ALLAHABAD BANK v. COMMISSIONER OF INCOME-TAX — 1991 DIGILAW 94 (CAL)

AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following question has been referred to this court at the instance of the assessee, for the assessment year 1962-63 : "whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee had omitted to disclose fully and truly all material facts and in consequence thereof interest income had escaped assessment and in confirming the initiation of proceedings under Section 147 (a) of the Income-tax Act, 1961 ?" ( 2 ) THE facts leading to this reference are that the assessee is a nationalised bank and carrying on banking business. The original assessment for the assessment year 1962-63 was made on a total income of Rs. 41,09,172. The assessment was made on the basis of facts disclosed relating to loans and advances considered bad and doubtful of recovery. The assessee neither charged any interest on bad and doubtful debts nor credited any sums to the interest suspense account. The justification for following such a method was the Circular No. 41 (V-6) dated October 6, 1962, of the Central Board of Revenue. In the original assessment, accordingly, no addition on account of interest in respect of those bad and doubtful debts was made accepting the method of accounting of interest on such debts. Subsequently, on March 26, 1979, the Inspecting Assistant Commissioner of Income-tax, Special Range-I, Calcutta, issued a notice under Section 148 reopening the assessment for the year. The assessee objected to the reassessment proceedings on various grounds, vide its letter dated November 9, 1982. Subsequently, a notice under Section 142 (1) was issued by the Income-tax Officer, "c", Ward, Company District III, Calcutta, asking the assessee-bank to produce books of account and all other papers relating to the assessment year 1962-63. The notice under Section 142 (1) was duly complied with. A copy of the statement of bad and doubtful debts as well as the letter dated November 9, 1982, inter alia, stating that no amount of interest was credited to the "interest suspense account" were duly filed on the date of hearing fixed on November 10, 1982, in terms of the said notice. A copy of the statement of bad and doubtful debts as well as the letter dated November 9, 1982, inter alia, stating that no amount of interest was credited to the "interest suspense account" were duly filed on the date of hearing fixed on November 10, 1982, in terms of the said notice. In the course of reassessment proceedings, it was also categorically made clear to the Income-tax Officer that no amount of interest was credited to the "interest suspense account" in respect of the assessment year under consideration and as such the proceedings under Section 147 (a) did not lie. As regards the non-charging of interest in cases where suits had been filed, it was submitted before the Income-tax Officer that the interest from the date of filing of the suit to the date of decree and from the date of decree to the date of payment depends upon the discretion of the court in view of the provisions of Section 34 of the Civil Procedure Code. Moreover, in accordance with the regular method of accounting followed by the assessee, interest on bad and doubtful debts has all along been taxed by the Department on realisation basis. The Income-tax Officer, however, holding that, from the statement filed by the bank, the amount of interest credited to the suspense account was not ascertainable and the representative of the bank could not also enlighten him in the matter, resorted to the proviso to Section 145 and completed the assessment ex parte under Section 144/147 (a) after adding an estimated sum of Rs. 7,10,264 which, according to him, had been credited to the suspense account, although there was no such credit to the said account. ( 3 ) THE assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-II, Calcutta, against the reassessment order passed by the Income-tax Officer taking as many as 31 grounds against the reassessment order. The Commissioner of Income-tax (Appeals) found that no amount of interest was credited to the "interest suspense account" by the assessee-bank. Certain amount of interest was not credited to the profit and loss account on the ground that recovery suits filed against the loan-debtors were pending before courts for disposal. In such cases, the question of charging interest and crediting the same to the profit and loss account or the "interest suspense account" does not arise. Certain amount of interest was not credited to the profit and loss account on the ground that recovery suits filed against the loan-debtors were pending before courts for disposal. In such cases, the question of charging interest and crediting the same to the profit and loss account or the "interest suspense account" does not arise. Relying on the decisions of this court in CIT v. Raigharh Jute Mills Ltd. [1981] 132 ITR 702, and in CIT v. Naskarpara Jute Mills Co. Ltd. [1983] 141 ITR 384, the Commissioner of Income-tax (Appeals) held that the initiation of proceedings under Section 147 (a) was ab initio void. He, therefore, cancelled the reassessment proceedings as well as the reassessment order. ( 4 ) THE Department came in appeal against the order of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal. On behalf of the Department, it was contended that the proceedings under Section 147 (a) were properly taken by the Income-tax Officer to assess the accrued interest on sticky loans which was not disclosed by the assessee at the time of original assessment. It was further submitted that interest has become due to the assessee as indicated by the Income-tax Officer in the order and on the basis of the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102. Learned counsel for the assessee, while supporting the order of the Commissioner of Income-tax (Appeals), submitted that since no amount of interest was credited to the suspense account, the question of non-disclosure of any primary facts by the assessee-bank did not arise and as such the proceedings under Section 147 (a) were void ab initio. The assessee is following the cash method of accounting in respect of interest on bad and doubtful debts regularly and consistently and the same has also been accepted by the Department. The application of the proviso to Section 145 was not justified. The decision of the Supreme Court in the case of State Bank of Travancore [1986] 158 ITR 102, is not applicable on the facts of the present case. The application of the proviso to Section 145 was not justified. The decision of the Supreme Court in the case of State Bank of Travancore [1986] 158 ITR 102, is not applicable on the facts of the present case. The Tribunal, however, held that the Income-tax Officer had prima facie reason to believe that the assessee had omitted to disclose fully and truly