The Income-tax Officer found my undisclosed drafts during the original assessment, questioned my partner about them, and then did nothing. Can he reopen years later saying I failed to disclose them?
No. The Supreme Court quashed the notice. The Income-tax Officer had himself discovered the drafts, put them to a partner of the firm, recorded in his best judgment assessment order that the money must belong to the firm, and then failed to bring the amounts to tax. Once he had all the primary facts it was for him to make the enquiries and draw the inferences. His failure to do so was plainly an oversight, and he could not use section 147(a) to remedy an error resulting from his own oversight. Section 143 was cited in the notice; the proceedings were quashed.
Decided by the Supreme Court (Supreme Court of India - A.C. Gupta and R.S. Sarkaria, JJ (judgment delivered by Gupta, J)) on 1975-05-01, reported as AIR 1975 SC 1268; (1975) 100 ITR 1 (SC); (1975) 4 SCC 375; 1975 Tax LR 498. It bears on section 147, section 148 of the Income Tax Act 1961, in Reassessment & Reopening matters.
This is the short, blunt authority for the proposition that discovery by the officer cures the non-disclosure. It goes a step beyond Calcutta Discount: the assessee here had in fact not disclosed the draft transactions, but because the officer unearthed them, questioned the partners and recorded his conclusion in the assessment order, the primary facts were before him and the omission limb of section 147(a) could no longer be invoked. Practitioners use it whenever the reasons recorded for reopening rest on material that is visible on the face of the original assessment record, the questionnaire, or the officer's own order. It is the counterpart of Parashuram Pottery, decided a year later, and both are traced back to Calcutta Discount.
Binding on every court and authority in India.
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The appellant was a partnership firm assessed for the assessment year 1956-57. By an order of 22 January 1958 the Income-tax Officer rejected the return and the books and made a best judgment assessment on a turnover of Rs fifteen lakhs, later reduced by the Appellate Assistant Commissioner and reduced again by the Tribunal. In making that assessment the officer had discovered that the firm had used certain bank drafts to make purchases at Madras and Calcutta which were not recorded in its books. He gave the partners an opportunity to explain them. One partner, Om Prakash, said the drafts relating to the firm were entered in its books and the others belonged to persons whose names he could not remember. The officer recorded in his order that as the partner could not say whose the other drafts were despite specific opportunities, the obvious inference was that the money was the firm's, and that from the circumstances in which the drafts had been sent or received the conclusion was obvious that they related to the firm. He nevertheless did not bring those amounts to tax. On 31 March 1965 he issued a notice to reassess for 1956-57, on the footing that the drafts represented undisclosed income not considered at the original assessment. The Allahabad High Court, a single Judge and then a Division Bench, upheld the notice.
The appeal was allowed, the notice of 31 March 1965 and the consequent proceedings quashed, with no order as to costs. It was not disputed that the case fell under clause (a) of section 147, so the question was whether the officer had reason to believe that income had escaped assessment by reason of the assessee's omission or failure to disclose fully and truly all material facts. He had not. The assessee had not disclosed the draft transactions, but the officer discovered them himself; after that discovery he had in his possession all the primary facts. It was then for him to make the necessary enquiries and to decide whether the amounts invested in the drafts formed part of the firm's total income for the year. He did not do so. That was plainly a case of oversight, and income could not be said to have escaped assessment by reason of any omission or failure of the assessee. The Court held he could not take recourse to section 147(a) to remedy the error resulting from his own oversight.
The Court applied Calcutta Discount, whose principles it treated as governing section 147 of the 1961 Act just as they governed section 34 of the 1922 Act, the points of departure being immaterial. The passage relied on is the familiar one: the assessing authority must know all the facts needed to compute the tax; from primary facts in his possession, whether disclosed by the assessee, discovered by him on the basis of what was disclosed, or otherwise, he draws inferences of fact and then legal inferences; once all the primary facts are before him he needs no further assistance by way of disclosure, and it is not for the assessee to tell him what inferences to draw. The words 'or otherwise' carry the weight here, because the primary facts came to the officer by his own discovery rather than from the assessee. The Court noted that the same principles had been restated in Hem Chandra, Bhanji Lavji and Burlop Dealers. Applied to these facts, the officer's own detailed order showed he had the material, had put it to the partners, and had reached a view about it. The jurisdictional condition of omission or failure by the assessee was therefore missing, whatever the merits of taxing the drafts might have been.
