INDO- ADEN SALT MFG. & TRADING CO. PVT. LTD.versusCOMMISSIONER OF INCOME TAX, BOMBAY

                                                             627
                                                                   A

                   INOO-ADEN SALT MFG. &TRADING
                           CO. PVT. LTD.
                                 v.
                COMMISSIONER OF INCOME TAX, BOMBAY
                                                                   B
                          MARCH 12, 1986

             [SABYASACHI MUKllARJI AND K.N. SINGH, JJ.]

        Jurisdiction to reopen assessment by the Income Tax
  Officer, when arises - Reopening assessment on the ground that
  the assessee had obtained depreciation at 6 per cent on the      c
  assets as masonry works, but the assets consisted of earth
  work wholly or substantially - Whether escaped assessment
  Duty of the assessee to disclose primary facts and truly -
  Income Tax Act, 1961, section 147 (a).

          A partnership firm business carried on by M/s. lndo Aden D
·• Salt Works Co. was taken over by the appellant-assessee by an
    agreement dated 24.8.1949. During the assessment year 1950-51,
    the said Agreement as well as the Valuation Report of the
    assets had been filed before the assessing authority. The
    Income Tax Officer did not discuss the point whether the
    assets were constructed of masonry or made of earth but on the E
    assessee's letter conveying its agreement that for the purpose
    of depreciation the value should be taken as Rs.20,31,000 in
    the aggregate, in the assessment order allowed 6 per cent
    depreciation. Later it was found that 93% of the construction
    works were made of earth and only 7% of masonry and that 59%
  ~ of piers were made of masonry and 41% of them were made of      F
    earth were allowed 12% depreciation which rate is available
    only if constructed entirely or mainly of wood. The Income Tax
    Officer, on these facts proposed to reopen the assessment on
    escaped income for the years 1955-56 to 1962-63. The jurisdic-
    tion of the Income Tax Officer to reopen the assessment under ·
    section 147(a) of the Income Tax Act, 1961 and the High G
    Courts' 'declining to call for a statement of case on a
    question of law by rejecting the application under section
--( 256(2) of the Act are under challenge in the appeals on certi-
    ficate granted by the Bombay High Court.

        Dismissing the appeal,s, the Cour~,                        H
    628                   SUPREME COURT REPORTS       [1986] 1 S.C.R.

A
          HEU>: l, l If there are some primary facts from which ,
    reasonable belief could be formed that there was some non- Y
    disclosure or failure to disclose fully and truly all material
    facts, the Income Tax Officer has jurisdiction to reopen the
    assessment. Assessee itnows all the materl.al and relevant facts
    - the assessing authority might not. In respect of the failure
    to disclose, the omission to disclose may be deliberate or
B
    inadvertent. That was immaterial. But if there is omission to
    disclose material facts, then, subject to the other                ,,,.
    conditions, jurisdiction to reopen is attracted. [632 D-F]       ~

          1.2 The obligation of the assessee is to disclose only
    primary facts and not inferential facts. What facts are
c   material facts would depend upon the facts and circumstances
    of each case. Further, whether there has been such non-disclo-
    sure of primary facts which has caused escapement of income in
    the assessment was basically a question of fact.

          In this case, what portion of the asset consisted of l
D
    earth and what portion or proportion consisted of masonry work
    was indubitably a material fact for the purpose of calculating
    the depreciation. If over depreciation has been allowed on the
    basis that the entire work consisted of masonry work, income
    might have been under-assessed. The Income Tax Officer can
    reasonably be said to have material to form that belief.
E
    (631 E-F]

          l, 3 Mere production of evidence before the Income Tax
    Officer and leaving him to find out the position by further
    probing is not enough. The assessee nust make full disclosure~
    truly. There msy be omission or failure to make a true and
    full disclosure, but if some material for the assessment lay
    embedded in the evidence which the revenue could have uncover-
    ed but did not, then, it is the duty of the assessee to bring
    it to the notice of the assessing authority. (632 D]
                                                                           '·
          Calcutta Discount Co. Ltd. v. Incone Tax Officer
G
    Companies District I, Calcutta & Another, 41 I;T,R, 191; Hazi
    Aalr Mohd. Mir Ahmed v. Collllll.ssioner of Income-Tax, Amritsar, "-
    110 I.T.R. 630; Income Tax Officer I Ward, Distt VI Calcutta &
    Ors. v. Laldmani lfewal Das, 103 I. T. R. 437; and Malegaon Elee-
    tricity Co. P. Ltd, v. Coumi.ssioner of Income Tax, Bombay, 78
    I,T.R. 466 applied.
H
                   INDO-ADEN SALT v. C.I.T, [MUKHARJI, J.]        629

                                                                        A
           CIVIL APPELLATE JURISDICTION     Civil Appeal Nos. 800-807
     (NT)·of 1974.

