TMI Blog1992 (6) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... so adjusted, the amount stands credited in Treasury Savings Account in assessee's favour and thus earn interest at 6%. Thus the kist advance deposited by the assessee in March of earlier year earned interest. An amount of about Rs. 2,47,130 accrued to the assessee as interest during the year on the advance and this is assessable as its income. But the assessee has not included this item in its return of income. Nor did it disclose it at the time of assessment. A proposal was made to the assessee proposing reopening of the assessment under section 147(a) of the Income-tax Act for bringing to tax the above mentioned interest income. The assessee has however objected to the proposal stating that it is following cash system of accounting with regard to interest from kist deposit, that the interest received has been deducted from interest paid and bank charges and that thus there is no ommission or mistakes in the assessment already completed. The assessee has not given any details or materials to show that it is following cash system of accounting as regards the interest income. The assessee has not also shown on which dates, if any, the interest was received, how much of it was deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s maintaining the accounts on Mercantile basis, there was failure on the part of the assessee to disclose the primary facts resulting in reassessment under section 147(a) of the Act. As regards the disallowance made by the Income-tax Officer, once the assessment was reopened he felt that those disallowances were warranted in the facts of the case, in the absence of verifiable vouchers or in the absence of need for incurring such expenditure and in this view of the matter, he sustained the disallowances. The assessee is aggrieved. 5. Shri Jacob, the learned counsel contended that there was no failure on the part of the assessee to disclose any material for computation of income for the assessment year 1978-79. The kist deposit was not made in the relevant previous year but it was made in the preceding year. Therefore, in the impugned year of account, it cannot figure as a separate item since the kist deposit made earlier would have been adjusted by the Excise Department against the dues from the assessee in the last three instalments. Therefore, there is no merit in the observation of the learned CIT(A) that the assessee had not disclosed the kist adjusted in the impugned year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee after adjusting the same against the last three instalments of kist, the assessee is entitled to any interest that was left over. This is ascertainable from the rules and practices obtaining in abkari transactions. Therefore, absolutely there was no basis for the Income-tax Officer to draw a conclusion that the interest had accrued to the assessee and the assessee had committed a fault in not disclosing the same during the impugned assessment year. It will be evident from the fact that the Tribunal even as early as 4-11-1988 in ITA No. 829/Coch./86 had held that deposits stood initially in favour of the Excise Department and the interest accrued during that period cannot be taxed in the hands of the assessee. This legal position as laid down by the Tribunal must be deemed to be in the knowledge of all the Income-tax Officers working in the State of Kerala and therefore, there was no basis for the formation of belief at all that the income had escaped assessment in respect of the interest on the kist deposits. Even assuming that the reassessment proceedings were validly initiated, it is not for the Income-tax Officer to substitute his own opinion in respect of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni Mewal Das [1976] 103 ITR 437 (SC), 4. CIT v. Simon Carves Ltd. [1976] 105 ITR 212 (SC), 5. Indian Eastern Newspaper Society's case, 6. Indian Oil Corpn. v. ITO [1986] 159 ITR 956 (SC), 7. Chunnilal Surajmal v. CIT [1986] 160 ITR 141 (Pat.), 8. Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714 (Cal.), and 9. Smt. Sharmishthabai Holkar v. CWT [1987] 33 Taxman 314 (MP). 11. He also submitted that in a reassessment levy of interest under sections 139(8) and 217(1A) is not justified. 12. Shri Abraham, learned Senior Departmental Representative, justified the reassessment proceedings by relying on the orders of the Income-tax Officer and the CIT(A). He emphasised that the assessee has not disclosed the kist deposit in its accounts in the relevant previous year. It did not even submit the balance-sheet for the relevant previous year nor any evidence was let in that the cash system of accounting was followed with regard to the interest on kist deposit. Therefore, the reassessment proceedings were validly initiated. Though the Audit Party had found that interest was accounted for by the assessee in the succeeding year and altered the ITO about the taxability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards the kist dues for the two or more instalments as the case may be unless appropriated under the Rules. Thus the deposit made in the preceding previous year is to be adjusted against the kist due in the relevant previous year in two or more instalments, as the case may be. Therefore, the deposit will not appear as a deposit in the accounts for the year ended 31-3-1978, as the same would have been adjusted against the dues. Hence, there is no substance in the contention of the revenue that the deposit amount did not figure in the profit and loss account or in the statements furnished to the Income-tax Department, in respect of the previous year relevant to the assessment year 1978-79. Further such deposits are assigned in favour of the Excise Commissioner to enable him to make appropriation against the arrears of rent or other sums due to the Government from the appellant. Once the deposit is understood as an adjustable one against the kist and is assigned in favour of the Excise Commissioner, the assessee's right over the deposit is temporarily lost. Therefore, any interest accrued during that period when the deposit stood assigned to the Excise Commissioner cannot in law be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he was accounting for the same on cash basis. The Income-tax Officer was of the view that there was no material for him to conclude that the assessee was adopting the cash system in respect of the interest income on kist deposit. This plea is not warranted in the face of the materials before him. As a matter of fact, he derived information from the accounts of the succeeding assessment year where the assessee had accounted for the interest income on kist deposit on receipt basis. Therefore, the learned Income-tax Officer cannot take the plea that there was no basis that the assessee was adopting cash system of accounting in respect of interest receipts. Thus we hold that there was no material for the Income-tax Officer to have a prima facie belief that there was ommission on the part of the assessee or that income has escaped assessment in respect of the interest on kist deposit. Thus, the reassessment proceedings are held to be bad in law. 15. Shri Abraham vehemently contended that it is not for the court to look into the adequacy of the reasons for initiating reassessment proceedings though such reasons can be gone into on merits, once the assessment is reopened. No doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on 6-12-1989. Therefore, we hold that the reassessment even if it is held to be under the provisions of section 147(b) cannot be sustained as it is time barred. Thus, from any view of the matter we have to hold that the reassessment proceedings are bad in law, in the case of the assessee. The same is cancelled. 17. Shri Jacob contended at in a reassessment proceeding, the assessing authority has no right to go into the issues decided in favour of the assessee, in the original assessment. To put it more explicitly it was his submission that the Income-tax Officer having considered the nature of the business and kind of vouchers that are being maintained, with all its imperfections had not chosen to disallow any of the expenditure claimed by the assessee, but in the reassessment proceedings the learned Income-tax Officer had taken a different view on the very same vouchers evidencing the expenditure and has chosen to disallow the same. This would amount to change of opinion on the same set of facts, which the Income-tax Officer is not permitted to have in the reassessment. 18. Shri Abraham, on the other hand, contended that once the assessment is validly reopened, there a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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