# PHOOL CHAND BAJRANG LAL AND ANR. '· v. INCOME TAX OFFICER AND ANR - **Citation:** [1993] Supp. 1 S.C.R. 28 - **Court:** Supreme Court of India - **Decided:** 1993-07-13 - **Case number:** Civil Appeal No. 1235 of 1977 - **Bench:** S.C. Agrawal, Dr. A.S. Anand - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/phool-chand-bajrang-lal-and-anr-v-income-tax-officer-and-anr-11953 - **Pages:** 26 ## Headnote Income Tax Act, 1961-Ss. 147, 148 149-Income escaping· assessment-Assessing Officer's jurisdiction to reopen assessment-Held, Income Tax Officer can reopen assessment only if on the basis of specific, reliable c and relevant information coming to his possession subsequently he has reasons to beliel'e that by reason of omission or failure on the part of the assessee to make a tnte and full disclosure of all material facts any part of his income profit or gains chargeable to income tax has escaped assessment-To say that the question regarding truthfulness or falsehood of'certain D transaction reflected in retunz can only be examined during original assessnlent proceedings and not at any stage subsequent thereto, does violence to plane phraseology of ss. 147(a), and 148 and is against the settled law. The appellant firm was an income tax assessee at Azamgarb(U.P.). In the income tax returns for the assessment year 1963-64, it claimed to E have borrowed in cash a sum of Rs. 50,000/- on 19.5.1962 from a Calcutta Company and filed a letter from that company confirming the payment of the loan to the assessee. The assessee claimed that it bad paid interest to the Calcutta Company and was accordingly allowed deduction for each of the assessment years 1963-64 to 1968-69. F The Income Tax Officer Azamgarh entertained some doubts abont the genuineness of the loan transaction and requested the Income Tax Officer at Calcutta to supply him information about the Calcutta Company. The Income Tax officer Calcutta replied that the business of the Calcutta Company consisted entirely of name lending and no finance was .. G claimed to have been distributed in the assessments of the company for 1962-63 to 1964-65. The assessing authority issued a notice to the assessee on 26.8.1971 proposing to reopen the case for the assessment year 1965-66 under Section 147(a) of the Income Tax Act, 1961, as it was prima facie satisfied H that the Joan transaction of Rs.50,000 was not genuine and since the 28 I •• PHOOLCHAND v. l.T.0. 29 assessee had failed to disclose fully and truly all material facts necessary A for assessment years 1963-64, income chargeable to tax had escaped assessment. The assessee unsuccessfully contended that it had disclosed all the primary facts at the stage of original assessment and the provisions of Section 147(a) were inapplicable. The I.T.O. issued a notice under Section 148 of the Act to reassess assessee's income after recording that he had reasons to believe that the assessee's income had escaped assessment within the meaning of Section 147. The assessee filed the return for assessment year 1963-64 as also an affidavit of the creditor Calcntta Company in support of its stand of cash loan. The Managing Director of B the Calcutta Company was examined and he admitted to have made a confession to Calcutta I.T.O. in respect of his company's business to be of C mere name lending. The l.T.O. issued a show cause notice to the assessee. The assessee meanwhile filed a writ petition before the High Court seeking to quash the notice issued under Section 148 to it and to restrain the I.T.O. from continuing with the assessment procetdings. The High Court dismissed the writ petition holding that the inforD mation received from Calcutta I.T.O. could form the basis for entertaining a reasonable belief on the part of the assessing authority that as a result of false representation made by the assessee regarding the cash loan from the. Calcutta Company, its income had escaped assessment during the relevant assessment year. However, noting the divergent views of different E High Courts in similar cases, the High Court granted the certificate of fitness to appeal to this Court under Article 133 of the Constitution. The assessee accordingly filed the appeal before this Court. It was contended by the assessee that the obligation of an assessee F during the assessment proceedings is primarily to disclose all material and relevani facts i.e. the primar ## Text _Characters 0–39,886 of 63,280. This is a partial read: ask again with offset=39886 for what follows._ A PHOOL CHAND BAJRANG LAL AND ANR. '· v. INCOME TAX OFFICER AND ANR. JULY 13, 1993 B [S.C. AGRAWAL AND DR. A.S. ANAND, JJ.] Income Tax Act, 1961-Ss. 147, 148 149-Income escaping· assessment-Assessing Officer's jurisdiction to reopen assessment-Held, Income Tax Officer can reopen assessment only if on the basis of specific, reliable c and relevant information coming to his possession subsequently he has reasons to beliel'e that by