           From the Judgment and Order dated 21st June, 1973 of the
     Bombay High Court in Income Tax Application No.6 of 1972.
                                                                        B
             P.G. Gokhale, B.R. Agarwal and V, Menon for the Appel-
     lant.

           S.C. Manchanda, K.C. Dua and Ms. A. Subhashini for the
     Respondent.

             The Judgment of the Court was delivered by                 C

           SABYASACHI MUKHARJI, J. These appeals are by certificate
     from the decision of the High Court of Bombay dated 21st June,
     1973 whereby the High Court had declined the application made
     under section 256 (2) of the Income Tax Act, 1961 (hereinafter
<:   called 'the Act') wherein the assessee sought two questions to     D
     be referred to the High Court. The questions were:

                  (1) Whether, on the facts and in the circumstances
                  of the case, the re-assessment proceedings under
                  section 147 (a) of the Income-tax Act, 1961, ini-
                  tiated by the Income-tax Officer for the assessment   E
                  years 1955-56 to 1962-63 against the assessee were
                  valid in law ?

                  (2) Whether, on the facts and in the circumstances
                  of the case, the Tribunal was justified in up-hold-
                  ing the action under section 147(a) of the Income     F
                  Tax Act, 1961 for the assessment years 1955-56 to
                  1962-63 ?

                 The real question, therefore, is whether there were
     facts from which it could be believed that there was failure
     or omission to disclose fully and truly all material facts         G
     necessary for the assessment as a result of which income has
..,. escaped assessment. The assessment was sought to be re-opened
  · for the years 1955-56 to 1962-63 (for failure to disclose
     fully and truly all material facts). It is well-settled that
     the obligation of the assessee is to disclose only primary
                                                                        H
    630                  SUPREME COURT REPORTS     [1986] 1 s.c.R.

A
    facts  and not inferential facts - See Calcutta Discount Co.
    Ltd. v. IncoJE Tax Officer Companies District I, Calcutta and ·  ·- .
    Another, 41 l.T.R. 191. There l!llst be, therefore, (a) full
    disclosure, and (b) true disclosure of all material facts.
    What facts are material for a particular case would depend
    upon the facts and circumstances of each case, (c) there l!llst
B   be escapement of tax or under assessment due to such failure
    or omission.
                                                                     ...
         In this case the reason for the belief of the Income Tax
    Officer was that the assessee had obtained depreciation at 6
    per cent on the assets which were masonry works but the assets
C   really consisted of earth work wholly or substantially. If
    that was the position then the assessee was not entitled to
    depreciation as was granted. The question, is, whether the
    assessee had disclosed the nature of the masonry work and
    whether the nature of the asset had been fully and truly
    disclosed.
D
         The assessee's case was that a partnership business
    carried on by M/s. Indo-Aden Salt Works Co. was taken over by
    the asses see by an agreement dated 24th August, 1949 and
    during the assessment year 1950-51 the said agreement dated
    24th August, 1949 as well as the Valuation Report had been
E   filed before the assessing authority. It is, further, the case
    of assessee that there was discussion on this Valuation
    Report. It further appears from the assessment Order and the
    affidavit that the Valuation Report was discussed and the
    amount of depreciation was more or less agreed to between the
    parties. The revenue's case, on the other hand, is that whichi
F   portion of the assets consisting of masonry work and which of
    earth work was not discussed or disclosed. The assessee 's
    contention before the revenue authorities was that the primary
    facts were discussed fully and it was open to the revenue to
    examine into this aspect greater and it was not possible after
    the lapse of such a long ti'me to say actually whether what
G   portion of asset consisted of earth work has been disclosed or
    not. It appears, however, from the order of the Tribunal that
    by its last letter addressed to the Income Tax Officer the._.
    assessee had conveyed its agreement that for the purpose o(
    depreciation the value should be taken as Rs.20,31,000 in the
    aggregate, in the assessment. The Tribunal has, further, found •
H   that in granting the depreciation the I.T.O. did not discuss
               INDO-ADEN SAL'.[' v. C. I. T. [MUKHARJI, J.]   631


