JUDGMENT R.K. Gulati, J.
1. At the instance of the assessee the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the Income-tax Officer was justified in initiating re-assessment proceedings under the provisions of Section 147(a) of the Income-tax Act, 1961 ?"
2. For the assessment year 1965-66 which is the subject-matter of this reference, the assessment was completed on March 22, 1966. Subsequently, the assessee was served with a notice under Section 148 of the Act whereby the assessment was reopened under Section 147(a) of the Act on the allegation that the assessee had failed to disclose fully and truly all relevant facts necessary for its assessment for the year under consideration as a result of which income chargeable to tax had escaped assessment for that year. The reasons recorded for re-opening the assessment by the Income-tax Officer were to the following effect amongst others :
". . . During the course of assessment of subsequent years it was discovered that the assessee-company was maintaining guest houses at Allahabad and at Nainital. It was found that expenses incurred on these guest houses included certain expenses which were non-business expenses. The fact of their being non-business for Allahabad guest house has finally been confirmed by the Tribunal in subsequent assessment year. The Department has held that out of the total expenses, expenses to the tune of 90 per cent, were such non-business expenses. Thus, the expenses to this extent would be clearly disallowable in the hands of the company in this year. On the same basis depreciation and notional letting value of guest house to the extent of 90 per cent, will be disallowable and assessable respectively in the hands of the company. For the year 1965-66 the assessee-company has not given the details of expenses incurred for the maintenance of guest house which would also include large non-business expenses. Similarly, break up of depreciation and notional letting value of the guest house is also not available. In the last completed assessment total additions on these scores have been worked out at Rs. 74,819. The expenses therefore for this year are not likely to exceed this figure. Therefore, an estimate of Rs. 50,000 would be reasonable for the year 1965-66. This income was liable to be assessed in the hands of the assessee which has escaped assessment due to non-disclosure of material facts necessary for the assessment of the company for this year.
. . . Therefore, in view of the above facts, I have reason to believe that due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1965-66 income to the tune of Rs. 50,000 has escaped assessment within the meaning of Section 147(a) of the Income-tax Act, 1961. This income will be assessable in this year . . . ."
3. The assessee objected to the re-opening of the assessment, particularly, under, Clause (a) of Section 147 of the Act and referred to its objections which were taken in the assessment year 1964-65, where it is said that the assessment was re-opened in similar circumstances. The objections were, however, overruled by the Income-tax Officer by saying that his predecessor had not accepted them in the assessment year 1964-65 and he agreed with the view of his predecessor. In due course, reassessment for the year under consideration was completed on December 29, 1977.
4. The assessee felt aggrieved and challenged the reassessment order in appeal before the Commissioner of Income-tax (Appeals), Allahabad, where a preliminary objection was taken that the provisions of Section 147(a) were not applicable, for, there was no failure or omission to disclose fully and truly all material facts and if any basis for making a fresh assessment could be found, it could be done only within the ambit of Clause (b) of Section 147.
5. The case set up was that for the assessment year 1968-69 also the assessment was re-opened under similar circumstances and ultimately, the matter was decided by the Income-tax Appellate Tribunal in ITA No. 330 (All) of 1974-75 taking the view that the requirements of Clause (a) of Section 147 on the facts of that year, were not made out. The appeal for the year under consideration was allowed by the Commissioner of Income-tax (Appeals) taking the view as under :
"The company's guest house at 24 Queens Road, Allahabad, was established in 1962 and this fact was disclosed in the company's balance sheet for the period ending September 30, 1962. A resolution had also been passed by the board of directors of the company on July 31, 1962, that the company's directors Mr. M.R. Shervani and Mrs. T.R. Shervani would be charged for their stay in the guest house at the rate at which paying guests will be charged by the company. Details regarding the investment in the acquisition of the guest house were furnished by the appellant in a letter addressed to the Income-tax Officer, on January 20, 1964. The fact that Shri M.R. Shervani and Smt. T.R. Shervani were staying in the company's guest house had also been brought to the notice of the Department through the means of the returns of income/wealth filed by these two persond.....
... In view of the foregoing facts and the findings recorded by the Income-tax Appellate Tribunal in their order dated October 25, 1975 in I.T.A. No. 330 (All) of 1974-75 relating to the assessment year 1968-69 in the appellant's case it has to be held that the reassessment proceedings in this case could not have been initiated under Section 147(a) because there was no failure or omission on the part of the appellant company to disclose fully and truly all martial facts necessary for its assessment for the assessment year 1965-66. As the assessment has been made after the expiry of four years' limitation it is clearly bad in law and cannot be sustained. It is, therefore, quashed."
