TAX PICKINGS (MEANING OF TRUE AND FULL DISCLOSURE IN THE CONTEXT OF REOPENING OF ASSESSMENT)
The Supreme Court in Calcutta Discount Co. Ltd., ITR [1961] 41 ITR 191 (SC) has held that there can be no doubt that the duty of disclosing all primary facts relevant to the decision of the question before the assessment authority lies on the assessee. To meet all possible contentions that when some account books or other evidence have been produced, there is no duty of the assessee to disclose further facts which on due diligence the Income tax Officer might have discovered, the Legislature has put in Explanation to section 34 (1). The duty, however, does not extend beyond the full and truthful disclosure of all primary fact before the assessing authority. He requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else, far less the assessee, to tell the assessing authority what inferences whether of facts or law should be drawn.
The relevant portion of Calcutta Discount Co. Ltd (supra) reads as under (pages 199 to 202 of 41 ITR):
“Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income-Tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary fact in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts ; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example I have produced the account books and the documents: You, the Assessing Officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account books and the documents'. His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to omission to disclose fully and truly all material fact necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them- including particular entries in account books, particular portions of documents and documents and other evidence which could have on discovered by the assessing authority, from the documents and other evidence disclosed.
Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else- far less the assessee- to tell the assessing authority what inferences, whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inference should be drawn from the given facts, it will be meaningless to demand that the assessee must disclose what inferences- whether of facts or law- he would draw from the primary facts.
If from primary facts more inferences then one could be drawn it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority How could an assessee be charged with failure to communicate an inference, which he might not have drawn?
It may be pointed out that the Explanation to the sub-section has nothing to do with 'inferences' and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose 'inferences' to draw the proper inferences being the duty imposed on the Income-tax Officer.
We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.
The position, therefore, is that if there were in fact some reasonable ground for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of 'under assessment that would be sufficient to give jurisdiction to the Income tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In Other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts...
Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from non- disclosure of material facts, must co-exist before the income tax Officer has jurisdiction to start proceeding after the expiry of four years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that under assessment has resulted from non disclosure of material facts, cannot therefore be accepted.’’
The relevant portion of Calcutta Discount Co. Ltd (supra) reads as under (pages 199 to 202 of 41 ITR):
“Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income-Tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary fact in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts ; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example I have produced the account books and the documents: You, the Assessing Officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account books and the documents'. His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to omission to disclose fully and truly all material fact necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them- including particular entries in account books, particular portions of documents and documents and other evidence which could have on discovered by the assessing authority, from the documents and other evidence disclosed.
Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else- far less the assessee- to tell the assessing authority what inferences, whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inference should be drawn from the given facts, it will be meaningless to demand that the assessee must disclose what inferences- whether of facts or law- he would draw from the primary facts.
If from primary facts more inferences then one could be drawn it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority How could an assessee be charged with failure to communicate an inference, which he might not have drawn?
It may be pointed out that the Explanation to the sub-section has nothing to do with 'inferences' and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose 'inferences' to draw the proper inferences being the duty imposed on the Income-tax Officer.
We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.
The position, therefore, is that if there were in fact some reasonable ground for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of 'under assessment that would be sufficient to give jurisdiction to the Income tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In Other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts...
Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from non- disclosure of material facts, must co-exist before the income tax Officer has jurisdiction to start proceeding after the expiry of four years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that under assessment has resulted from non disclosure of material facts, cannot therefore be accepted.’’
-Kalpataru Plus Sharyans vs. dy. CIT (Bom), [2022] 440 ITR 269 (Bom)
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