Law:

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Section 147 of the Income-tax Act, 1961 - Income escaping assessment - Information - Position prior to 1-4-1989 - Assessment years 1961-62 to 1963-64 - Prior to original assessment assessee disclosed certain loans and ITO after making enquiry regarding genuineness of said loans and finding them to be true made assessment - whether later on if ITO Changed his opinion on second thoughts about genuineness of loan transactions, section 147(a) could not be invoked for purpose of reopening assessment - Held, yes FACTS The ITO issued notices under section 147 for reopening the assessments on the ground that subsequent information received by the respondent showed that certain loans disclosed by the assessee prior to the original assessments and which were treated at the time of the original assessments as true were bogus. The assessee's petition to quash the said notices was dismissed by the Single Judge. On appeal : HELD In case of loans after disclosing their details to the assessing authority the assessee is not expected to inform him further that they are bogus also. The character of the transactions, whether it is in the nature of trade or whether it is in the nature of loans or cash credits, is a matter for inference and inferences can be either legal inferences or inferences of fact. A conclusion about the truth or falsity of a particular matter can be reached by the ITO who has no personal knowledge about it only by the process of reasoning called inference and, consequently, truth or falsity of a statement is an inferential fact as distinguished from a basic fact. He has to be guided in drawing inferences by the system of relations in the universe of his discourse, which in the context of the instant case is none other than the legal system and the logic of its working. The Act provides for enquiry by the assessing authority. It does not expect him to act like a conduit pipe receiving at one end the facts mentioned in the return and automatically issuing forth at the other end the assessment orders. He is expected to use his thinking faculties also before he makes the assessment. Sections 142 and 143(2)(b) contemplate in appropriate cases enquiry by him about…

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