TMI Blog1985 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals) contended that the conditions precedent to the valid assumption and exercise of jurisdiction were absent in the present case and, therefore, the Commissioner (Appeals) had no justification in holding that reassessment proceedings were valid in law. According to him, all the relevant material particulars necessary for the assessment having been disclosed fully and truly in the return of income originally filed, the conditions laid down in section 147(a) were not satisfied. After taking us through the three reasons recorded by the ITO for reopening of the assessment which are reproduced in paragraph No. 2 at pages 3 4 of the order of the Commissioner (Appeals). Dr. Vaish contends that none of them was sufficient for assumption of jurisdiction under section 147(a). In respect of the first reason recorded by the ITO which was to the effect that the assessee had claimed depreciation and development rebate in respect of plant and machinery which had not been used by the assessee-company, Dr. Vaish controverts it and says that the ITO was wholly wrong in saying that the machinery and plant had not been used by the assessee-company. According to him, certain machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed development rebate in respect of machinery and plant installed at JKCM, it once again did not withhold any relevant material particulars in the return of income filed. For contending that the words 'wholly used' did not mean 'exclusively used', reliance has been placed by the learned counsel on the decision of the Hon'ble Kerala High Court in the case of CIT v. Ouchterlony Valley Estates (1938) Ltd. [1965] 58 ITR 618. Dr. R.C. Vaish then refers to the provisions of section 38(2) of the Act and submits that those provisions cast a duty on the ITO that where any plant, machinery or building, etc., is found to have not been exclusively used for the purposes of the assessee's business, the allowance of depreciation should be restricted to a fair proportionate part. According to Dr. Vaish, a mere ad hoc disallowance made by the ITO under section 38(2) which was for the first time done in the assessment year 1971-72 did not entitle the department to say that the income of the assessee had escaped assessment in the assessment year 1967-68 for reasons of non-furnishing of relevant material particulars on the part of the assessee. In the end it is contended by the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, the income of the assessee had escaped assessment at the time of the original assessment which validly permitted initiation of action under section 147(a). After so contending the learned departmental representative refers to us to the decisions of the Hon'ble Supreme Court in the cases of Kantamani Venkata Narayana Sons v. First Addl. ITO [1967] 63 ITR 638 and CIT v. Gillanders Arbuthnot Co. [1973] 87 ITR 407 in order to support the orders passed by the ITO and the Commissioner (Appeals). 5. Before considering the rival submissions, we may briefly state the facts which led to the reopening of the assessment for the assessment year 1967-68 which had been initially made on31-12-1971. The assessee J.K. Synthetics Ltd. had been allowed depreciation of Rs. 58,50,361 and development rebate of Rs. 28,72,370 as per annexure to the assessment order. This included depreciation of Rs. 66,249 and development rebate of Rs. 1,54,581 in respect of machinery and plant which had been installed at the premises of JKCM. The fact that the assessee had installed some of its machineries at the premises of its sister concern at Kanpur came to the notice of the ITO as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery were used by some other concern and it was not exclusively used by the assessee, he cannot apply his mind to the question as to what proportionate part of depreciation should be disallowed. The information is much more relevant on the question of development rebate because development rebate is admissible to the assessee only if the machinery or plant is wholly used for the purposes of the business carried on by the assessee. In this case the Income-tax Appellate Tribunal had disallowed development rebate on that part of machinery which was installed in the premises of JKCM and which was used by JKCM also vide para 75 of their order, which has also been quoted above. The assessee-company has not given the basic information that the machinery was not wholly used for the purposes of the business but had claimed depreciation and development even on the part of the machinery which was not wholly used by the assessee. The claim for the development rebate on the machinery which was not wholly used by the assessee, was, therefore, not correct and for non-disclosure of this, the Income-tax Officer gets jurisdiction to reopen the case under section 147(a)." 