INCOME TAX OFFICER & ORS. versus M/S. MADNANI ENGINEERING WORKS LTD., CALCUTTA

Citation: [1979] 2 S.C.R. 905 · Decided: 04-01-1979 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

INCOME TAX OFFICER & ORS. 
v. 
M/S. MADNANI ENGINEERING WORKS LTD., 
CALCUTTA 
January 4, 1979 
[P. N. BHAGWATI AND A. D. KOSHAL, JJ.] 
905 
Income Tax Act, 1961-S. 141(a)-Scope of-Income 1"ax Officer at first 
t' 
refused .to give reasons for beUeving that income tscaped assessment-In the 
seco1i'd af]ida1•it did not set out any material for the basis of his belie/-
Validity of. 
.. -In respect of the assessment year 1959-60 the assessee was allowed deduction 
of interest pa.id to creditors from whom it claimed to have borrowed montya 
on hundis. In January, 1968 the Income Tax Officer issued a notice to the 
'!SSessee under s. 147(a) of the Inoome-tax Ac~ 1961 on the ground that the 
transattiOns of loans represented by the hundis were bogus and no interesl- was 
paid by it to any of the creditors shown in the hundis, that it was WrOJ:!gly 
allowed as- a. deduction and therefore a part of the assessee's income had ·escaped 
assessment by reason of its failure to disclose fully and truly all maferiaL facts 
necessary· for the assessment. 
In the ass_essee'er writ petition before the High Court the Income Tax Officrtr 
at· fit&t declined to disclose the 'facts which had weighed with him in reaching 
the belief that income had escaped assessment on the ground that if they were 
disclosed ·jt would cause great prejudice to the interests of revenue and \vould 
frustrate the object of reopening the a~ssment. Later however, realising that 
this stand was untenable he gave his reasons for issuing the notice. 
A ·Smgle Judge of the High Court dismissed the assess~e's writ petition.· On 
appeal a Division Bench held that there was no failure on the part of the 
;>. 
a'6essee to disclose fully and truly all material facts and that in any ~vent the 
; 
JnCome Tax Officer had no reason to believe that any part of the income had 
/ 
escaped assessment by reason of such failure on the ass'essee's part. 
Disniis-
oing the ~ppeal, 
lIELD: 
There was no failure on the part of the ,,.c.,ee to discle>;e fully and truly 
all material facts nec?ssary for its assessment and the condition for the .appiie-
abitity of s. 147(a) was not sati~fied. The notice in the circumstances was 
void. [910 Al 
·(I) In CIT v. Bur/op Dealm Ud., 79 ITR 609 thi• Court held that there 
was no obli&ation on the part of tho asse'8ee to disclose that the documents , 
produe'ed by it were bogus and that the entries made in its books Of account 
W!'f• false. 1he assessee discharged its obligation by disclosing its books of 
accoUnts and evidence from which material facts could be discovered and it 
is for the Income Tax Officer to decide wh'cther the documents were genuine 
or false. [909 FJ 
A. 
B 
c 
D 
E 
F 
G 
H 
SvPREME COl'RT REPORTS 
(1979] 2 S.C.Jt .. 
A 
In the instanl case the assessee could not be said to have failed to make a. 
B 
c 
D 
true and fulJ disclosure of the material facts by not confessing before the Income 
Tax Officer that the hundis and the eutrics in the books of account produced 
before him were bogus. [909 G] 
CIT v. Bur/op Dealers Ltd. 79 lTR 609; applie<l. 
(2) AU that the Income Tax Officer stated in his affidavit was that ;,, di•-
cover("d that the transactions of loan again3t security 
of J1undis 
were 
not 
genuine MJd that the credits against th'e names of certain persons who were 
alleged to' have :Y.lvanccd the loans were bogus. 
He merely stated his 6elief 
bnt dfd rot set out any maicrial on the basis of which h'c had arrived at such 
belief. [9!0 Cl 
(3) Th~. erh;tence or reason to belic\c on the part of the Income Tax Ofticcr 
i9 a jmrticeabJe is!'!ue and it is for th'e court to be satisfied \vhethCr in fllcf the 
rncollt~ Tax Officer had ooy material on the h01~is of \vhich he coufd re&Soriabfy 
entertain rnc h be! ief. [907 D1 
CivIL APPELLATE JURISIJICTION; Civil Appeal No. 829 of 1975 
From the Judgment and Order dated 11-4-74 of the Calcutta High 
Court in Appeal from original Order dated 221/70. 
S. C. Manchanda, and Miss A. Subhashitri for the Appellant 
V. S. Desai, Sanjay BhaJtacharya and Rathln Dass for the ReipOn--
den!. 
1!: 
The Judgment of the Court was delivered by 
BHAGWATI, J.-This appeal by 'certificate is directed against an 
order passed by a Division Bench of the High Court of Calcutta al-
lowing an appeal against a decision of a Single Judge dismissing the-
wtit petition of the respondent. 
The facts giving rise to the appea1·-
F 
may Be briefly stated as follows : 
G 
H 
The respondent was assessed 

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