I placed all my primary facts before the officer and he dropped the proceedings. Can a later officer reopen the assessment because he takes a different view of those same facts?
No. The Supreme Court held that once the assessee has fully and truly disclosed the primary facts necessary for assessment, the officer cannot start reassessment on a change of opinion. He may have drawn a wrong legal inference from the disclosed facts, but that does not make him competent to reopen. The burden is also placed where it belongs: if failure to disclose is alleged, it is for the officer to establish it, not for the assessee to prove there was no concealment. The assessee owes no duty to instruct the officer on questions of law, such as that profits were embedded in receipts.
Decided by the Supreme Court (Supreme Court of India; J.C. Shah, A.N. Grover and K.S. Hegde JJ. Judgment by Shah J) on 1971-01-21, reported as (1971) 79 ITR 582; AIR 1971 SC 717; (1972) 4 SCC 88; 1971 Tax LR 77; (1972) 1 SCJ 203; (1972) 1 ITJ 126. It bears on section 147, section 148 of the Income Tax Act 1961, in Reassessment & Reopening and Assessment & Scrutiny matters.
This is one of the foundation decisions on the disclosure limb of reopening, and three propositions in it are still argued every year. First, the duty is to disclose primary facts, and nothing more; the assessee need not point out the legal consequences of those facts or volunteer that a receipt carries an element of profit. Second, the burden of showing a failure to disclose lies on the Department once the issue is raised, and the Tribunal errs if it asks the assessee to satisfy it that there was no concealment. Third, where the primary facts were before the officer and he chose to drop the proceedings, a successor officer taking a different view is exercising a change of opinion, which the section does not permit. The case also shows how far the reasoning carries across years: because the factual position was unchanged, a sparser disclosure in the third year was still enough, the officer having had the earlier record before him.
Binding on every court and authority in India.
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The assessee carried on a ghee business at Porbandar, which was outside the taxable territories at the material time. The Income-tax Officer at Bombay began proceedings against him as a non-resident for assessment years 1947-48 to 1949-50. The assessee had a current account with the Bank of India in Bombay into which cheques for ghee supplied outside the taxable territories were credited and then remitted to Porbandar, and a current account with Shamji Kalidas and Company at Bombay on the interest from which tax had been deducted at the maximum rate under section 18(3A). His representative told the officer that the assessee was a non-resident with no business, office or agency in British India, that delivery was given at Porbandar, and that the bank account existed only to recover dues for goods delivered there; the pass books were produced and the tax deduction certificates filed. By order of 30 December 1948 the officer dropped the proceedings for the first two years, finding no source of income taxable in British India, and for 1949-50 he cancelled the return, referring to the earlier enquiries. In 1956 the Income-tax Officer at Porbandar issued notices under section 34(1)(a) for all three years, and the reassessments were upheld by the Appellate Assistant Commissioner and the Tribunal. On reference, the Gujarat High Court answered against the Department.
The appeals were dismissed with costs. The High Court was right that the Tribunal had misconceived the nature of the proceedings and the duty imposed on the assessee. All primary facts relevant to the assessment had been disclosed. Failure to explain how delivery of ghee was given at Porbandar was irrelevant. The price was in substance disclosed, since the representative had said the cheques were received for dues in respect of ghee supplied at Porbandar and the realisations were then transferred there. The assessee was under no duty to tell the officer that profits were embedded in the money received at Bombay. The Tribunal's finding that the receipt of sale proceeds in British India had been bypassed could not be accepted. Where the primary facts are fully and truly disclosed, the officer cannot commence reassessment on a change of opinion; he may have drawn a wrong legal inference, but that does not make him competent to reopen. For 1949-50 the result was the same: the factual position was unaltered, the assessee had pointed to the earlier proceedings, and the officer, aware of those proceedings and his own earlier reasons, could not reopen for non-disclosure.
The Court separated the two enquiries that the Tribunal had run together. The statutory condition is a failure by the assessee to disclose fully and truly all material facts necessary for the assessment, and the resulting escapement of income. On that issue, once it is raised, it is for the officer to establish the failure; it is not for the assessee to satisfy anyone that there was no concealment. The Tribunal had reversed that, and it had also asked for disclosure of things which are not primary facts. How delivery was effected at Porbandar had nothing to do with the assessment. The price was disclosed in substance, because the officer was told that the cheques represented dues for ghee supplied at Porbandar, and the pass books were before him. That the amounts realised were then remitted to Porbandar meant what it said; it did not conceal receipt in British India, which had been expressly stated. What the Tribunal really faulted the assessee for was not drawing the officer's attention to the inference that profits lay embedded in receipts in the taxable territories, and to the possible operation of the deeming provisions. But section 34(1)(a) casts no duty on an assessee to instruct the officer on questions of law. Once the primary facts are before him, the drawing of inferences of law and fact is his function. If he draws the wrong inference and drops the proceedings, the remedy is not reassessment for non-disclosure, because the section does not permit a reopening founded on a change of opinion. For the third year, the disclosure was thinner, but the officer had expressly relied on the earlier proceedings, so he knew the facts and the reasons, and the position was unchanged.
