter the receipt
of the bonus shares would attract the provisions for deemed dividend as contained in Section 2(6A)(c) of the Indian Income-tax Act, 1922, corresponding to Section 2(22)(d) of the Income-tax Act, 1961. The reasons recorded by the Assessing Officer, which have been extracted earlier, do not indicate that the defunct company indeed had accumulated profits and the share premium had been paid by the defunct company, while acquiring the shares, out of such accumulated profit so that the conversion of the investment of the accumulated profit by way of shares and the share premium into bonus shares could be assessable in the hands of the assessee as income by way of deemed dividend, the issue of bonus shares being further distribution made to the shareholders of a company on its liquidation out of the accumulated profits of the company immediately before its liquidation. The reasons contained no particulars as to whether the share premium paid was attributable to accumulated profits of the company before its liquidation. The Assessing Officer, as the reasons clearly show, has gone on the presumption that the share premium was paid out of accumulated profits. The very basis of the belief that the provisions of Section 2(22)(c) are attracted in the case is an axiom that the share premium has to be accumulated profits. Such a presumption is fallacious.
37. Anyway, there are no particulars available in the reasons which could lead the officers to believe that the share premium was paid by the defunct company by way of investment from accumulated profits. Thus the complete nexus between the reason and the belief formulated is not available in all respects there being a vital missing link. This point is emphasised over and above the fact that as far as the assessee was concerned there was no non-disclosure except that the assessee failed to give the Assessing Officer the suggestion that the receipt of the bonus shares in its hands has a possibility of being caught by the provisions of Section 2(6A)(c) of the repealed Act and Section 2(22)(c) of the repealing Act of 1961. This only shows that the assessee did not have to disclose any further materials, all primary facts being available with the Officer.
38. On a cumulative consideration of the circumstances available the conclusion is inevitable that the reasons as recorded do not show materials that could furnish a live link with or rational bearing on the belief that income has escaped assessment, for the failure on the part of the assessee to disclose all primary facts.
39. I, therefore, hold that the initiation of proceedings under Section 147(a) and the issue of the notice under Section 148 are devoid of initial
jurisdiction as the conditions precedent laid down in Section 147(a) of the Act are pre-eminently not satisfied.
40. The rule is made absolute.
41. Therefore, [he proceedings for reassessment are quashed. The assessment if completed stands annulled.
41. There will be no order as to costs.