reason of omission or failure on the part of the assessee to make a tnte and full disclosure of all material facts any part of his income profit or gains chargeable to income tax has escaped assessment-To say that the question regarding truthfulness or falsehood of'certain D transaction reflected in retunz can only be examined during original assessnlent proceedings and not at any stage subsequent thereto, does violence to plane phraseology of ss. 147(a), and 148 and is against the settled law. The appellant firm was an income tax assessee at Azamgarb(U.P.). In the income tax returns for the assessment year 1963-64, it claimed to E have borrowed in cash a sum of Rs. 50,000/- on 19.5.1962 from a Calcutta Company and filed a letter from that company confirming the payment of the loan to the assessee. The assessee claimed that it bad paid interest to the Calcutta Company and was accordingly allowed deduction for each of the assessment years 1963-64 to 1968-69. F The Income Tax Officer Azamgarh entertained some doubts abont the genuineness of the loan transaction and requested the Income Tax Officer at Calcutta to supply him information about the Calcutta Company. The Income Tax officer Calcutta replied that the business of the Calcutta Company consisted entirely of name lending and no finance was .. G claimed to have been distributed in the assessments of the company for 1962-63 to 1964-65. The assessing authority issued a notice to the assessee on 26.8.1971 proposing to reopen the case for the assessment year 1965-66 under Section 147(a) of the Income Tax Act, 1961, as it was prima facie satisfied H that the Joan transaction of Rs.50,000 was not genuine and since the 28 I •• PHOOLCHAND v. l.T.0. 29 assessee had failed to disclose fully and truly all material facts necessary A for assessment years 1963-64, income chargeable to tax had escaped assessment. The assessee unsuccessfully contended that it had disclosed all the primary facts at the stage of original assessment and the provisions of Section 147(a) were inapplicable. The I.T.O. issued a notice under Section 148 of the Act to reassess assessee's income after recording that he had reasons to believe that the assessee's income had escaped assessment within the meaning of Section 147. The assessee filed the return for assessment year 1963-64 as also an affidavit of the creditor Calcntta Company in support of its stand of cash loan. The Managing Director of B the Calcutta Company was examined and he admitted to have made a confession to Calcutta I.T.O. in respect of his company's business to be of C mere name lending. The l.T.O. issued a show cause notice to the assessee. The assessee meanwhile filed a writ petition before the High Court seeking to quash the notice issued under Section 148 to it and to restrain the I.T.O. from continuing with the assessment procetdings. The High Court dismissed the writ petition holding that the inforD mation received from Calcutta I.T.O. could form the basis for entertaining a reasonable belief on the part of the assessing authority that as a result of false representation made by the assessee regarding the cash loan from the. Calcutta Company, its income had escaped assessment during the relevant assessment year. However, noting the divergent views of different E High Courts in similar cases, the High Court granted the certificate of fitness to appeal to this Court under Article 133 of the Constitution. The assessee accordingly filed the appeal before this Court. It was contended by the assessee that the obligation of an assessee F during the assessment proceedings is primarily to disclose all material and relevani facts i.e. the primary facts and once that disclosure has been made, it is for the Income Tax Officer to draw the necessary inferences therefrom on the basis of such facts; that if an Income Tax Officer draws some inferences at the time of the assessment proceedings from the disclosed primary facts and accepting the same concludes the assessment G proceedings, any subsequent information which may create an impression on the mind of the Income Tax Officer that either the primary facts were not true and full or that the inferences drawn therefrom were not correct, would not clothe him with the jurisdiction to initiate action for the reopening of a concluded assessment. H 30 SUPREME COURT REPORTS [1993) SUPP. 1 S.C.R. A The revenue contended that the obligation of an assessee is not B merely to make disclosure of the basic or primary facts at the time of assessment but to make a "true and full" disclosure of such basic facts, and an omission to do so, would clothe the I.T.O. with the jurisdiction to reopen a concluded assessment; and that the question as to whether the grounds for reassessment are adequate or not is not a matter for the Courts to investigate so long as the belief of the l.T.O. is based on relevant material and is otherwise bonafide. Dismissing the appeal, this