when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for re-assessment
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that once the assessee has fully and truly disclosed the primary facts necessary for assessment, the officer cannot start reassessment on a change of opinion. He may have drawn a wrong legal inference from the disclosed facts, but that does not make him competent to reopen. The burden is also placed where it belongs: if failure to disclose is alleged, it is for the officer to establish it, not for the assessee to prove there was no concealment. The assessee owes no duty to instruct the officer on questions of law, such as that profits were embedded in receipts. This was decided by the Supreme Court (Supreme Court of India; J.C. Shah, A.N. Grover and K.S. Hegde JJ. Judgment by Shah J) and bears on section 147, section 148 of the Income Tax Act 1961. It is reported as (1971) 79 ITR 582; AIR 1971 SC 717; (1972) 4 SCC 88; 1971 Tax LR 77; (1972) 1 SCJ 203; (1972) 1 ITJ 126. This is one of the foundation decisions on the disclosure limb of reopening, and three propositions in it are still argued every year. First, the duty is to disclose primary facts, and nothing more; the assessee need not point out the legal consequences of those facts or volunteer that a receipt carries an element of profit. Second, the burden of showing a failure to disclose lies on the Department once the issue is raised, and the Tribunal errs if it asks the assessee to satisfy it that there was no concealment. Third, where the primary facts were before the officer and he chose to drop the proceedings, a successor officer taking a different view is exercising a change of opinion, which the section does not permit. The case also shows how far the reasoning carries across years: because the factual position was unchanged, a sparser disclosure in the third year was still enough, the officer having had the earlier record before him. If it applies to you, the first step is this: Build the record at assessment stage: file the pass books, ledgers and confirmations, and get the officer's queries and your replies onto the file, so that a later reopening runs into disclosed primary facts.
The assessee carried on a ghee business at Porbandar, which was outside the taxable territories at the material time. The Income-tax Officer at Bombay began proceedings against him as a non-resident for assessment years 1947-48 to 1949-50. The assessee had a current account with the Bank of India in Bombay into which cheques for ghee supplied outside the taxable territories were credited and then remitted to Porbandar, and a current account with Shamji Kalidas and Company at Bombay on the interest from which tax had been deducted at the maximum rate under section 18(3A). His representative told the officer that the assessee was a non-resident with no business, office or agency in British India, that delivery was given at Porbandar, and that the bank account existed only to recover dues for goods delivered there; the pass books were produced and the tax deduction certificates filed. By order of 30 December 1948 the officer dropped the proceedings for the first two years, finding no source of income taxable in British India, and for 1949-50 he cancelled the return, referring to the earlier enquiries. In 1956 the Income-tax Officer at Porbandar issued notices under section 34(1)(a) for all three years, and the reassessments were upheld by the Appellate Assistant Commissioner and the Tribunal. On reference, the Gujarat High Court answered against the Department. The matter was decided on 1971-01-21 by the Supreme Court (Supreme Court of India; J.C. Shah, A.N. Grover and K.S. Hegde JJ. Judgment by Shah J). On those facts the Supreme Court held as follows. The appeals were dismissed with costs. The High Court was right that the Tribunal had misconceived the nature of the proceedings and the duty imposed on the assessee. All primary facts relevant to the assessment had been disclosed. Failure to explain how delivery of ghee was given at Porbandar was irrelevant. The price was in substance disclosed, since the representative had said the cheques were received for dues in respect of ghee supplied at Porbandar and the realisations were then transferred there. The assessee was under no duty to tell the officer that profits were embedded in the money received at Bombay. The Tribunal's finding that the receipt of sale proceeds in British India had been bypassed could not be accepted. Where the primary facts are fully and truly disclosed, the officer cannot commence reassessment on a change of opinion; he may have drawn a wrong legal inference, but that does not make him competent to reopen. For 1949-50 the result was the same: the factual position was unaltered, the assessee had pointed to the earlier proceedings, and the officer, aware of those proceedings and his own earlier reasons, could not reopen for non-disclosure.