6. The Revenue carried the matter further in second appeal and challenged the order passed in appeal before the Income-tax Appellate Tribunal. The decision of the Appellate Tribunal relied upon by the appellate authority was sought to be distinguished on the ground that it had no application to the facts of the year under consideration, inasmuch as, the assessee had failed to furnish in its returns the necessary information in terms of Section 40(c) as per Part VI-A of the return or at any other stage during the course of the assessment proceedings. Further, on the facts, the action under Section 147(a) was fully justified.
7. On the contrary, while defending the order appealed against, the case of the assessee was that there was no non-disclosure of primary and material facts. In any case, the Department knew that the assessee had a guest house at Allahabad ; the directors' report to the shareholders for the accounting year ended September 30, 1962, mentioned that the company had acquired the guest house ; details regarding the investment, etc., made therein were also filed during the course of assessment proceedings for the assessment year 1963-64 ; the Department knew that Mr. and Mrs. Shervani were residing in that guest house and were being charged at the rate of Rs. 5 per day per head for the facilities provided to them in the guest house ; the basic facts were known to the Department either because the assessee had placed them on record or because they themselves had come to know of them.
8. It is pertinent to mention that in setting out the above contentions the Tribunal in its order has observed as under :
"On being asked if the above data was placed on record by the assessee in the course of the proceedings for the year under consideration, learned counsel fairly conceded that it was not so done, but suggested that it might have been done in the course of assessment proceedings for the' accounting year ended September 30, 1962, and subsequent years, and that all the relevant details were mentioned by the Income-tax Appellate Tribunal in their order for 1968-69 relied upon by learned Commissioner of Income-tax (Appeals)."
9. On consideration of the rival submissions in a very elaborate manner to which we will revert again, the Tribunal eventually held as under :
". . . we have no hesitation in coming to the conclusion that the reopening of the assessment for the assessment year under consideration on the ground that the assessee had not disclosed all the primary facts necessary for determining the assessee's proper income was justified in view of the omission on its part to disclose the information regarding the use of its Allahabad guest house for the permanent residence of Mr. and Mrs. Shervani on payment of the token sum of Rs. 5 per day per head only."
10. On this view of the matter, the Tribunal upheld the proceedings under Section 147(a) and the order appealed against was reversed. The appeal was restored to the file of the Commissioner of Income-tax (Appeals) with the directions that he would now re-determine it on its merits.
11. We have heard learned counsel for the parties.
12. The only contention urged on behalf of the assessee before this court was that at the point of time when the original assessment for the year under consideration was completed on March 22, 1966, the entire material and primary facts had already been placed on record in the assessment proceedings of the assessment year 1963-64 or 1964-65 and/or in income/wealth tax returns of Mr. and Mrs. Shervani' for the three consecutive assessment years 1963-64 to 1965-66. Further, the true facts were also within the knowledge of the assessing authority. In short, the argument was that there cannot be an omission to disclose what the assessing authority had already known although it might not have been put in the income-tax returns or otherwise disclosed by the assessee during the proceedings for the assessment year consideration. In support of these submissions our attention was invited to Sub-paragraph (d) of paragraph 9.2 and 9.1 of the Tribunal's order. It was urged that considering the entire conspectus of the facts and the circumstances of the case, no omission or failure within the meaning of Section 147(a) on the part of the assessee to disclose full and true facts could be attributed to the assessee which may justify an action under that provision.
13. Reliance was also placed on a decision of the Supreme Court in Gemini Leather Stores v. ITO [1975] 100 ITR 1 and two decisions of this court in Jagdish Prasad v. CIT [1976] 104 ITR 214 and Ram Charan Lal Ram Narain v. ITO [1966] 59 ITR 282.
14. The real question for consideration is as to whether the escapement of income, if any, was due to omission or failure on the part of the assessee to disclosure all material facts. Now, to confer jurisdiction under Section 147(a) two things are required which are conditions precedent. Firstly, there must be reason to believe that the income, profits or gains chargeable to income-tax have escaped assessment and secondly, there are reasons to believe, inter alia, that such "escapement" has occurred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts for that assessment year.
15. In Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court held (pages 200 and 201) :
"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 facts 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.
.... 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."
16. In Gemini Leather Stores [1975] 100 ITR 1 (SC), relied upon by the assessee, the above legal position was re-stated by the apex court in the following terms (page 4) ;
"In the case before us, the assessee did not disclose the transactions evidenced by the drafts which the Income-tax Officer discovered. After this discovery the Income-tax Officer, had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight."