court C HELD: 1. The Income-Tax Officer rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific, relevant and reliable, after recording the reasons for formation of his own belief that in the original assessment proceedings the assessee had not disclosed the material facts truly and fully and therefore income chargeD able to tax had escaped assessment. He, therefore, correctly invoked the provisions of Sections 147(a) and 148 of the Income Tax Act, 1961. [53-B-C] E 2.1. An Income-Tax Officer acquires jurisdiction to reopen assessment under s.147(a) read with ss. 148 and 149 of the Income Tax Act 1961 when two conditions are satisfied - the I.T.O. must have reason to believe that (a) the income, profits or gains chargeable -to tax had either been under as~essed or escaped assessment and, (b) such escapement or under assessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and tTU/y all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisF diction on the Income Tax Officer. The I.T.O. is obliged before initiating proceedings under s.148 of the Act to record the reasons for the formation of his belief to reopen the assessment. He may start assessment proceedings either because some fresh fact& come to light which were not previously disclosed or some information with regard to the facts previously G disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. [38-G, H; 39-A, B; 51-G, H; 52-A-B] H CIT v. TS Pl.P. Chidambaram, 80 (1971) !TR 467, relied on. ' .. ' PHOOLCHAND v. J.T.0. 31 2.2. It cannot be said that the question regarding truthfulness or A 1falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. It would also be immaterial whether the Income-Tax Officer at the time of making the original assessment could or, could not have found by further enquiry or,investigation, whether the transaction was genuine or not. The purpose and intent of the provisions need to be looked into. One of the purposes of Section 147, is to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say that since "you accepted my lie, now your hands are tied and you can do nothing". (52-D, G-H; 53-A] CIT v. Bur/op Dealers Ltd., (1971) 79 !TR 609, explained. 2.3. Since, the belief to re-open the assessment is that of the IncomeB c tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact D existed no belief or that the belief was not at all a bonafide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax E Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. (52-B-D) 3.1. From the conduct of assessee the I.T.O. at Azamgar could justifiably entertain doubts about the genuiness of the cash loan of Rs. 50,000 leading to the making of enquiry from the ITO at Calcutta, after F completing the assessment proceedings. When the jurisdictional I.T.O. at Calcutta wrote back to the l.T.O. at Azamgarh that the Managing Director of the Calcutta company had made a confession about his business activities regarding the assessment years 1962-63, 1963-64 and 1964-65 and had confessed that he was only a name lender and had not advanced any G loan to any party during those assessment years, the I.T.O. at Azamgarh prima facie formed the belief that the assessee had not stated the primary facts regarding the loan transaction "fully and truly" during the assessment proceedings. [ 42-D-F] 3.2. The information, was specific that no money had been lent by H 32 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R. A the Calcutta Company to any one during 1962-63, 1963-64 and 1964-65. B c D E F Thus, the period during which the Calcutta company had only lent its name was specified. That period corresponded to the period during which the assessee had claimed to have received a cash loan of Rs. 50,000 from the Calcutta company. It is therefore not correct to say that the information available with the I.T.O. Azamgarh was vague in nature. [44-B-C] Chhugmal Rajpal v. S.P. Chaliah, (1971) 79 ITR 603 and ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437, distinguished. 4.1. Acquiring fresh information, specific in nature and reliable iu character, relating to the concluded assessment ooich goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the same facts and materials which was available with the ITO at the time of original assessment proceedings. The two situations are distinct and diffe':"Cnt. [47-H-48-A] 4.2. Where the transaction itself on the basis of subsequent informa· lion, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be a disclosure of the "true" and "full" facts in the case and the ITO would have the jurisdiction to reopen the conclude assessment in such a case. [ 48-A·B] 43. The instant case is not the one where the Income Tax Officer sought to draw any fresh inference, which could have been raised at the time of original assessment on the basis of the material placed before him by the assessee relating to the loan, which he failed to draw at the time. The I.T.O. Azamgarh, subsequent to completion of the original assessment proceedings, on making an enquiry from the jurisdictional I.T.O. at Cal· cutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the load had not really lent any money but only its name, to cover up a bogus transaction and after recording his satisfaction as G required by the provisions of Section 147 of the Act proposed to reopen the assessment proceedings. [47-E-H] CIT v. Bur/op Deale" Ltd., (1971) 79 ITR, explained and distinguished. H 4.4. Of course, the assessing authority could have deferred the .