JUDGMENT
D.K. Jain, J.
1. This writ petition by the legal heir of the late Shri R. S. Agarwal (hereinafter referred to as “the assessee”) impugns the validity of a notice dated August 2, 1991, issued by the Assistant Commissioner of Income-tax, Central Circle-12, New Delhi, under section 148 of the Income-tax Act, 1961 (for short, “the Act”), proposing to reassess certain income on the ground that it has escaped assessment for the assessment year 1987-88.
2. For the relevant assessment year, the assessee claims to have filed his return of income on July 30, 1987, in Ward-15 (6), New Delhi, declaring a total income of Rs. 18,55,100. The total income so declared included the net income of Rs. 18,55,100. The total income so declared included the net income of Rs. 18,55,100. The total income so declared included the net income of Rs. 18,240 from a house property at A-5, Gulmohar Park, New Delhi, let out to hotel Banjara Ltd., at a gross annual rent of Rs. 92,000. The total income also included income from “salary” from Hotel banjara Ltd. Though the assessee claims that after filing of the said return of income a notice under section 143(2) of the Act was issued by the Income-tax Officer, Ward-15 (6), and, in response thereto he had filed a letter dated September 26, 1989, the issue of any such notice is denied by the Revenue. It, however, appears that subsequently another return of income for the assessment year in question, marked as duplicate, was filed on February 26, 1990, before another officer, namely, the Deputy Commissioner Income-tax (Special Range 12), New Delhi, who vide his order dated March 15, 1990, passed the assessment order under section 143(1) of the Act, accepting the income declared by the assessee. No further tax was found 1991, the Commissioner of Income-tax, Delhi-IX, transferred the case of the assessee from the Deputy Commissioner, Special Range-123, to the Assistant Commissioner, Central Circle-12, who has now issued the impugned notice under section 148 of the Act, requiring the assessee to file the return as he has reason to believe that certain income chargeable to tax for the said assessment year had escaped assessment within the meaning of section 147(a) of the Act, inasmuch a : (i) the rent from the properties was kept low and for the difference in rent, the assessee was compensated by giving interest-free security of Rs. 8 lakhs and Rs. 6.82 lakhs, which fact came to light during the course of assessment proceedings for the assessment year 1988-89 from the assessee’s own letter dated February 20, 1991, (ii) as compared to the assessment year 1988-89 excessive claim for the municipal taxes had been made and allowed in the relevant assessment year, and (iii) value of perquisites provided by Hotel Banjara Ltd. in the form of free residential accommodation and other assets had not been included in the income from salary form Hotel Banjara Ltd.
3. The proposed action of the Assistant Commissioner is challenged primarily on the ground that the assessee had made true and full disclosure of all primary facts necessary for the assessment for the relevant assessment year, the condition precedent for the exercise of jurisdiction under section 147(a) of the Act, viz., that the income chargeable to tax should have escaped assessment to disclose fully and truly all material facts necessary for his assessment for that year” did not exist and, therefore, the impugned notice was illegal and without jurisdiction, in view of The law laid down by the Supreme court in ITO v. Lakhmani Mewal Das : ITO v. Madnani Engineering Works Ltd. and Indian Oil Corporation v. ITO [1986] 2 SCR 1107 : [1986] 159 ITR 959, respectively, holding that the reasons which lead to the formation of the belief contemplated by section 147(a) must have a material bearing on the question of escapement of income of the assessee form assessment because of its failure or omission to disclose fully and truly all material facts : the validity of initiation of reassessment proceedings has to be judged with reference to the material available with the officer at the time of the issue of notice under section 148 and not with reference to the material that may have come to light subsequently in the course of reassessment proceedings and there must be materials to come to the conclusion that there was “omission or failure to disclose fully and truly all material facts necessary for the assessment of the year”.