all material facts and in consequence thereof interest income had escaped assessment and, therefore, he had jurisdiction to initiate proceedings under Section 147 (a)/148. The order of the Commissioner of Income-tax (Appeals) was set aside by the Tribunal and so far as the computation of income was concerned, the matter was restored to the file of the Income-tax Officer for ascertaining the amount of interest due from the debts which have been considered by the bank as bad and doubtful of recovery. ( 5 ) AT the hearing before us, it has been contended by Mr. Sukumar Bhatta-charya, learned counsel, that the assessee did not credit any amount to the suspense account, nor did the assessee credit the interest to the profit and loss account. In view of the subsisting circular of the Board, the assessee did not disclose any interest on "sticky advances". Accordingly, it cannot be said that, in consequence of any omission on the part of the assessee, income had escaped assessment. The Revenue has, however, supported the order of the Tribunal. ( 6 ) OUR attention has been drawn to the decision of the Supreme Court in Indo-Aden Salt Mfg. and Trading Co, P. Ltd. v. CIT [1986] 159 ITR 624. In that case, in relation to assets consisting of reservoirs, salt pans, piers and condensers, the appellant had not disclosed in the original assessment proceedings for the assessment years 1955-56 to 1962-63 either by its valuation report or by a statement before the Income-tax Officer as to what portion of those assets were of earth work and what portion was of masonry work. In regard to the entirety of the assets, the Income-tax Officer had allowed depreciation at 6 per cent. There was no dispute that depreciation at 6 per cent, was available only in respect of such assets constructed of masonry and not earth work. The Income-tax Officer sought to reopen the original assessments under Section 147 (a) of the Income-tax Act, 1961. There was no dispute that depreciation at 6 per cent, was available only in respect of such assets constructed of masonry and not earth work. The Income-tax Officer sought to reopen the original assessments under Section 147 (a) of the Income-tax Act, 1961. The question was whether excessive depreciation had been allowed and income had escaped assessment for those years owing to the failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment. There the Supreme Court held (i) that since excess depreciation had been allowed on the entirety of the assets on the basis that they consisted of masonry work, the Income-tax Officer could reasonably be said to have material to form the belief that there was underassessment owing to the failure or omission on the part of the appellant to disclose fully and truly all material facts, and (ii) that the fact that the Income-tax Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true disclosure of material facts. The Supreme Court further held that whether there was such nondisclosure of primary facts as had caused escapement of income from assessment was basically a question of fact. It is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. 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 the notice of the assessing authority. The asses-see knows all the material and relevant facts--the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But, if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted. Furthermore, bearing these principles in mind, in this particular case, whether there has been such non-disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact. ( 7 ) OUR attention has also been drawn to the decision of the Supreme Court in Indian Oil Corporation v. ITO [1986] 159 ITR 956. Furthermore, bearing these principles in mind, in this particular case, whether there has been such non-disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact. ( 7 ) OUR attention has also been drawn to the decision of the Supreme Court in Indian Oil Corporation v. ITO [1986] 159 ITR 956. There the Supreme Court observed (at p. 970) : "as is well-settled now by the several authorities of this court and of several High Courts, 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'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the obligation is to disclose facts ; secondly, those which are material; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as to certain other facts. But, on the primary facts, it is for the taxing authority to draw inferences. It is not necessary for the assessee to draw inferences for him. See, in this connection, the observations in Calcutta Discount Co. Ltd. 's case. " ( 8 ) IN our view, the principles are well settled. On the facts of a particular case, the question is of application of the principles. Having regard to the facts and circumstances of this case, it cannot be said that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year in question. Apart from the facts, the question whether there was any nondisclosure of primary facts which had caused escapement of income from assessment was basically a question of fact. Apart from the facts, the question whether there was any nondisclosure of primary facts which had caused escapement of income from assessment was basically a question of fact. It was the duty of the assessee to disclose the interest which was not given up as a bad debt and to offer it for taxation. It is immaterial whether the assessee did or did not credit such interest to the interest suspense account or profit or loss account. It was the duty of the assessee to disclose that interest had accrued on what is called "sticky advances" but, if such interest was not taxable on the basis of the said circular of the Board, the assessee could have claimed that such interest should not be included in the assessment. This was not done by the assessee. The Supreme Court in State Bank of Travancore [1986] 158 ITR 102, has held that unless a "sticky advance" is claimed as a bad debt, it is the duty of the assessee to offer it for taxation. The assessee who maintains the accounts on the mercantile system cannot be said to have highlighted all the particulars relating to the income accrued to it even if such income may not be realisable in the long run. The assessee did not furnish proper details to indicate what was the interest due to the assessee from the debtors in the course of his business in money-lending or interest due to the assessee otherwise. On a consideration of the entirety of the facts found, we are of the view that the Tribunal was right in holding that income had escaped assessment due to the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and the Income-tax Officer has validly assumed jurisdiction under Section 147 (a) of the Act. ( 9 ) FOR the reasons aforesaid, the question in this reference is answered in the affirmative and in favour of the Revenue. There will be no order as to costs.