KANTAMANI VENKATA NARAYANA & SONS versus FIRST ADDITIONAL INCOME-TAX OFFICER, RAJAHMUNDRY

Citation: [1967] 1 S.C.R. 984 · Decided: 27-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

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Judgment (excerpt)

KANTAMANI VENKATA NARAYANA & SONS 
v. 
FIRST ADDmONAL INCOME-TAX OFFICER, 
RAJAHMUNDRY 
October 27, 1966 
[J.C. SHAH, V. R.AMASWAMI AND V. 8HARGAVA, JJ.) 
Income-tax Act (11 of 1922). s. 34--Escaptd assessment-Not/ct, 
whelh.er necessary to state c/ause--<Jrounds of challenge. 
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During the assessment proceedings of a 
company, 
the 
Income-tu. 
'f" 
Officer discovered that there was a large accretion to the wealrh of the 
assessee, which bad not been disclosed in the assessment pror.eedings of the 
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assessee, and the Officer issued notires under s. 34 for the reassessment of 
income during that period. The assessee filed writ petitions in the High 
Court, in reply to which the Income-tax Officer filed affidavits stating that 
relying on the information received by him, be had reason to believe that 
the assessee had not disclosed fully and truly all material facts and in con-
sequence, income chargeable to tax had escaped assessment. The writ peti-
tions were rejected and the order was confirmed in appeal by the High 
Court. In appeals by the assessee, this Court, 
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HELD : The appeals must be dismissed. 
From the affidavit of the Income-tax Officer it clearly appeared that 
there had been considerable increase in the investments in the transactions 
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and the wealth of the assessee. The Income-tax Officer was not seeking 
to reassess the income on a mere change of opinion. (989 BJ 
The Income-tax Officer bad pr/ma facle reason to believe that infor-
mation material to assessment bad been withheld, and that on account of 
withholding of that information income liable to tax had escaped assess-
ment. 
From the mere production of the books of account. it could not 
be inferred that there had been full disclosure of the material "1cts neces-
sary for the purpose of assc5'ment. Sections 23 and 24 of the Act lay that 
the assessee is under a duty to disclose fully and truly material facts neces-
sary for the assessment of the year and that duty is not discharged merely 
by the production of the books of accounts or other evidence. It is the 
duty of the assessee to bring to the notice of the Income-tax Officer parti-
cular items in the books of account or portions of documents which are 
relevant. Even if it be assumed that from the books produced, the lncomC>-
tax Officer, if be had been circumspect, could have found out the truth, 
the Income-tax Officer may not on that account be precluded from exer-
cising the power to assess income which had escaped assessment. (989 G-
990 Bl 
It is not necessary 'or imperative that a notice under s. 34 must specify 
under which of the two clauses-<:!. (a) or cl. (b) of suf>..s. (I) of s. 34, 
the notice is issued. 
(986 Al 
P. R. Mukherjee· v. Commissioner of Income-tax, West 
Bengal, 
30 
l.T.R. 535, approved. 
Two conditions precedent must co-exist, before a notice nnder s. 34 
(l)(a) of the Act may be i'ISIJed: the ·Income-tax Officer mUSI 
have 
reason to beli~ ( l) lllat income, profits or gains had been under usess-
ed. and (2) that such under assessment was due to non-<lisclosure 
of 
material facts by the assessce. 
Wbm: the Incomo-tax Officer has prinuJ 
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B 
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VENKATA NARAYANA v. I.T.O. (Shah, J.) 
985 
facie reasonable grounds for believing that there has been a. non.disclosure 
of primary material fact, that by itself gives him juriS<!iction to issue 
notice under s. 34 and the adequacy or otherwise of the grounds of such 
belief is not open to investigation by the Court. [987 CJ 
Calcutta Discount Company Ltd. v. Income-tax Officer, CompanieJ 
District I [1961] 2 S.C.R. 241 and S. Narayanappa v. The Commissioner 
of Income-tax, Bangalore [1967] 1 S.C.R. 596 relied on. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 154 to 
165 of 1966. 
Appeals by special leave from the judgment and order dated 
February 3, 1965 of the Andhra Pradesh High Court in Writ 
Appeals Nos. I17 to 128 of 1964. 
P. Ram Reddy and A. V. V. Nair, for the appellants (in all the 
appeals). 
s. V. Gupte, Solicitor-General, R. Ganapathy Iyer and R. N. 
Sachthey, for respondent (in all the appeals). 
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The Judgment of the Comt was delivered by 
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Shah, J. M/s. Kantamani Venkata Narayana & Sons-
hereinafter referred to as 'the assessee' is a Hindu undivided family, 
which was assessed to tax on ineome derived principally from 
money-lending. In the course of proceedings for assessment of a 
private limited company styled "Motu Industries Ltd.," the Income

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