4. On the merits it is claimed that during the course of assessment proceedings, copies of the lease/rent deeds between the assessee and Hotel Banjara Ltd. and Gulmohar Estates Ltd. were filed by the assessee along with his letter dated September 26, 1989, the same were on record when the assessment was completed by the Deputy Commissioner of Income-tax, Special Range 12, on March 15, 1990, and, therefore, no material fact regarding interest-free securities was suppressed by the assessee and he was under no obligation to tell Assessing Officer to minutely peruse and scrutinise the lease/rent deed to ascertain the correct annual letting from. The allegations of excessive claim for municipal taxes and nondisclosure of value of perquisites are also denied and it is submitted that there had been no non-disclosure of material facts on the part of the assessee, the assessing authority could not be permitted to reopen a concluded assessment.
5. In the counter-affidavit filed on behalf of the respondent-Assessing Officer, it is denied that the assessee had filed his original return in Ward-15 (6) or that any notice under section 143(2) of the Act was issued to him before the assessment order was passed on March 15, 1990, by the Deputy Commissioner of Income-tax, Special Range 12, or that the letter dated September 26, 1989, had been filed by the assessee during the curse of assessment proceedings for the assessment year in question. IT is claimed that the said assessment order was made under section 143(1) of the Act. Thought it is not disputed that along with the duplicate return, filed before the Deputy Commissioner of Income-tax, the assessee had filed a statement of net assessable income-tax, the assessee had filed a statement of net assessable income showing income from salary, house property, share in registered firms, income from other sources and capital gains along with balance-sheet as on March 31, 1987, but it is asserted that the balance-sheet in favour of Hotel Banjara Ltd. and Gulmohar Estates Ltd., were in respect of interest-free security deposits from the said tenant companies. The stand of the Assessing Officer is that his belief that there has been underassessment of income for the assessment year 1987-88 is based on an appraisal of assessment records of the assessee for the assessment year 1988-89, particularly on the assessee’s chartered accountant’s letter date February 20, 1991, filed during the course of the assessment proceedings for the assessment year 1988-89, wherein the annual rateable value declared was sought to be justified on the basis of the following calculation :
“Calculations of rateable value :
Rs. Rs.
1. As per municipal valuation 1,62,400
2. rent received fro :
Gulmohar Estate 12,000
Banjara Hotels Ltd. 66,000 78,000
3. Security received :
Gulmohar Estate 8,00,000
Banjara Hotels Ltd. 6,82,500
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14,82,500
Interest at 15 per cent. per annum on
Rs. 14,82,500 (opportunity cost of
security received) 2,22,375
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3,00,375
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6. Hence, the actual rent received including interest is more than the municipal valuation, because on the amount of securities received the assessee has earned something which is taxable in the hands of the assessee. We hope you would find the above in order and will complete the assessment."
7. During the course of hearing learned counsel for the parties raised the question and addressed us at some length as to whether the old section 147 as it existed prior to its amendment by the Direct Tax Laws (Amendment) Act, 1987, would, as claimed by the assessee, or the amended section, which admittedly is much wider in scope as claimed by the respondent, apply to the facts of the case. The pre-amendment position was that before proceedings under section 147(a) could be initiated, the twin conditions, namely : (i) the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, and (ii) such escapement was occasioned by reason omission or failure on the part of assessee to disclose fully and truly all material facts necessary for assessment for that year, which were held to be cumulative, must be satisfied, whereas the newly substituted section 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, assess or reassess such income. The result is that under the old section the fulfillment of both the conditions (i) and (ii) is the sine qua non for taking action under section 147(a) and this alone could confer jurisdiction on the Assessing Officer to make a back assessment, but in the new section these twin conditions have been given a go-by and the existence of only the first condition, of the Assessing Office having reason to believe (for whatever reason) that income has escaped assessment, confers jurisdiction to reopen the assessment. The reason need not necessarily be failure to truly and fully disclose material facts.