He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court quashed the notice. The Income-tax Officer had himself discovered the drafts, put them to a partner of the firm, recorded in his best judgment assessment order that the money must belong to the firm, and then failed to bring the amounts to tax. Once he had all the primary facts it was for him to make the enquiries and draw the inferences. His failure to do so was plainly an oversight, and he could not use section 147(a) to remedy an error resulting from his own oversight. Section 143 was cited in the notice; the proceedings were quashed. This was decided by the Supreme Court (Supreme Court of India - A.C. Gupta and R.S. Sarkaria, JJ (judgment delivered by Gupta, J)) and bears on section 147, section 148 of the Income Tax Act 1961. It is reported as AIR 1975 SC 1268; (1975) 100 ITR 1 (SC); (1975) 4 SCC 375; 1975 Tax LR 498. This is the short, blunt authority for the proposition that discovery by the officer cures the non-disclosure. It goes a step beyond Calcutta Discount: the assessee here had in fact not disclosed the draft transactions, but because the officer unearthed them, questioned the partners and recorded his conclusion in the assessment order, the primary facts were before him and the omission limb of section 147(a) could no longer be invoked. Practitioners use it whenever the reasons recorded for reopening rest on material that is visible on the face of the original assessment record, the questionnaire, or the officer's own order. It is the counterpart of Parashuram Pottery, decided a year later, and both are traced back to Calcutta Discount. If it applies to you, the first step is this: Get the original assessment record - order sheet, questionnaires, replies, statements recorded - and show that the very item now relied on was already in the officer's hands.
The appellant was a partnership firm assessed for the assessment year 1956-57. By an order of 22 January 1958 the Income-tax Officer rejected the return and the books and made a best judgment assessment on a turnover of Rs fifteen lakhs, later reduced by the Appellate Assistant Commissioner and reduced again by the Tribunal. In making that assessment the officer had discovered that the firm had used certain bank drafts to make purchases at Madras and Calcutta which were not recorded in its books. He gave the partners an opportunity to explain them. One partner, Om Prakash, said the drafts relating to the firm were entered in its books and the others belonged to persons whose names he could not remember. The officer recorded in his order that as the partner could not say whose the other drafts were despite specific opportunities, the obvious inference was that the money was the firm's, and that from the circumstances in which the drafts had been sent or received the conclusion was obvious that they related to the firm. He nevertheless did not bring those amounts to tax. On 31 March 1965 he issued a notice to reassess for 1956-57, on the footing that the drafts represented undisclosed income not considered at the original assessment. The Allahabad High Court, a single Judge and then a Division Bench, upheld the notice. The matter was decided on 1975-05-01 by the Supreme Court (Supreme Court of India - A.C. Gupta and R.S. Sarkaria, JJ (judgment delivered by Gupta, J)). On those facts the Supreme Court held as follows. The appeal was allowed, the notice of 31 March 1965 and the consequent proceedings quashed, with no order as to costs. It was not disputed that the case fell under clause (a) of section 147, so the question was whether the officer had reason to believe that income had escaped assessment by reason of the assessee's omission or failure to disclose fully and truly all material facts. He had not. The assessee had not disclosed the draft transactions, but the officer discovered them himself; after that discovery he had in his possession all the primary facts. It was then for him to make the necessary enquiries and to decide whether the amounts invested in the drafts formed part of the firm's total income for the year. He did not do so. That was plainly a case of oversight, and income could not be said to have escaped assessment by reason of any omission or failure of the assessee. The Court held he could not take recourse to section 147(a) to remedy the error resulting from his own oversight.
