9911796707
TMI Blog1994 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976 to 31st March, 1977, was assessed in the hands of this assessee in the assessment for 1977-78. For the purpose of arriving at the income for asst. yr. 1977-78, the value of the closing stock of tea taken over from (sic)the purchaser company was taken at Rs. 31,10,339 which is the value of the closing stock as per the accounts of M/s Travancore Tea Estate as on 31st Aug., 1976. Similarly, the stores taken over from the erstwhile company was valued at Rs. 29,06,580 which also represents the value as per the books of the seller company as on 31st Aug., 1976. As against this, the total consideration paid by M/s Ram Bahadur Thakur Pvt. Ltd. for purchase of the entire business was Rs. 75,20,000 only. As per para 3 in page 5 of the conveyance deed, the movable properties including machinery, furniture, fixtures, motor vehicles and current assets after taking into account the liabilities of the business as on 31st Aug., 1976, were valued at Rs. 32,21,000. While completing the assessment of M/s Travancore Tea Estate, this amount has been allocated between plant and machineries at Rs. 10,80,850 and the net current assets at Rs. 21,40,150. The book value of the net current assets as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts necessary for the assessment for the year 1977-78 as the documents of purchase and allocation of purchase consideration to different assets were available in the file of Travancore Tea Estate Ltd. which was assessed by the same Assessing Officer. The learned Assessing Officer dismissed this contention stating that though it might be that relevant information was available in the file of M/s Travancore Tea Estates Ltd., it was a different assessee and the relevant information was not available in the file of the appellant. Thereupon, he proceeded to make an addition of Rs. 11,72,779 to the income already assessed as per the proceedings dt. 15th Feb., 1985, as follows: . . Rs. Add: Addition on account of overstatement of value of closing stock 1136779 X 3110339 = 6016923 5,87,637 Addition on account of overstatement of value of stores consumed as discussed 1136779 X 2906584 = 6016923 5,49,142 Short disallowance of 40(c) disallowance as discussed above . 36,000 . Total 11,72,779 4. The assessee appealed against the reassessment proceedings. The CIT(A) noticed that the appellant did not file a copy of the conveyance deed dt. 17th Sept., 1976, in the course of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary for the assessment in the course of the original assessment proceedings. Turning to the merits of the addition, he noticed the plea of the appellant that if the liability of the sterling company which it owed to M/s Travancore Tea Estates Ltd. as on 31st Aug., 1976, in a sum of Rs. 19,54,040 was taken into account, the consideration paid by the appellant could be even more than the book value of the assets but he held that such a plea was made before the ITO in the course of original assessment proceedings or reassessment proceedings, but was made for the first time before him and such a plea was inconsistent with the plea taken by the assessee as a representative of the sterling company in the appeal proceedings initiated on behalf of the sterling company. In the light of these facts, he confirmed the addition of Rs. 11,36,779. 5. As regards the addition of Rs. 36,000 in the reassessment under s. 40(c), he held that the assessee had commenced its business only w.e.f. 1st Sept., 1977, and only the expenditure incurred after the commencement of the business could be allowed and, therefore, the ITO was justified in restricting the remuneration allowable in the case of the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as to how the original assessment could have been completed after scrutiny under s. 143(3), without even getting the P&L account and balance sheet. Therefore, Shri Arumugham submitted that the remark in the audit memo about the non-availability of the P&L account and the balance sheet of the assessee would show that either the full file was not placed before them or these documents were misplaced. The audit memo did not say that the conveyance deed was not available in its record. In fact, para 3 referring to the conveyance deed, etc., has been struck off. Thus, the conveyance deed was in the file of the ITO. Shri Arumugham submitted that the CIT(A) factually erred in holding that the conveyance deed was filed by the assessee only after the completion of the original assessment and that too on 2nd March, 1982. His conclusion is erroneous in the light of the materials on record such as the protective assessments made in the case of the assessee and also the correspondence with the IT Department. Therefore, he submitted that the appellant had placed all the material facts relevant for the assessment and there was no failure or omission on the part of the appellant to disclose fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays of the receipt of this letter. Yours faithfully, Sd/- (K. Narayana Menon)ITO, A Ward, Companies Circle, Ernakulam" From the action, it is evident that the ITO was aware of the fact that the assessee had purchased the entire Indian undertaking of the sterling company as a going concern. It is also not in dispute that the conveyance deed by which the assets of the Indian establishment of the sterling company were taken over by the appellant company had been filed with the ITO, A Ward, Company Circle, Ernakulam, in the assessment proceedings of the sterling company treating the appellant as its agent. Other relevant facts in connection with the assessment of both the companies are as follows: "RAM BAHADUR THAKUR PVT. LTD. IT ASSESSMENT, 1977-78 Statement giving various dates of the orders under s. 144B, 143(3), etc., of T.T.E. Co. Ltd. and R.B.T. (P) Ltd. . T.T.E. Co. Ltd R.B.T. (P) Ltd Asst. 1976-77 . . ITO's order under s. 144B: 19-3-1979 19-3-1979 ITO Mr. A. Selvaraj Mr. A. Selvaraj IAC's Order 15-9-1979 15-9-1979 IAC Mr. T.Z. Mani Mr. T.Z. Mani Order under s. 143(3) 20-9-1979 20-9-1979 CIT(A)'s order 26-2.1980 26-2-1980 Date of filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain additions and disallowances were made on the basis of the said agreement. That apart, as early as on 10th Dec., 1981, the ITO, A-Ward, Company Circle, Ernakulam, in his letter referred to the deed of conveyance and the figure mentioned therein and wanted certain clarifications. In this connection, the following two letters are relevant: "46-004-CN-8332 Income-tax Office, Companies CH-COY(A) Circle, Ernakulam, Cochin-16 . 10th December, 1981 To Ram Bahadur Thakur Pvt. Ltd. W/Island, Cochin-682 003 Sirs, Sub: Income-tax assessment—Your own—Asst. yr. 1977-78 As per the notes forming part of the balance sheet it is stated that accruing liability for earned leave is being accounted for. You are requested to furnish details of such provision for leave wages made in your accounts. I propose to add back the same by resorting to s. 154. 2. You have been granted depreciation on building valuing total to Rs. 37,04,777 whereas the value of some assets fixed by the deed of conveyance was only Rs. 29,07,039. Similar figures for plant and machinery would be Rs. 15,17,373 and Rs. 20,80,850. I propose to adopt the actual cost as shown in the documents in the place of the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset and is in connection with the initiation of business, this is capital expenditure and may be disallowed". Against the backdrop of these facts we are unable to uphold the finding of the CIT(A) that a copy of the conveyance deed was, in fact, furnished by the appellant company for the first time only on 2nd March, 1982. Perhaps, the CIT(A) did not appreciate in the proper perspective the contents of the letter dt. 2nd March, 1982, written by the appellant company. The letter is as follows: "IT:6087: 81-82:DDS The Income-tax Officer 2nd March, '82 `A' Ward,, Companies Circle, . Ernakulam. Dear Sir, Travancore Tea Estates Co. Ltd. IT Assessment: 1977-78 We confirm that we have not claimed any expenses in the assessment of M/s Ram Bahadur Thakur (P) Ltd. on account of compensation for breach of affreightment contract in the asst. yr. 1977-78. We enclose herewith a photostat copy of the agreement dt. 31st July, 1975 between Thakur Shipping Co. Ltd. and Travancore Tea Estates Co. Ltd., London in respect of Affreightment Contract. We also enclose herewith a photostat copy of the conveyance deed dt. 17th Sept., 1976 in respect of the transfer of properties of Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed but the ITO did not inform himself of the true import of the materials before him and subsequently got instructed on the same, such instruction would constitute information within the meaning of s. 147(b) and he can still reopen the assessment under that provision in terms of s. 147(b) of the IT Act. In this case the internal audit party has raised certain queries in its memo dt. 20th Nov., 1981 and the Revenue audit had also raised certain objections in its letter dt. 27th Nov., 1981. The ITO also would appear to have instructed himself on the true import of the conveyance deed which had escaped his notice by oversight in the original assessment. As a consequence, the reassessment proceedings have been initiated by the ITO on 6th Aug., 1983, followed up with a notice dt. 14th Sept., 1983. Thus, the reassessment proceedings were not on account of the default committed by the appellant company but as a result of certain information coming to the possession of the ITO and, therefore, it would fall under s. 147(b) of the IT Act. But, action under s. 147(b) cannot be initiated as the limitation for such action had already expired. In the result, we hold that the reassessment proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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