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 allowing an appeal against a decision of a single judge dismissing the writ petition of the respondent. The facts giving rise to the appeal may be briefly stated as follows :

The respondent was assessed to income-tax for the assessment year 1959-60 and certain interest paid by the respondent to creditors from whom it claimed to have borrowed monies on hundis, was allowed as deductible expenditure. The assessment of the respondent was completed on 23rd August, 1960. On or about 25th January, 1968, however, a notice was issued by the ITO under s. 148 of the I.T. Act, 1961, to reopen the assessment of the respondent for the assessment year 1959-60. The notice was obviously under s. 147(a) since a period of four years had already elapsed from the close of the assessment year 1959-60 and no notice could be issued under s. 147(b). The ITO claimed that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors shown in the hundis and it was wrongly allowed as a deduction and hence a part of the income of the respondent had escaped assessment by reason of the failure of the respondent to disclose fully and truly all material facts necessary for its assessment. The respondent challenged the validity of the notice issued by the ITO by filing a writ petition in the Calcutta High Court. The respondent contended that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment and that in any event the ITO had no reason to believe that any part of the income of the respondent had escaped assessment by reason of such failure on the part of the respondent. The ITO in the affidavit-in-reply filed by him on 5th December, 1968, declined to disclose the facts which had weighed with him in reaching the belief that the income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts, on the ground that if such facts were disclosed to the respondent, it would cause great prejudice to the interests of the revenue and would frustrate the object of reopening the assessment. This was obviously an untenable stand because the existence of reason to belief on the part of the ITO was a justiciable issue and it was for the court to be satisfied whether in fact the ITO had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure. The ITO realising this position filed a further affidavit on 27th January, 1970, stating as follows :

" In January, 1968, I was the Income-tax Officer, 'I' Ward, Hundi Circle, Calcutta. On or about the 25th January, 1968, I issued a notice under section 148 of the Income-tax Act, 1961, on the petitioner. My reasons for issuing such notice were these. In the course of assessment of the petitioner for assessment year 1963-64, it was discovered that various items shown as loans against the security of hundis in the petitioner's books of account for the previous year relevant to assessment year 1959-60 were in fact fictitious. Credits against the names of certain persons as having advanced loans, viz., Amarlal Moolchand, Girdharidas, Raghoomal, Murlidhar, Kanhaiyalal and Deudaram Basdeo in the petitioner's books were found not to be genuine. It appeared during assessment proceedings for 1963-64 that none of such loans were genuine. In the premises, it appeared to me that the petitioner had failed to disclose fully and truly all material facts necessary for its assessment, and a portion of the petitioner's income had escaped assessment by reason of such failure. "

The writ petition was heard by a single judge of the High Court and he took the view that the affidavit of the ITO dated 27th January, 1970, clearly showed that he had reason to believe that income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts and he accordingly dismissed the writ petition. The respondent preferred an appeal and a Division Bench of the High Court disagreeing with a view taken by the single judge held that there was no failure on the part of the respondent to disclose fully and truly all material facts and in any event there was no material on the basis of which it could be said that the ITO had reason to believe that any part of the income had escaped assessment by reason of such failure on the part of the respondent. The Division Bench, accordingly, allowed the writ petition and quashed and set aside the notice for reopening the assessment. The ITO thereupon preferred the present appeal to this court after obtaining a certificate from the High Court.

The present case is clearly covered by the decision of this court in CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC). There the assessee in the course of its original assessment to income-tax for the assessment year 1949-50 had produced a partnership agreement with one Ratiram Tansukhrai and claimed that the profits earned by it from H. Manory Ltd. had been divided between itself and Ratiram Tansukhrai under the partnership agreement and its one-half share of the profit, namely, Rs. 87,937, was the only amount assessable to tax in respect of this source. The ITO accepted the partnership agreement and assessed the assessee only on the profit of Rs. 87,937. It appears that while making assessment for the assessment year 1950-51 the ITO found that the partnership agreement between the assessee and Ratiram Tansukhrai was a got up device to reduce the profit received from H. Manory Ltd. and the assessee was, therefore, liable to tax on the entire amount of profit coming from H. Manory Ltd. This view taken by the ITO was confirmed on appeal by the AAC and the Tribunal. The High Court also on a reference agreed with the view of the Tribunal. The ITO thereupon issued a notice under s. 34(1)(a) of the 1922 Act, to reopen the assessment of the assessee for the assessment year 1949-50, in order to bring to tax the further amount of Rs. 87,937 being the half share of the profit from H. Manory Ltd. alleged to have been paid to Ratiram Tansukhrai under the partnership agreement. The assessee contended that it had produced all the relevant accounts and documents necessary for completing the assessment and it was under no obligation to inform the ITO about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment. This contention was negatived by the ITO and the income of the assessee was reassessed by adding Rs. 87,937 to the income returned by the assessee. The AAC confirmed the order of the ITO on appeal, but on further appeal, the Tribunal accepted the contention of the assessee and held that there was no failure on the part of the assessee to make a full and true disclosure of the material facts and, hence, the ITO was not justified in seeking to reopen the assessment under s.34(1)(a) of the I.T. Act. The revenue applied to the Tribunal for a reference but the application was rejected and the High Court also dismissed the application of the revenue for calling for a reference from the Tribunal. The revenue thereupon preferred an appeal to this court by special leave. The appeal was rejected by this court on the ground that the assessee had disclosed all its books of account and evidence from which material facts could be discovered and it was under no obligation to inform the ITO about the possible inferences which might be raised against him and, hence, there was no failure on its part to disclose the preliminary facts relevant to the assessment which would invite the applicability of s. 34(1)(a). It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of accounts were false. The assessee discharged the obligation which lay upon it by disclosing its books of account and evidence from which materials facts could be discovered and it was for the ITO to decide whether the documents produced by the assessee were genuine or false. Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. We do not see any distinction at all between Burlop Dealers' case [1971] 79 ITR 609 (SC) and the present one and the language of s. 147(a) being identical with that of s. 34(1)(a) the ratio of the decision in Burlop Dealers' case must govern the decision of the present case. We must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of s. 147(a) was not satisfied.

We may also point out that though it was contended in the writ petition that the ITO could have no reason to believe that any part of the income of the respondent had escaped assessment by reason of its failure to make a full and true disclosure of material facts, the ITO did not disclose in his affidavit any material on the basis of which it could be said that he had come to the requisite belief. All that the ITO stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus. The ITO merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the ITO could reasonably entertain such belief. We are, therefore, not at all satisfied on the affidavit that the ITO had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. The notice under s. 147(a) of the I.T. Act for reopening the assessment must in the circumstances be held to be void.

We, accordingly, dismiss the appeal with costs.

Apppeal dismissed.