TMI Blog1994 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the predecessor company's books was Rs. 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no omission or failure on the part of the appellant to disclose fully and truly all the material 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the actual cost to the appellant in regard to these assets was less by Rs. 11,36,779. Therefore, he held that the appellant failed to disclose fully and truly all material facts necessary 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, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under s. 143(3), on a scrutiny of the accounts, the audit party was asking for a copy of the P L account and balance sheet as if they were not obtained. It goes beyond one's comprehension 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1975). I, therefore, propose to treat you as successors of M/s Travancore Tea Estates Co. Ltd. under s. 170 of the IT Act and initiate assessment proceedings for the year 1976-77. Your objections, if any, may be communicated to me within 7 days 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the appellant company as also the assessment of the foreign company in the hands of the appellant company in relation to the asst. yr. 1976-77. Further, for the asst. yr. 1977-78, the assessment of the Indian establishment of the sterling company, namely, M/s Travancore Tea Estates Co. Ltd. was made care of the appellant company as seen from the order of assessment dt. 27th Sept., 1980 for the asst. yr. 1977-78, in which order reference to the agreement dt. 9th Feb., 1976 has been made and certain 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 state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad purchased the estates in India of M/s Travancore Tea Estates Ltd. A copy of the agreement to sell dt. 9th Feb., 1976 and the sale deed may be obtained and forwarded for audit scrutiny along with the asst. records of the seller company. 4. According to the balance sheet as on 31st March, 1977, the unpaid purchase consideration amounting to Rs. 56,40,000 has been shown as liability described as 'Deferred payment'. Interest on this amounting to Rs. 3,57,870 is seen included in the interest debited to the P L account. As this is referable to the acquisition of 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Malegaon Electric Co. cited supra is not applicable to the circumstances of the case nor can it be said that the assessee has not disclosed fully and truly all facts material for the assessment of the appellant company. The case of the assessee will squarely fall within the ratio of the decision of the Supreme Court in Gemini Leather Stores vs. ITO 1975 CTR (SC) 127 : (1975) 100 ITR 1 (SC). Hence, reopening of the assessment under s. 147(a) of the IT Act cannot be sustained. The same is cancelled. 8. There can be no quarrel on the proposition that even if all the materials had been placed 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 convey ..... 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