17. Perhaps there cannot be any serious quarrel with the contention of the assessee, as an abstract legal proposition, that if the Income-tax Officer did know about the primary and material facts or they were available to the Income-tax Officer when the original assessment was completed, then the recourse to Section 147(a) may not be permissible on the facts of a case subject to the provisions of Explanation 2 attached to Section 147 as it stood at the material time. In other words, although there was non-disclosure, the escapement was not the consequence of it but really due to the carelessness on the part of the Income-tax Officer or due to his taking an erroneous view of the law, action under Section 147(a) would not be competent.
18. In the instant case, it is to be seen as to whether the claim of the assessee is true that when the original assessment came to be made, all the primary facts within the meaning of Clause (a) of Section 147 had been placed on record in the assessment proceedings of the preceding two assessment years 1963-64 or 1964-65 as asserted and/or otherwise the same were in the knowledge of the assessing authority when he completed the initial assessment for the year under consideration. On this score, the Tribunal has held against the assessee.
19. Now, the inquiry about the nature of the expenditure debited to the guest house account at Allahabad, came to be made by the Income-tax Officer for the first time during the course of the assessment proceedings for the assessment year 1969-70 and this became the starting point for the assessing authority to ascertain as to what was the position in the earlier assessment years. The Tribunal has noticed in its order that it was common ground that the relevant details appearing on the issue were brought out in the course of assessment for the assessment year 1969-70. It was again a common ground that no information whatsoever appearing on the issue about the nature of the guest house expenses was placed on record by the assessee during the course of the assessment proceedings for the year under consideration.
20. Before proceeding further, it is necessary to point out that the Tribunal has held in clear terms that in its earlier decision in I.T.A. No. 330 (All) of 1974-75 in respect of the assessment year 1968-69, the controversy arising in the present case, though agitated was not gone into and decided on the merits. Before us, this position was not disputed by learned counsel for the assessee and indeed, during the course of arguments, the order of the Income-tax Appellate Tribunal for the assessment year 1968-69 was not pressed in aid.
21. From the Tribunal's order, it is also apparent that it examined for itself and looked into the assessment records of the assessee for the assessment years 1963-64 and 1964-65 as well as the extracts of the income and wealth-tax returns of Mr. and Mrs. Shervani which were stated to have been filed in the paper book in I.T.A. No. 330/A11 of 1974-75. The scrutiny of the records revealed that the resolution of the board of directors dated July 31, 1962, by which Mr. and Mrs. Shervani were authorised to stay as paying guests in the guest house at Allahabad, was never placed on record in the proceedings for the assessment years 1963-64 and 1964-65. No details about the expenses were either filed, much less the information that the guests staying in the said guest house were to be charged at the rate of Rs. 5 per day per head or that Mr. and Mrs. Shervani would be staying in the guest house on a permanent footing. The extracts from the returns aforesaid were filed on September 12, 1967, June 20, 1966 and and May 20, 1966, i.e., after the assessments for three consecutive assessment years, namely, 1963-64 to 1965-66, were completed. The Tribunal found it as a fact that the assessee had completely eliminated from its assessment records the primary facts which were very essential and necessary for a proper assessment for the year under consideration.
22. From the factual position emetging from the records, the Tribunal recorded its finding as under :
". . . To say," therefore, that the assessee-company had placed on record all the primary facts bearing on the issue of use of the guest house of the company at Allahabad by Mr. and Mrs. Shervani in the course of assessment proceedings for the assessment year 1963-64 or 1964-65, would not be factually correct. As already noted, it is common ground that such data was not placed on record in the course of the original assessment proceedings for the year under consideration. Coupled with this is the failure of the assessee-company to fill up Part VI-A of the returns for the three assessment years, namely, the assessment years 1963-64, 1964-65 and 1965-66. There is no other material on record on the basis of which it may be possible to believe the assertion of the assessee-company that the Income-tax Officer' had all along known the fact that Mr. and Mrs. Shervani were living in the said guest house on a permanent footing. In fact, it is not understood as to how the Income-tax Officer could know this when the assessee-company had kept silent on the issue all along while the assessment proceedings for the aforementioned three years were in progress ..." (emphasis* supplied)
23. Paragraphs 9.2(d) and 9.1 of the Tribunal's order on which reliance was placed, are of no help to the assessee. Paragraph 9.1 begins with "we have carefully examined the facts of the case". Paragraph 9.2(a) states that the guest house at Allahabad was acquired by the assessee-company for the first time in the accounting period ending on September 30, 1962, corresponding to the assessment year 1963-64. The said paragraph thereafter refers to the directors' report to the shareholders about the acquisition of the guest house. Paragraph 9.2(b) makes mention of the letter dated January 30, 1964, which the assessee had filed on record, giving the break-up regarding the cost amongst various assets acquired. Sub-paragraph (c) of paragraph 9.2 states that no details pertaining to the expenses of the guest house or that the guests staying in it were to be charged at the rate of Rs. 5 per day or that Mr. and Mrs. Shervani would stay in the said guest house on a permanent footing and they will be charged at Rs. 5 per day only, were given in the course of the assessment for the assessment year 1963-64. Then comes Sub-paragraph (d) on which heavy reliance was placed by learned counsel for the assessee. It states :
"The above details, it appears, were filed on January 31, 1964, and were discussed with the company's representative, Shri B.P. Saxena, and the assessment was also finalised on that very date."