\ PHOOL CHAND v. I.TO. [DR. ANA."ID, J.] 33 completion of the original assessment proceedings for further enquiry and A investigation into the genuiness to loan transaction, but his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act on receipt of the information subsequently. (48-B-C] A.LA. Fimi v. CIT, 189 (1991) ITR 285, relied on. C.J. T v. Bur/op Deale1~ Ltd., (1971) 79 !TR 609, explained. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1235 of 1977. From the Judgment and Order dated 24.11.76 of the Allahabad High Court in C.Misc. Writ No.1541 of 1974. G.C. Sharma, Mrs. Indu Goswami, Ms. Premlata Bansal, Ram Avtar Bansal, R.K. Maheshwari and Arvind Minocha for the Appellants S.C. Manchanda, KP. Bhatnagar, S. Rajappa and P. Parmeswaran for the Respondents. The Judgment of the Court was delivered by DR. ANAND, J. This appeal, on a certificate of fitness granted by the High Court under Article 133 of the Constitution of India is directed against the judgment in Civil Misc. Writ Petition No. 1541 of 1974 decided by the Allahabad High Court on 24.11.1976 and arises in the following circumstances: The appellant is a firm which was assessed to income-tax at Azam· garb (U.P.). In the Income Tax Returns for the assessment year 1963-64, the assessee claimed that it had borrowed a sum of Rs. 50,000 from M/s B c D E F Jain Finance Distributor (India) Private Limited, Calcutta (hereinafter called the Calcutta company) on 19.5.1962. An entry dated 25.5.1962 in that behalf was made by the assessee in it' books of account as well as in the G balance sheet as liability. The loan was stated to have been raised in cash and it was also claimed to have been returned in cash in 1968, though the interest on loan was stated to be paid by cheque/bank drafts till repayment in 1968. During the assessment proceeding, the Income-tax Officer directed the assessee to file a copy of the account of the Calcutta company H 34 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R. A to support the loan transaction. The assessee produced a confirmatory letter dated 15.11..1963 from the Calcutta company, confirming the payment of loan of Rs. 50,000 to the assessee. The case of the assessee before the ITO was that one of its partners, namely Bajrang Lal, (since deceased) had gone to Calcutta on 13th May, 1962 with a draft of Rs. 31,000 and Rs. B 151 in cash in order to make payment of outstandings at Calcutta. For making certain purchases of cloth and for payment of other outstandings against the assessee, the said partner, while in Calcutta, raised a cash loan of Rs. 50,000 from the Calcutta company and on his return to Azamgarh on 25th May, 1962 necessary entries were made in the books of account of the assessee showing a credit of Rs. 50,000 from the Calcutta company by C way of cash Joan to the assessee. The ITO finalised the return and for each of the assessment years 1963/64 to 1968/69, the ITO allowed. deduction of interest claimed to have been paid to the Calcutta company by the assessee. From a perusal of the recurd il appears that the Income Tax Officer entertained some doubts about the genuineness of the loan transaction and D accordingly he addressed a letter to the Income Tax Officer, District Companies (III)-196/J/l, Central Revenue Building, Calcutta on 19th May, 1970 enquiring if the Calcutta company fell 'Within its jurisdiction. it was stated by the ITO in that letter that he wanted to gather certain information from the case records of the Calcutta Company. In reply the ITO Calcutta on 7.7.70 sent the following communication to the ITO Azamgarh: E F 11Confidential Regd. Post ND OFFICE OF THE INCOME TAX OFFICER, "K'' WARD, COMPANIES DISTT. III P/7, CHOWRINGHREE SQUARE CALCUTTA No. C-III/J-46/K/606 Income Tax Officer, A Ward, Azamgarh, Date 7.7.70 G (by name) SUB: M/s. Jain Finance Distributors (India) Private Ltd., 34/IB, Sudhir Chatterjee St., Calcutta. Ref: Your letter No. P306/A, Dt. 19.5.70 addressed lo ITO "!" H Ward, Companies Dist. lll, Calcutta. •• , P!