8. We, however, feel that having regard to the facts in hand it is unnecessary to go into this controversy as in our view even if we accept the stand of the assessee that it is the old section which should be applied to the case of the petitioner, we are satisfied that the twin conditions requisite for assumption of jurisdiction under the old unamended section 147(a) of the Act do exist in the instant case, which meet the requirement of law laid down in the aforesaid three judgments of the Supreme Court.
9. The main ground on which the proposed action under section 147 is challenged is that since the assessee had placed on record copies of the lease/rent deed as also the balance-sheet showing credit balances in the names of companies to whom the property had been let, there was no failure on his part to disclose fully and truly all material facts necessary for his assessment in so far as the rental income is concerned. It could not be said that the assessee had failed to disclose fully and truly the material facts necessary for his assessment and as such the notice seeking to reopen the assessment was bad in law. The question for consideration, therefore, is : (i) whether the assessee did submit the documents, noted above, which he claims to have done and if so, (ii) whether the mere filling of these was sufficient to disable the Assessing Officer to issue the impugned notice under section 148 of the Act.
10. It is true that in Calcutta Discount Ltd. v. ITO . The locus classicus on the subject, the Supreme Court did hold that the obligation of the assessee is to disclose only primary facts and not inferential facts. Primary facts are those which are material in that if taken into account, they would have an adverse effect on the assessee for assessment on greater income than what has been actually assessed. What facts are material and necessary for assessment differ from case to case. Would mere filing of these documents amount to disclosure of primary facts is the question ? Indeed, the answer is given in the dissenting portion of the judgment by Hidayatullah J. (as his Lordship then was) in Calcutta Discount Co.’s case saying that 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 notice of the assessing authority because the assessee knows all the material and relevant facts-the assessing authority might not. These observations have been applied and reiterated in subsequent decisions of the Supreme Court and still hold the field.
11. To meet the contention of the assessee that once the affroented documents had been produced before the Assessing Officer, there was no further obligation cast on him to disclose further facts, which on due diligence, the Assessing Officer might have discovered, Mr. Rajendra, learned counsel for the Revenue, has invited our attention to Explanation 2 (as it stood at the relevant time) to section 147, which runs as follows :
“Explanation 2. – Production before the Assessing Officer of account books or other evidence form which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section.”
12. The language of Explanation 2 is self-explanatory and gives a quietus to the contention that where books of account or other evidence is produced before the Assessing Officer, there is no duty on the assessee to disclose further facts, which with due diligence could be discovered by the Assessing Officer. The Explanation it itself makes it clear that mere production of evidence before the assessing authority would not per se be enough and there may be an omission or failure to make a full and true disclosure if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not (to repeat the words of Hidayatullah J., in Calcutta Discount Co.’s case [1962] 41 ITR 191 (SC)). In Indo-Aden Salt Manufacturing and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624, the Supreme Court has further clarified, holding that the fact that the Assessing Officer could have found out the correct position by further probing the matter does not exonerate the assessee from the duty to make a full and true disclosure of the material facts. The court observed that Explanation 2 to section 147 makes the position abundantly clear.
13. At this stage we may notice the significance of the words.”not necessarily” as appearing in Explanation 2. In our view, these words only indicate that whether there is a disclosure or not within the meaning of section 147(a) of the Act would depend on the facts and circumstances of each case. To put it differently it would be the nature of documents and the circumstances in which these are produced before the Assessing Officer that will determine the question. For instance, if material evidence is not writ large on the document but is embedded in come voluminous records/books of account requiring a careful scrutiny and delving deep into it to notice the necessary material, it is quite possible that having regard to the nature of the documents, material evidence cannot be discovered form such records despite due diligence and the case would attract application of Explanation 2 to hold that mere production of the books of account or the documents, etc., without pointing out the relevant entries therein, does not amount to disclosure within the meaning of section 147(a) of the Act.