    the point whether the assets were constructed of masonry or      A
    made of earth and the l.T.O. did not exclude for depreciation
    the value of reservoirs, salt pans and piers and condensers
    and channels made of earth but allowed the depreciation claim
    of the assessee on the entire 11alue of the reservoirs, salt
    pans and .piers and condensers and channels at 6% even though
    these were only partly constructed of masonry and partly made    B
    of earth. The Tribunal has noticed that 93% of the
    construction works were made of earth and only 7% of masonry,
    and the facts that 41% of the piers were made of earth and
    only 59% of masonry was not challenged before the A.A.C. and
    were not in dispute before the Tribunal. There is also no
    dispute that depreciation at 6% is available only in respect
    of such assets constructed of masonry and not if made of         c
    earth. It was also not in dispute that depreciation on piers
    is available at 12% only if constructed entirely or mainly of
    wood. The fact that for the assessment years 1955-56 to
    1962-63 excessive depreciation allowance had been allowed in
    the original ·assessments and income chargeable to tax had
    escaped assessment and/or was under-assessed for these years     D
    was also not in dispute.

         The only question, therefore, is, whether there was
    failure on the part of the assessee to disclose fully and
    truly all material facts necessary for assessment and future
    whether such income escaped assessment . and whether such        E
    escapement or under-assessment has been caused as a result of
    the failure or omission on the part of the assessee to
    disclose fully and truly all material facts. What facts are
i   material facts would depend upon the facts and circumstances
    of a particulate case. This follows from the scheme of the
    section and is well-settled by th.e authorities of this Court.   F

        Ii: is the admitted position that the assessee had not
  disclosed either by valuation report or ·by statement before
  the l.T.O. as to what portion consisted of earth work and what
  portion or proportion consisted of masonry work. For the
  purpose of calculating depreciation that indubitably was a         G
~ material fact. If over depreciation has been allowed on that
  basis i.e. that the entirety of the work consisted of masonry
  work, income might ha11e been under-assessed. The Income tax
  Officer can reasonably be said to have material to form that
  belief. That position is also well-settled by the scheme of
                                                                     H
    632                  SUPREME COURT REPORTS      [1986] 1 s.c.R.

A
    the section, and concluded by the authorities of this Court.

         ThA ~ssessee's contention is that the I.T.O. could have
    found out the position by further probing. That, however, does
    not exonerate the assessee to make full disclosure truly. The
    explanation 2 to section 147 of the Act makes the position
B   abundantly clear. The principles have also been well-settled
    and reiterated in numerous decisions of this Court. See Hazi
    Amir Moh. Mir" Ahmed v. Counissioner of Income-tax, Amritsar,
    110 I.T.R. 630 and Income-Tax Officer I Ward, Uistt. VI
    Calcutta & Others v. Lakhmani Mewal Das, 103 I. T.R. 437,
    Hidayatullah, J, as the learned Chief Justice then was,
c   observed in Calcutta Uiscount's case (supra) that mere produc-
    tion of evidence before the Income-tax Offlcer was not enough,
    that there may be omission or failure to make a true and full
    disclosure, 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
D   notice of the assessing authority. Assessee knows all the
    material and relevant facts - the assessing authority might
    not. In respect of the failure to disclose, the omission to
    disclose may te deliberate      or     inadvertent.  That was
    immaterial. l\nt if there is omission to disclose material
    facts, then, subject to the other conditions, jurisdiction to
E   re-open is attracted. It is sufficient to refer to the deci-
    sion of this Court in Calcutta Discount's case (supra) where
    it had been held that if there are some primary facts from
    which reasonable belief could be f orined that there was some
    non-disclosure or failure to disclose fully and truly all
    material facts, the I.T.O. has jurisdiction to reopen the "1
F   assessment. This position was again reiterated by this Court
    in Malegaon Electricity Co. P. Ltd. v. Conmissioner of Income--
    Tax, Bombay, 78 I.T.R. 466.

         Further more bearing these principles in mind in this
    particular case whether there has been such non-disclosure of
G   primary facts which has caused escapement of income in the
    assessment was basically a question of fact.

         The High Court was right in declining to call for a
    statement of case on a question of law. The appeals, there-
    fore, fail. However> there will be no order as to costs.
H
    S.R.                                         Appeals dismissed.