-IOOL CHAND v. I.T.O. IDR. ANAND, J.j 35 Please refer to your above letter asking for .some information A about Jain Finance Distributors India Private Ltd., This company is now assessed to tax in my ward. I have however to inform you that according to the confession of Shri Tara Chand Surana Mg. Director of the company it appears that the so-called company is really a dummy concern of Shri Surana. The company never actually advanced any loans to any person and according to the confession of Shri Surana the business of the company consisted entirely of name-lending. The company lent its name to enable. different parties to bring into their books 'black money' under the guise of loan from Jain Finance Distributors (India) Pvt. Ltd. No finance was ever distributed, only the name of the concern was lent. This pos1t1on has been accepted in the assessments of the company for 1962-63, 1963-64 and 1964-65. In the circumstances you are requested not to treat any transaction with this concern as genuine. I can furnish further information to you if you sent me full particulars of transactions which you may be enquiring about. Sd/- (AR. Das Gupta) Income Tax Officer 'K' Ward (Companies Distt. III, Cal.)" B c D E After receipt of the above co1nmunication 1 the assessing authority on 26.8.1971 issued a notice lo the assessee slating therein that he was prima facie satisfied that the loan transaction of Rs. 50,000 was not genuine and F that since the assessee had failed to disclose fully and truly all the material facts necessary for assessment for the year 1963/64, income chargeable to tax had escaped assessment and he therefore proposed to reopen the case for the assessment year 1965-66 under Section 147 (a) of the Indian Income Tax Act, 1961 (hereinafter called as the Act). Objections were invited from the assessee. In his reply dated 25.11.1972, the assessee contended that G there had been no non-disclosure on its part in respect of the loan transaction of Rs. 50,000 and that since all the primary facts had been disclosed by the assessee at the stage of the original assessment,. the provisions of Section 147(a) were inapplicable. After considering the reply, the ITO issued a notice under Section 148 of the Act to the assessee H 36 SUPREME COURT REPORTS [ 1993] SUPP. 1 S.C.R. A proposing to reassess his income, after recording that he had reason to believe that the assessee's income in respect of \vhich he was assessable to tax had escaped assessment within the meaning of Section 147 of the Act. The assei;see was called upon to file its return for the assessment years 1963-64 to 1968-69 within 30 days from the date of service of the notice. B c D The proposal of the ITO to reopen the assessment had been submitted earlier to the Commissioner of Income Tax on 1.1.72 with the relevant record and sanction of the Commissioner for reassessment was obtained on 7.2.72. On 26.2.72,..the assessee filed its return for the assessment year 1963-64 and later appeared before the ITO in person on 26.9.1973. The assessee filed before the ITO Azamgarh an affidavit from the creditor, Calcutta Company, in support of its contention that the cash loan had in fact been raised from the creditor. The ITO directed the assessee to produce the Calcutta creditor for cross-examination in respect of his affidavit. The creditor, Shri Surana, Managing Director of the Calcutta Company appeared and was cross examined by the ITO. During the course of his cross examination, he admitted before the ITO that he had made a confession to the ITO at Calcutta on the lines which had been indicated in the letter of the jurisdictional ITO from Calcutta dated 7.7.70. The creditor, was thereafter reexa1nined by the counsel for the assessee but nothing was elicited from the creditor regarding the correctness or otherwise of the 'confession' alleged to have been made by him before the ITO E at Calcutta, during the assessment proceedings relating to his company at Calcutta. After considering the entire material on the record, a show cause notice was issued by the ITO, Azamgarh to the assessec detailing all the facts gathered by him from the contents of the letter of the ITO at Calcutta, the confession allegedly made by the creditor before the ITO at Calcutta F in respect of assessment years 1962-63 to 1964-65 and the statement of the creditor before him. The assessee was called upon to reply but he did not give any reply to the show cause notice. While the matters rested here, the assessee filed writ Petition No.1541i74·in the High Court of Judicature at Allahabad on 18.3.74 seeking the quashing of the notices issued under Section 148 of the Act and to restrain the ITO from continuing with the G reassessment proceedings. A Division Bench of the High Court after a detailed consideration of facts and law, came to the conclusion that the information furnished by the ITO Calcutta could form the basis for entertaining a reasonable belief H on the part of the ITO, Azamgarh, that as a result oi false representation I ., .. .J. I PHOOL CHAND v. l.T.O. [DR. ANAND, J.] 37 made by the assessee regarding the raising of cash loan from the Calcutta A company, his income had escaped assessment during the relevant assess~ ment year and it dismissed the writ petition with costs on 24.11.1976. The assessee applied for