14. In the light of the affroented legal position we may now deal with the contentions of learned counsel for the parties. As noted above, the main stand of the Assessing Officer is that the facts regarding furnishing of interest-free securities to the tune of Rs. 14.82 lakhs by the said tow companies to the assessee to compensate him for the difference in the market rent of the property and the actual rent paid to him, came into light only during the course of assessment proceedings for the subsequent assessment year, viz., 1988-89, when the assessee had sought to justify the actual receipt of rent at much lesser rate, viz., Rs. 78,000 (declared for the assessment year 1988-89) as against the annual rateable value of Rs. 1,62,400 determined by the municipal corporation for the purpose of property tax. On the other hand, though the assessee, interestingly, has not denied that income form hose property declared and assessed, on the basis of actual income from house property declared and assessed, on the basis of actual rent received, was admittedly less than the sum for which the property might reasonably be expected to be let for the year, the reopening of the assessment is being challenged on the ground that by filling the affroented documents along with the duplicate return of income, the assessee had disclosed all primary facts regarding rental income and it was for the Assessing Officer to discover if the rental income had been correctly declared or not. The submission is that from the lease/rent deed, stated to have been placed on the assessment record by the assessee during the course of assessment proceedings before the Income-tax Officer, Ward-15 (6), the Assessing Officer could have discovered the reason why the actual rent received and declared was less than the market rent and if any excess income was to be included in the hands of the assessee on account of interest-free securities, it could have been done at the stage of original assessment and Assessing Officer’s omission to do so cannot now clothe him with jurisdiction under section 147(a) of the Act.
15. Having perused the documents filed along with the duplicate return of income, namely, statement of net assessable income and balance-sheet as on March 31, 1987, in our opinion, it cannot be said that the assessee had discharged the obligation under section 147(a) of making disclosure of the “true and full” facts, which were necessary for his assessment for the relevant year. The statement of assessable income only indicates that the property at A-5, Gulmohar Park, New Delhi, has been let our at Rs. 92,000 and the balance-sheet merely indicates that there are two credit balances in the sums of Rs. 6,82,000 and Rs. 8 lakhs in favour of Hotel Banjara Ltd. and Gulmohar Estates Ltd., respectively, and no further. We have no hesitation in coming to the conclusion that by mere filing of theses documents the assessee is not deemed to have disclosed “other evidence” which investigation on the basis of what has been disclosed in the statement of assessable income and the balance-sheet.
16. Although we are not convinced that the letter dated September 26, 1989, was in fact filed by the assessee before the Assessing Officer but assuming it to be so, in our view even this letter would not amount to disclosure within the meaning of Explanation 2 to section 147 of the Act.
17. We are, therefore, of the opinion, that in the facts of the instant case, reassessment proceedings have been rightly initiated by the Assistant Commissioner of Income-tax, Central Circle-13, New Delhi, by invoking the provisions of section 147(a) and by issuing notice under section 148 of the Act, after recording the reasons for the formation of his belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully necessary for his assessment under the head “Income from house property”
18. Since we have upheld the validity of notice under section 148 in respect of the rental income, it is not necessary to go into the question of excessive claim of municipal tax or non-disclosure of value of perquisite and as observed by the Supreme Court in ITO v. Mewalal Dwarka Prasad [1989] 176 ITR 529, it will be for the Assessing Officer to take into account these tow items in the fresh assessment proceedings.
19. In view of the foregoing discussion we find in difficult to hold that it was a case where the Assessing Officer had no material in his possession to record his satisfaction that the income of the assessee had escaped assessment for the reason of omission or failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment. Having found so it is Not for this court to go into the sufficiency of the reasons for forming the belief.
20. There is no merit in the writ petition and the same is accordingly dismissed with costs, which we quantify at Rs. 2,500/
21. Before parting we may clarify that any observations on the merits of the additions sought to be made to the income already assessed are only for a limited purpose to determine whether or not the Assessing Officer was justified in initiating reassessment proceedings under sections 147(a) and 148 of the Act and the dismissal of this writ petition will not preclude the assessee from urging any question of fact or law before the appropriate forum.