DR. B.P. SARAF, J.--By this reference under section 2560) of the Income Tax Act, 1961, the Income- tax Appellate Tribunal has referred the following two questions of law to this Court for opinion at the instance of the Revenue: "(1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the Income-tai Officer is not entitled to reopen the assessment under section 147(a) even though there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessm ent for that year in his return or during the course of assessment proceedings?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the Income-tax Officer was very well seized on the facts and there was no necessity for the assessee to disclose the same again and it is omission on the part of the Income-tax Officer himself and, therefore, he is not entitled to reopen the assessments under section 147(b)?"
This reference pertains to the assessment year 1975-76. The material facts giving rise to this reference, briefly stated, are as follows: The Income of the assessee for the assessment year 1975-76 was assessed by the Income-tax Officer under section 143(3) of the Income Tax Act, 1961 ("the Act"). The assessee owned extensive lands situated in the-- heart of Panaji town which were valued by them as follows: Sl. No,Name of the assessee Area Amount in (Rs.)
1. Mr. Joao de Deuz, Carvalho Vasco5,481 sq. mtrs. 7,00,000
2. Mrs. Maria Jose Miranda Carvalho6/7ths of the property7,00,000
3. Miss Esther P. Carvalho, Goa 1/7th of the property2,40,000
4. Mr. Manual F. de Carvalho 1,866 sq. mtrs. 3,16,000 These lands introduced by the assessee as their capital in the firm, Carvalho Real Estate, of which they were partners at the market value According to the Revenue, these primary facts were not - disclosed by the assessee in the returns of income filed by them, which resulted in the escapement of capital gains liable to tax on transfer of these lands to the firm from assessment. The Income-tax Officer, therefore, issued notice to the assessee under section 148 read with section 147(a) of the Act on October 16, 1978, and reopened the assessment to bring to tax the capital gain on transfer of the lands and completed the assessments by including the capital gains arising out of the above transfer of lands. The assessee challenged the order of the assessment before the Commissioner of Income-tax (Appeals). The challenge was to the jurisdiction of the Income-tax Officer to exercise power under section 147(a) of the Act. The case of the assessee was that the Income-tax Officer - was aware of the transfer of the lands by them to the partnership firm as the very same lands had been subsequently sold by the partnership firm to a limited company, Mahabrest Hotel (Pvt.) Ltd.
According to the assessee, the Income-tax Officer assessing the firth was very much concerned with the capital gain arising from the transfer of those lands by the firm to the company and, hence he was aware of all the material facts relevant for the assessment of the assessee also. It was, therefore, contended by the assessee before the Commissioner of Income-tax (Appeals) that there was no necessity of disclosing these facts to the Income-tax Officer. The Commissioner (Appeals) accepted this contention of the assessee and cancelled the order of the reassessment Aggrieved by the order of the Commissioner (Appeals), the Revenue appealed to the Income-tax Appellate Tribunal ("the Tribunal"). The contention of the Revenue before the Tribunal was that this was a clear case of failure of the assessee to disclose the material facts. It was contended on behalf of the Revenue that there was not even a whisper in the returns filed by the assessee about the ownership of the lands and the transfer thereof at market value to the firm as capital. It was contended that there being a clear non-disclosure of the primary facts by the assessee, the Income-tax Officer was justified in exercising power under section 147(a) of the Act and reopen the assessm ents and reassess the income of the assessee. The Tribunal did not accept the above contention of the Revenue, as it was also of the view. That while making the assessment of the firm, Carvalho Real Estate, of which the assessee were partners, the Income-tax Officer was aware of the fact of transfer of the lands belonging to the assessee to the firm acid hence there was no necessity for the assessee to disclose those facts in their individual returns. The Tribunal observed that it was a case of omission on the part of the Income-tax Officer himself. The Tribunal, therefore, upheld the order of the Commissioner (Appeals) and dismissed the appeal of the Revenue. Hence, the reference at the instance of the Revenue.
We have heard Mr. R. V. Desai, learned counsel for the Revenue, who submits that this is a clear case of non-disclosure of material. Facts necessary for the assessment by the assessee. He, therefore, submits that the Income-tax Officer was justified in exercising power under section 147(a) of the Act to reopen the assessment of the assessee by issue of notices under section 148 of the Act and the Tribunal was not justified in setting aside the orders of reassessment. Reliance is placed in support of his contentions on the decision of the Supreme Court in Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456; Sri Krishna (Pvt.) Ltd. v. ITO (1996) 221 ITR 538 and the decision of this Court in Zohar Siraj Lokhandwala v. M.G. Kamat (1994) 210 ITR 956.
We have carefully considered the above submissions. The facts of this case are glaring. The undisputed position is that in the returns submitted by the assessee, the assessee did not disclose the transfer of the lands to the partnership firm, nor did they disclose these facts at the time of assessm ent. There does not appear to be any controversy about the fact that the assessee were liable-to capital gains in respect of the transfer of lands by them to the firm. The only ground on which the assessee seek to challenge the orders of the reassessment is that their case would not fall under section 147(a) of the Act as there was no failure on their part to disclose fully or truly the material facts relevant for the assessment for the year under consideration. The case of the Revenue throughout has been that there is a total non-disclosure of the material facts by the assessee. None of the authorities, including the Tribunal, dispute this fact. The only ground on which the Tribunal has set aside the order of the reassessment is that while making the assessment of the partnership firm, Carvalho Real Estate, the Income-tax Officer was aware of the fact of transfer and sale of the lands belonging to the assessee, and, therefore, there was no necessity for the assessee to disclose the facts in their individual returns. We have given our careful consideration to the reasoning of the Tribunal. We, however, find it extremely difficult to accept the same. In our opinion, the Tribunal misconstrued and misinterpreted the provisions of section 147(a) of the Act and the settled law on the subject. At the material time, section 147 of the Act read as follows: "147. Income escaping assessm ent.
(a) the Income-tax Officer, has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess of reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).
Explanation 1.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely--
(a) where income chargeable to tax has been underassessed; or
(b) where such income has been assessed at too low a rate; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
Explanation 2.Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section. "
Section 148 provides for issue of a notice on the assessee before making the assessment or reassessm ent under section 147 as a condition precedent to assessment or reassessment.
Section 149 prescribes the time-limit for issue of notice under section 148. This section, so far as relevant, reads: "(149) Time limit for notice. ---(I) No notice under section 148 shall be issued,---
(a) in cases falling under clause (a) of section 147--
(i) for the relevant assessm ent year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii);
(ii) for the relevant assessm ent year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessm ent amounts to or is likely to amount to rupees fifty thousand or more for that year;
(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 assessm ent year."
The two conditions precedent which are required to be satisfied before assuming, jurisdiction under clause (a) of section 147 of the Act are---
(i) that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either been under assessed or had escaped assessment; and
(ii) that the Income-tax Officer must have reason to believe that such-escapement was occasioned by reason of omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment.
(See Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456, 464 (SC)).
Applying the ratio of the above decisions to the facts of the present case, we are of the clear opinion that the Income-tax Officer was justified in exercising power under section 147(a) of the Act. There was a patent non-disclosure of material facts by the assessee which resulted in the escapement of capital gains from tax and the Income-tax Officer had cogent reasons to form an opinion to that effect.
In view of the above we answer both the questions referred to us in the negative i.e. in favour of the Revenue and against the assessee. Reference is disposed accordingly with no order as to costs.