a certificate of fitness to file an appeal in the Supreme Court under Article 133 of the Constitution. The Division Bench of the High Court while granting the certificate opined: "On one of the questions which arise out of our order in the writ petition, there is considerable divergence of views amongst different High Courts. Some High Courts have taken the view that in .... the cases of loans borrowed by an assessee, if he has disclosed the details thereof to the Income Tax Officer at the time of the original assessment, he (the assessee).is under no further obligation to inform the Income Tax Officer that such loans were bogus ones. Whether such loans are genuine or bogus according to this view, a matter of inference which the Income Tax Officer has to draw B c on the facts disclosed after proper verification and that if he had treated such loans as genuine, he can not, later, re-open the D assessment merely because he was subsequently reason to believe that such loans were not genuine. A few other High Courts have taken a contrary view on the above question. The aforesaid question is, in our opinion, a substantial question of law of general importance which ne. !ds to be decided by the Supreme Court." That is, how, the matter is before us. Before we take up for consideration the rival submissions made by the learned counsel for the parties and consider the authorities cited by them, it would be appropriate to first notice some of the provisions of the Act. The relevant provisions of Sections 147, 148, 149 as they stood at the relevant time for the purpose of this case read as under: "147. Income escaping assessment -if- (a) the Assessing Officer has reason to believe that, by reason of E F G the omission or failure on the part·of an assessee to make a return under section 139 for any assessment year to the Assessing Officer H 38 A B c SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R. or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or xxx xxx xxx 148. Issue of notice, where income has escaped assessment- (1) Before making the assessment, reassessment or recomputation under Section 147, the Income Tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection. xxx xxx xxx D 149. Time limit for notice (1) No notice under section 148 shall be issued, (a) in cases falling under clause (a) of section 147E (i) for the relevant assessment year, if eight years have elapsed from the end of the year, unless the case falls under sub-clause (ii); F xxx xxx xxx (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant, assessment year." From the plain phraseology of the above Sections of the Act, it G appears that two conditions precedent which are required to be satisfied before an Income Tax Officer can acquire jurisdiction to proceed under clause (a) of Section 147 read with Sections 148 and 149 of the Act, beyond the period of four years but within a period of eight years, from the end of the relevant year, are: (a) that the Incol!le Tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either H been under assessed or escaped assessment and (b) that the ITO must have PHOOL CHAND v. I.T.O. [DR. ANAND, J.] 39 reason to believe that such escapement or under-assessment was ocA 1 casioned by reason, of omission or failure on the part of the assessee to disclose }Ully and tmly all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. The Income Tax Officer is obliged, before initiating proceedings under Section l.48 of the Act to record the reasons for the formation B of his belief to reopen the assessment. Shri G.C. Sharma, the learned senior counsel appearing for the appellants, snbmitted that the obligation on an assessee during the assessment proceedings is primarily to disclose all material and relevant facts i.e. c the primary facts and once that disclosure has been made, it is for the Income Tax Officer to draw the necessary inferences there from on the basis of sμch facts and that the assessee is under no obligation to also state as to what inferences could be drawn from those primary facts. He submitted that it is for the Income Tax Officer to draw the correct inferences from those primary facts and if an Income Tax Officer draws some inferenD 'I ces at the time of the assessment proceedings from those disclosed primary facts and accepting the same concludes the assessment proceedings, any subsequent information which may create an impression on the mind of the Income Tax Officer that either the primary facts were not true and full or that the inference drawn therefrom were not correct, would not clothe E him with the jurisdiction to initiate action for reopening of a concluded assessment. Argued Mr. Sharma that since in the instant case the assessee had disclosed the primary facts and the Income Tax Officer after accepting those facts had completed the original assessment, he could not reopen the assessment, on getting information from the Calcutta JTO to