24. Learned counsel argued that Sub-paragraph (d) of paragraph 9.2 would go to show that the assessee had filed all the details. We do not agree with the construction suggested on behalf of the assessee. In fact, what is conveyed by Sub-paragraph (d) of paragraph 9.2 is that the details referred to in paragraph 9.2(a) and 2(b), namely, the acquisition of the guest house and the break-up of the cost of acquisition were filed on January 31, 1964. This is also evident from what is contained in the subsequent paragraphs of the Tribunal's order. In para 9.2, it is specifically mentioned that no details pertaining to the expenses of the guest house etc., were filed in the course of assessment proceedings for the year 1963-64. From paragraphs 9.3, 9.4 and 9.5 of the Tribunal's order the position is further made clear and the controversy is put beyond doubt. In these paragraphs the Tribunal has stated that no details pertaining to the guest house expenses were furnished nor any information regarding the permanent stay of Mr. and Mrs. Shervani in the Allahabad guest house was disclosed in the assessment year 1964-65. Such details were not given by the assessee in the course of original assessment proceedings for the year under consideration also and Part VI-A of the return was crossed out in each of the above three years. The conclusion reached by the Tribunal was that there was a clear omission on the part of the assessee to disclose fully and truly all material facts regarding the expenditure incurred on the maintenance of the guest house at Allahabad.
25. It is trite that an order or judgment cannot be read out of context relying on a word or a sentence occurring therein. The order has to be read as a whole. In other words, it is neither desirable nor permissible to pick out a word or a sentence from the order of an authority or court and treat it to be a complete decision on the question that was up for adjudication.
26. In Bhaichand Amoluk and Co. v. CIT [1962] 44 ITR 511, the Supreme Court pointed out that the order of the Tribunal must be read as a whole to determine whether every material fact, for and against the assessee has been considered fairly and with due care ; whether the evidence pro and con has been considered in reaching the final conclusion ; and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice. It is not however necessary that the order of the Tribunal must be examined minutely, sentence by sentence, so as to discover a minor lapse here or an incautious opinion there to be used as a peg on which to hang an issue of law.
27. To similar effect there is an earlier decision of the Supreme Court in Homi Jehangir Gheesta v. CIT [1961] 41 ITR 135.
28. The case law referred to and relied upon by learned counsel for the assessee is clearly distinguishable and has no application on the facts of the instant case.
29. The consideration of the Tribunal's order in its entirety, in our opinion, gives no scope for an argument that the assessee had disclosed all material and primary facts within the meaning of Section 147(a) of the Act which were necessary for a proper assessment for the year under consideration. In the reasons recorded by the Income-tax Officer for initiation of the reassessment proceedings, it is clearly stated that it was during the course of the subsequent assessment year that it was discovered that a major part of the guest house expenses at Allahabad were non-business expenditure. Further, it was on account of the failure and omission on the part of the assessee to disclose primary facts that the income sought to be taxed, had escaped assessment. It is settled position in law that reopening of an assessment on the basis of subsequent discovery and objective belief of the Income-tax Officer that in the original assessment, the income had escaped assessment for non-disclosure of true facts, would justify an action under Section 147(a) of the Act.
30. The findings recorded by the Income-tax Appellate Tribunal about the non-disclosure of material facts are concluded by findings of fact. These findings of the Tribunal have not been challenged by raising any independent question. The correctness of the findings recorded by the Tribunal is, therefore, not open to question in these proceedings.
31. In view of the above discussion, we indorse the decision of the Income-tax Appellate Tribunal and agree with the findings recorded by it.
32. In the result, the question referred to this court is answered in the affirmative, against the assessee and in favour of the Revenue. There shall be no order as to costs.
shall be no order as to costs.