The Court separated the two enquiries that the Tribunal had run together. The statutory condition is a failure by the assessee to disclose fully and truly all material facts necessary for the assessment, and the resulting escapement of income. On that issue, once it is raised, it is for the officer to establish the failure; it is not for the assessee to satisfy anyone that there was no concealment. The Tribunal had reversed that, and it had also asked for disclosure of things which are not primary facts. How delivery was effected at Porbandar had nothing to do with the assessment. The price was disclosed in substance, because the officer was told that the cheques represented dues for ghee supplied at Porbandar, and the pass books were before him. That the amounts realised were then remitted to Porbandar meant what it said; it did not conceal receipt in British India, which had been expressly stated. What the Tribunal really faulted the assessee for was not drawing the officer's attention to the inference that profits lay embedded in receipts in the taxable territories, and to the possible operation of the deeming provisions. But section 34(1)(a) casts no duty on an assessee to instruct the officer on questions of law. Once the primary facts are before him, the drawing of inferences of law and fact is his function. If he draws the wrong inference and drops the proceedings, the remedy is not reassessment for non-disclosure, because the section does not permit a reopening founded on a change of opinion. For the third year, the disclosure was thinner, but the officer had expressly relied on the earlier proceedings, so he knew the facts and the reasons, and the position was unchanged. In the words reproduced by the source cited on this page: "when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for re-assessment"
It was decided by the Supreme Court on 1971-01-21 and is reported as (1971) 79 ITR 582; AIR 1971 SC 717; (1972) 4 SCC 88; 1971 Tax LR 77; (1972) 1 SCJ 203; (1972) 1 ITJ 126. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 147, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with costs. The High Court was right that the Tribunal had misconceived the nature of the proceedings and the duty imposed on the assessee. All primary facts relevant to the assessment had been disclosed. Failure to explain how delivery of ghee was given at Porbandar was irrelevant. The price was in substance disclosed, since the representative had said the cheques were received for dues in respect of ghee supplied at Porbandar and the realisations were then transferred there. The assessee was under no duty to tell the officer that profits were embedded in the money received at Bombay. The Tribunal's finding that the receipt of sale proceeds in British India had been bypassed could not be accepted. Where the primary facts are fully and truly disclosed, the officer cannot commence reassessment on a change of opinion; he may have drawn a wrong legal inference, but that does not make him competent to reopen. For 1949-50 the result was the same: the factual position was unaltered, the assessee had pointed to the earlier proceedings, and the officer, aware of those proceedings and his own earlier reasons, could not reopen for non-disclosure. It arises in Reassessment & Reopening and Assessment & Scrutiny matters, on section 147, section 148 of the Income Tax Act 1961, and was decided by Supreme Court of India; J.C. Shah, A.N. Grover and K.S. Hegde JJ. Judgment by Shah J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. When a notice arrives, ask in the objections which primary fact was not disclosed and where the material to show that is; the Department must establish the failure, and a general assertion of non-disclosure will not do. Resist any suggestion that you should have told the officer the legal effect of what you disclosed; there is no duty to instruct him on questions of law. Where an earlier order dropped proceedings or accepted the position on the same facts, put that order on record and characterise the reopening as a change of opinion.
Still good law. The source page records the decision as cited in over one hundred and fifty later cases, and it is one of the standard authorities on disclosure of primary facts and change of opinion. It construes section 34(1)(a) of the 1922 Act, whose successor is section 147 of the 1961 Act. The disclosure proviso now governs only reopening beyond a shorter period, and sections 147 to 151 were recast from 1 April 2021 around information and a prior enquiry procedure, so the framework in which the propositions operate has changed even though the propositions themselves are still cited. Its later history was not separately traced in this session. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment decides section 34(1)(a) of the Indian Income-tax Act, 1922; the 1961 Act equivalents are sections 147 and 148, which is what the batch line gave. Only the third referred question, on the validity of the action under section 34(1)(a), was before the Court; the other three referred questions are not set out in the harvested text and their answers are not known. The amounts brought to tax are not stated. The reference to Sales Tax Cases in the printed citation list appears misplaced for an income-tax appeal and has been left out. The Court did not decide whether any income had in fact accrued or been received in the taxable territories, or how sections 42(1) and 42(3) of the 1922 Act would have applied. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs. The High Court was right that the Tribunal had misconceived the nature of the proceedings and the duty imposed on the assessee. All primary facts relevant to the assessment had been disclosed. Failure to explain how delivery of ghee was given at Porbandar was irrelevant. The price was in substance disclosed, since the representative had said the cheques were received for dues in respect of ghee supplied at Porbandar and the realisations were then transferred there. The assessee was under no duty to tell the officer that profits were embedded in the money received at Bombay. The Tribunal's finding that the receipt of sale proceeds in British India had been bypassed could not be accepted. Where the primary facts are fully and truly disclosed, the officer cannot commence reassessment on a change of opinion; he may have drawn a wrong legal inference, but that does not make him competent to reopen. For 1949-50 the result was the same: the factual position was unaltered, the assessee had pointed to the earlier proceedings, and the officer, aware of those proceedings and his own earlier reasons, could not reopen for non-disclosure.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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