the effect that the Calcutta company was merely a name lender and had not advanced F loan to any party. Learned counsel contended that even if it be assumed that the ITO, Azamgarh had entertained doubts about the genuineness of the loan transaction and sought information from the Calcuta ITO, the reply furnished by the Calcutta ITO, could at the best be said to cast a j suspicion on the genuineness of the transaction but could not form the basis for "reason to believe" that the income chargeable to tax had escaped G assessment during the relevant assessment year on account of the omission on the part of the assessee to disclose true and full facts during the asse.."srnent proceedings. Learned counsel maintaine of the High Court: "As the information furnished by the I.T.O., Calcutta, could form the basis for a reasonable belief on the part of the I.T.O., Azamgarh, that as a result of a false representation made by the B petitioner as to his having borrowed money from the Calcutta Company, his income had estaped assessment, the I.T.O., Azamgarh, could take notice under section 147(a) of the Act." Certain tell tale circumstances of the case support the above view-of the High Court. c The assessee was being assessed to tax at Azamgarh. It was claimed that it had raised a cash loan of Rs. 50,000 in May, 1962 from the Calcutta Company on interest. According to the assessee, the loan was raised by one of the partners of the firm who had gone to Calcutta for making D purchases of cloth etc. In para 3 of the writ petition filed by the assessee ). in the High Court it was stated thus: "That on 13th May, 1962 one of the partners namely Sri Bajrang Lal who is since deceased had gone to Calcutta with a draft of Rs.31,000 and of Rs. 151 in cash. The amount was carried by the E said partner in order to make payment of outstandings against the firm. In Calcutta the said partner raised the loan of Rs. 50,000 on 19th May, 1962. This loan was raised for making purchases of cloth and also for payment of other outstandifigs against the firm." The interest on the loan was being paid to the Calcutta Company by F draft/cheque and not in cash till the loan was claimed to have been repaid in cash in 1968. Since, the assessee itself stated in paragraph 3 of the writ petition (supra) that the loan had been raised for making purchases of cloth and for clearing other outstanding debts, in the normal course of ; human conduct if not the entire amount of Rs. 50,000, at least a substantial G amount, would have been spent or paid towards the purchases and to clear off the other debts at Calcutta. However, on the assessee's own showing it was not so. This is evident from what the assessee stated in paragraph 4 of the writ petition which reads : "That when Sri Bajrang Lal returned to Azarngarh on 25th May, H A B 42 SUPREME COURT REPORTS (1993) SUPP. 1 S.C.R. 1962 he deposited Rs. 19.98 out of the money that he had taken when he went to Calcutta and the sum of Rs. 50,000 which he had raised by way of loan. On the same day namely 25th May, 1962, necessary entries were made in the books of account of the firm and amongst other entires, M/s jain Finance Distributors (India) Private Limited given a credit of Rs. 50,000 by way of loan to the firm." (Emphasis supplied) Thus, it is seen that the cash amount of Rs. 50,000 taken at Calcutta was shown to have been deposited with the assessee by Shri Bajrang Lal, C when he returned to Azamgarh and an entry was made in the books of account on 25.5.62. Why was the amount not returned at Calcutta if it was not spent is anybody's guess? Again, while the loan was received in cash, the interest was alleged to have been paid by cheque or bank draft and yet the repayment of the loan was allegedly made again in cash in 1968! There D is no explanation for this type of dealing with the loan alleged to have been borrowed by the assessee. The I.T.O. at Azamgarh therefore could justifiably entertain doubts about the genuineness of the cash loan of Rs. 50,000 leading to the making of enquiry from the ITO at Calcutta, after completing the assessment proceedings. When the jurisdictional I.T.O. at Calcutta wrote back to the l.T.O. at Azamgarh conveying that the Calcutta E Company was an assessee with him and that the Managing Director of the Calcutta Company Mr. Surana, had made a confession about his business activities regarding the assessment years 1962-63, 1963-64 and 1%4-65 and had confessed that he was only a name lender and had not advanced any loan to any party during those assessment years, the I.T.O. at Azamgarh F prima facie formed the belief that the assessee had not stated the primary facts regarding the loan transaction "fully and truly" during the assessment proceedings. It was under these circumstances that the assessment was sought to be reopened and a notice under section 148 of the Act after obtaining the requisite permission from the CIT was issued. G The judgment in Chhugamal Rajpal v. S.P. Chaliha, (1971) 79 !TR 603, relied upon by Mr. Sharma is clearly distinguishable. In Chhugamal's case (supra) the I.T.O. had initiated reassessment proceedings on the basis of a "circular" issued from the office of the Commissioner of Income Tax, Bihar & Orissa, which stated that three persons named in that circular, H were merely name lenders and their transactions were bogus and proper J i PHOOLCHAND ''· I.T.O.