The Court applied Calcutta Discount, whose principles it treated as governing section 147 of the 1961 Act just as they governed section 34 of the 1922 Act, the points of departure being immaterial. The passage relied on is the familiar one: the assessing authority must know all the facts needed to compute the tax; from primary facts in his possession, whether disclosed by the assessee, discovered by him on the basis of what was disclosed, or otherwise, he draws inferences of fact and then legal inferences; once all the primary facts are before him he needs no further assistance by way of disclosure, and it is not for the assessee to tell him what inferences to draw. The words 'or otherwise' carry the weight here, because the primary facts came to the officer by his own discovery rather than from the assessee. The Court noted that the same principles had been restated in Hem Chandra, Bhanji Lavji and Burlop Dealers. Applied to these facts, the officer's own detailed order showed he had the material, had put it to the partners, and had reached a view about it. The jurisdictional condition of omission or failure by the assessee was therefore missing, whatever the merits of taxing the drafts might have been. In the words reproduced by the source cited on this page: "He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight."
It was decided by the Supreme Court on 1975-05-01 and is reported as AIR 1975 SC 1268; (1975) 100 ITR 1 (SC); (1975) 4 SCC 375; 1975 Tax LR 498. 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 appeal was allowed, the notice of 31 March 1965 and the consequent proceedings quashed, with no order as to costs. It was not disputed that the case fell under clause (a) of section 147, so the question was whether the officer had reason to believe that income had escaped assessment by reason of the assessee's omission or failure to disclose fully and truly all material facts. He had not. The assessee had not disclosed the draft transactions, but the officer discovered them himself; after that discovery he had in his possession all the primary facts. It was then for him to make the necessary enquiries and to decide whether the amounts invested in the drafts formed part of the firm's total income for the year. He did not do so. That was plainly a case of oversight, and income could not be said to have escaped assessment by reason of any omission or failure of the assessee. The Court held he could not take recourse to section 147(a) to remedy the error resulting from his own oversight. It arises in Reassessment & Reopening matters, on section 147, section 148 of the Income Tax Act 1961, and was decided by Supreme Court of India - A.C. Gupta and R.S. Sarkaria, JJ (judgment delivered by Gupta, 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. Quote the assessment order itself if it discusses the item; an officer who wrote about it and then dropped it has made the case for you. Frame the argument as absence of the second condition in section 147(a): not that income did not escape, but that it did not escape by reason of any omission of yours. Do not overstate disclosure; the Court accepted here that the assessee had not disclosed the transactions, and still allowed the appeal because of what the officer found and did.
Still good law. Routinely applied on reopening where the material was already before the officer; the harvested page records it as cited in well over a hundred later decisions. Section 147 has since been recast, with effect from 1 April 1989 and again from 1 April 2021, so the clause (a) and clause (b) structure the judgment works with no longer exists in those words. 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 report as harvested says the notice of 31 March 1965 was issued 'under Section 143' of the 1961 Act; on the facts it must have been a notice under section 148, and this looks like a slip in the report. The judgment does not state what became of the drafts thereafter, or whether the amounts could have been taxed by any other route. It also does not say why the assessment year 1956-57, governed by the 1922 Act, was reopened under the 1961 Act, beyond recording that it was common ground the case fell under section 147(a). The judgment is short and the harvested page carries no headnote. 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 appeal was allowed, the notice of 31 March 1965 and the consequent proceedings quashed, with no order as to costs. It was not disputed that the case fell under clause (a) of section 147, so the question was whether the officer had reason to believe that income had escaped assessment by reason of the assessee's omission or failure to disclose fully and truly all material facts. He had not. The assessee had not disclosed the draft transactions, but the officer discovered them himself; after that discovery he had in his possession all the primary facts. It was then for him to make the necessary enquiries and to decide whether the amounts invested in the drafts formed part of the firm's total income for the year. He did not do so. That was plainly a case of oversight, and income could not be said to have escaped assessment by reason of any omission or failure of the assessee. The Court held he could not take recourse to section 147(a) to remedy the error resulting from his own oversight.
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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