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1990 DIGILAW 303 (ORI)

COMMISSIONER OF INCOME TAX v. CHAMANLAL NARULA

1990-08-09

J.M.MAHAPATRA, S.C.MOHAPATRA

body1990
JUDGMENT : S.C. Mohapatra, J. - These two references are u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The statements of fact were made on the following common question of law : "Whether, on the facts and in the circumstances of the case, the non-disclosure by the assessee relating to the nature of investments would bring him within the provisions of Section 147(a) ?" 2. The assessment in respect of the assessee was completed u/s 143(3) of the Act for the assessment year 1962-63 on March 28, 1967, and for the year 1963-64 on March 20, 1968. Coming to know that the assessee had not paid tax on some items of his income, notices were issued for those two years for reopening of assessment u/s 147(a) of the Act. It was found by the Income Tax Officer as well as the Appellate Assistant Commissioner that, in respect of the year 1962-63, the assessee invested Rs. 40,500 and in the year 1963-64 he invested Rs. 50,000 in the business of a partnership firm, namely, M/s. Narula Cold Storage and Ice Factory. Since the sources of the investments could not be explained, they were treated to be undisclosed income in the hands of the assessee and were taxed. The assessee preferred appeals before the Income Tax Appellate Tribunal. On appeal, the Tribunal without going into the facts, held that notice u/s 147(a) of the Act is bad on account of the fact that there is no non-disclosure of material facts which is the pre-condition for exercise of power u/s 147(a) of the Act. Aggrieved by the decision, the Department filed applications u/s 256(1) of the Act and a statement of the case has been made for both the years on the question extracted earlier. 3. In respect of the year 1962-63, the assessee did not disclose that he invested Rs. 40,500 in M/s. Narula Cold Storage and Ice Factory. In the year 1963-64, however, it has been disclosed that, from his investment in the aforesaid partnership firm, there was no income. He did not give details of the amount invested in that year in the partnership business. In the premises of these facts, it is to be considered whether material facts had been disclosed. 4. Mr. In the year 1963-64, however, it has been disclosed that, from his investment in the aforesaid partnership firm, there was no income. He did not give details of the amount invested in that year in the partnership business. In the premises of these facts, it is to be considered whether material facts had been disclosed. 4. Mr. S.C. Ray, the learned Advocate-General who is standing counsel for the Department, submitted that a mere statement incidentally that the assessee is a partner of M/s. Narula Cold Storage and Ice Factory does not amount to disclosure of a material'fact since he is to disclose the amount which he has invested. Accordingly, the Income Tax Officer has jurisdiction to reopen the assessment u/s 147(a) of the Act As regards the year 1962-63, Mr. Ray submitted that there being absolutely no indication that he is a partner of the firm, it is a clear case of non-disclosure. 5. Law is now settled that all material facts are to be disclosed by an assessee and non-disclosure of the same authorises the Income Tax Officer to exercise power u/s 147(a) of the Act. What is a material fact would depend upon facts and circumstances of each case and no hard and fast rule can be laid down in that regard. Inferential facts are not material facts and are not required to be disclosed by the assessee. 6. Source of income is to be disclosed to determine the income of the assessee. Therefore, source of income is a material fact. In the return for the year 1963-64, the assessee disclosed the source of income invested in the partnership. He claimed that there was no income. For the purpose of assessment when the assessee disclosed the source, the rest would be inferences from the nature of disclosure. It was not obligatory on the assessee to disclose the amount invested during the year. Absence of the sources for the amount invested may lead to various inferences. However, non-disclosure of inferential facts do not attract Section 147(a). The Tribunal is right in allowing the appeal for the year 1963-64. 7. Non-disclosure of the fact that the assessee is a partner of M/s. Narula Cold Storage and Ice Factory is a non-disclosure of material fact and the Income Tax Officer was justified in reopening the assessment for the year 1962-63. The Tribunal is right in allowing the appeal for the year 1963-64. 7. Non-disclosure of the fact that the assessee is a partner of M/s. Narula Cold Storage and Ice Factory is a non-disclosure of material fact and the Income Tax Officer was justified in reopening the assessment for the year 1962-63. The Income Tax Officer rightly exercised his power u/s 147(a) of the Act to reopen the assessment and the Tribunal is not correct in stating that there is no non-disclosure of material fact for the year 1962-63. 8. In the result, we answer the question in favour of the assessee for the year 1963-64 and against the assessee for the year 1962-63. No costs. J.M. Mahapatra, J. 9. I agree.