[DR.ANAND,J.J 43 investigation regarding the loans from such persons was nec;cssary before accepting the returns. The I.T.O. merely on the basis of lhal "circular" initiated reassessment proceedings. This Court held that the circular br itself without any other niaterial and investigation, could not afford any basis lo the l.T.O. for forming a reasonable belief that the assessce had not made a full and true disclosure of the relevant facts on which account the income of the asscssce chargeable to tax had escaped assessment. Unlike the general "circular" issued by the Commissioner of Income tax in that case, in the instant case, the l.T.O. at Azamgarh had entertained doubts about the genuineness of the loan transaction of Rs. 50,000 and therefore had made enquiries from the l.T.O. at Calcutta. The reply received from the I.T.O. at Calcutta (supra) was specific and went to show that the Calcutta Company was not a money lender. The information in the present case is vastly different both in content and character than the 'circular' in Chlrngama/'s case which was held by this Court as not affording a basis for entertaining a reasonable belief that income chargeable to tax had escaped assess1nent. Mr. Sharma the~ placed reliance on I. T.O. v. Lakhmani Mewal Das, (1976) 103 ITR 437 to urge that the information contained in the letter of the l.T.O. at Calcutta dated 7.7.1970 was no better than the 'information' in Lakltmani Mewa/ Das's case (supra), and since the Supreme Court had characterised that information as wholly vague, indefinite, far- fetched and remote, which could not afford any basis for entertaining a reasonable belief to initiate proceedings under Section 147 of the Act, the same grounds would be available in the present case also. We cannot agree. In Mewa/ Das case (supra), the assessee in his return, claimed deductions of certain sums paid by way of interest on the borrowings, including the one from Mohan Singh Kanayalal, who was shown as one of the creditors of A B c D E F the assessee. A confession had allegedly been made by Mohan Singh Kanayalal to the effect that he had only lent his name. However, there was nothing to show that the confession related to any loan advanced to the assessee or even the period during which name and not Joan was lent. There was no other material either to show that the confession made was G in relation to the period April 1, 1957 to March 31, 1958, subject matter cifthe assessment which was sought to be reopened. It was in that fact situation that this Court found that the information based on the confession of the creditor Mohan Singh Kanyalal was vague, indefinite, remote and 1 far-fetched and could not justify the formation of any belief that the income H 44 SUPREME COURT REPORTS (1993] SUPP. 1 S.C.R. A of the assessee had for the period 1.4.1957 and 31.3.1958 escaped assessment. In the instant case, however the facts are entirely different. From the communication of the jurisdictional l.T.O. at Calcutta, it came to light that the Managing Director of the Calcutta company Mr. Surana had, during the assessment proceedings of that company for the period 1962-63, 1963B 64 and 1964-65, made a confession to the effect that he did not lend money to any party whatsoever. The information, therefore, was specific that no money h.~d been lent to any one during 1962-63, 1963-64 and 19964-65. Thus, tlie'"period during which the Calcutta Company had only lent its name was specified. That period corresponded to the period during which the assessee had claimed to have recieved a cash loan of Rs. 50,000 from C the G.alcutta Company. It is therefore not correct to say that the information available with the I.T.O. Azamgarh in the present case was of the same vague nature as the information available with the I.T.O. in Mewal Das's case (supra). The judgment in Mewal Das's case (supra) therefore, cannot advance the case of the assessee at all. D Mr. Sharma then made an attempt, based on CIT v. Bur/op Dealers Ltd., (1971) 79 !TR 609 to urge that since it was permissible for the l.T.O. during the original proceedings to have conducted an investigation and verify the material facts, after the assessee had made a disclosure of the primary facts, about the genuineness of the loan transaction, the assessing E authority could not on account of an omission on his part to do so, be permitted to reopen a concluded assessment on the basis of material coming to its notice subsequently. Thrust of the argument of Mr.