6. The provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as the facts were significantly distinguishable. In that case, the assets on which development rebate had been claimed had not been allowed to be used by any other person but had been used by the assessee itself for its business and cultivation activities. In these circumstances, when the assessee had allowed the machinery installed atKanpurto be used partly for its own business and partly for the business of JKCM, the provisions of section 32 read with section 38(2) came into play with the result that the whole of the depreciation claimed could not be allowed in respect thereof. Similarly, the provisions of section 33 also came into play and the development rebate became inadmissible to the assessee as it was allowing the machinery to be used by another person. In view of the above statutory position, we would agree with the finding of the Commissioner (Appeals) that the user of the machinery by another person was an important material fact. Since that fact had not been disclosed and since whole of depreciation had been claimed on Kanpur machinery while only part was admissible and since no development rebate was admissible on that machinery while it had been claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Hon'ble Allahabad High Court in the case of Modi Spg. Wvg. Mills. Ground Nos. 1 and 2 in the assessee's appeal are, therefore, rejected. 7. In ground Nos. 3 and 4, it is contended that the provisions of section 144B of the Act which was brought on the statute book by the Taxation Laws (Amendment) Act, 1975 with effect from1-4-1976did not apply to the proceedings reopened under section 147 for the assessment year 1967-68. It is further contended that the assessment having been completed under the extended period was barred by limitation. It is also contended that the provisions of section 144B which are not procedural provisions but substantive provisions could not be resorted to while framing the assessment relating to the assessment year 1967-68. Such a problem is no more res integra. It has been very graciously brought to our notice by Dr. R.C. Vaish, the learned authorised counsel of the assessee, that on similar questions, the decisions of the Special Bench of the Tribunal in the case of Bela Singh Pabla v. ITO [1982] 1 ITD 370 (Delhi) goes against the contentions raised by the assessee. We further find from the decisions of the Hon'ble High Court of Madhya Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time the Commissioner (Appeals) had given a conditional finding as contained in paragraph No. 64 of his order which is reproduced as below : "At this stage, the ITO pointed out that the assessee had already filed a reference application to the order of the Income-tax Appellate Tribunal for the assessment year 1971-72 and it is likely that they may succeed in reference petition to the High Court and benefit may be given for the opening stock. Keeping this in view, I delete the addition of Rs. 2,15,000 with a direction that in case credit is given to the assessee for the opening stock in the assessment year 1971-72, the ITO would be entitled to add this amount." It is contended by Dr. R.C. Vaish, the learned counsel of the assessee that the addition of Rs. 2,15,000 ought to have been deleted by the Commissioner (Appeals) without fastening any conditions. According to him, all the spare parts issued from out of 'repairs to machinery account' had been consumed and that even if some insignificant portion of the raw material issued had not been consumed till the end of the accounting year, there was no justification for making any addition as the claim made by the assessee was strict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down by him in paragraph No. 64 of his order. 11. In ground No. 8, objection is raised against the order of the Commissioner (Appeals) holding that the additional ground of appeal relating to the levy of interest under sections 139 and 217 of the Act was not maintainable. It is contended by Dr. Vaish that the draft assessment order which was sent for the IAC's approval in accordance with the provisions of section 144B did not mention the levy of interest under the abovementioned two sections and, therefore, the levy was bad in law. On the other hand, Smt. Kapila, the learned departmental representative, submits that if there was any omission in respect of charging of interest in the order proposed in section 144B, it was at the best, a procedural irregularity which should be set right by restoring the matter to the file of the ITO but for which reasons the levy of interest under sections 139 and 217 cannot be vacated. 12. On consideration of the rival submissions and after going through the Full Bench decision of the Hon'ble Allahabad High Court in the case of CIT v. Geeta Ram Kali Ram [1980] 121 ITR 708, we would agree with the finding of the Commissioner (Appeals) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. On dissecting the various objections contained in the abovementioned three grounds and in the arguments addressed by Smt. Shashi Kapila, we find that these are four in number. Firstly, it is contended that the Commissioner (Appeals) had no justification in holding that the assessee-company was entitled to relief under section 84 for the assessment year 1967-68. The second objection of the revenue is that there was omission or failure on the part of the assessee to disclose fully and truly all material facts relating to relief under section 84 and that, therefore, the Commissioner (Appeals) was not justified in disapproving the addition made by the ITO in supplementary assessment proceedings. Thirdly, the decision of the Commissioner (Appeals) as summed up in paragraph No. 39 of his order, which may be reproduced, is objected to : "I have carefully gone through these judgments and I am of the view that when an assessment had been reopened under section 147(a) the ITO can during the course of reassessment proceedings deal with all the items falling under section 147(a) though they might not have been dealt with in the notice of the reassessment. However, in the reassessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in AL. VR. ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116 and by the Hon'ble Bombay High Court in New Kaiser-I-Hind Spg. Wvg. Co. Ltd. v. CIT [1977] 107 ITR 760, it should be upheld. On merits, Dr. Vaish has contended that the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. does not in any way go against the claim of the assessee. According to him, it was not a case of reconstruction of an existing business but was a case where the assessee had established a new unit by installing new plant and machinery and by investing substantial funds. According to him, it was a case of a new industrially recognisable unit having been set up by the assessee-company which could not be confused to be a case of reconstruction. Referring to the observations of the Hon'ble Supreme Court contained in the last but one paragraph of their judgment, Dr. Vaish submits that the difficulties contemplated by the Hon'ble Supreme Court about the absence of separate books of account were not present in the assessee's case and that the ITO had duly satisfied himself in the course of original assessment proceedings that the bifurcation of accounts in respect of old a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the escaped income in respect of which a notice under section 147(a) had been issued but also the entire income that had escaped assessment during the year. The provisions of section 147(a) do not in any manner fetter the power of the ITO to bring to charge items falling under section 147(b) provided the reassessment proceedings are validly initiated by the issue of a notice under sections 147(a) and 148. According to us, no distinction can be made between the items failing under clause (a) or clause (b) in a case where the assessing authority has validly assumed jurisdiction under the provisions of section 147(a). Even though colourable exercise of power is not to be countenanced and we will be the last persons to uphold the reopening of assessment under section 147(a) where it is done merely to rope in certain items which fall within the time limit prescribed under section 147(b) but that is not the case in the present case. Here the proceedings under section 147(a) have been validly reopened by the ITO. We have already dealt at length with that aspect of the matter while deciding the assessee's appeal. Having been satisfied that the assumption of jurisdiction by the ITO under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 84 or any other provisions, the assessee shall be entitled to a deduction from the amount of income-tax with which he was chargeable on his total income of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax was payable. It was in accordance with these provisions of law that the ITO had while making the original assessment dated31-12-1971directed that the assessee will be allowed rebate under section 84 on Rs. 22,42,305. We do not understand as to how in the reassessment proceedings there arose a total misunderstanding and confusion about the provisions of section 84. Neither the ITO nor the IAC who guided the ITO under section 144B noticed that in the assessment year 1967-68, the provisions of law were entirely different from the provisions of section 80J as prevailed with effect from the assessment year 1968-69. In these circumstances, there was no question of making any addition as 'withdrawal of relief under section 84'. There is another reason why we would not be able to sustain the addition of Rs. 22,34,900 and that is that the order passed by the Income-tax officer on 31-12-1971 in the original assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's own case in IT Appeal No. 461 of 1978-79 relating to the assessment year 1971-72, we would hold that the disallowance of 100 per cent of depreciation on machinery installed at the premises of JKCM had been appropriately restricted to 50 per cent by the Commissioner (Appeals). Ground No. 4 is, therefore, rejected. 22. Ground Nos. 5, 6, 7 and 8 are directed against the order of the Commissioner (Appeals) deleting the addition of Rs. 4,12,000 made by the ITO as 'trading receipts in cops deposits account'. These four grounds are verbatim common to the four grounds which had been taken in the departmental appeal filed before the Tribunal in relation to the assessment of J.K. Synthetics Ltd. for the assessment year 1975-76. The decision in that appeal dated19-4-1984in IT Appeal No. 4548 (Delhi) of 1980 has been made available to us. We find therefrom that the addition of Rs. 25,18,000 made in that assessment year having been deleted by the Commissioner (Appeal)'s objections had been raised in absolutely similar terms as are taken in ground Nos. 5 to 8 of this appeal. After considering in detail the facts, the Tribunal had held as follows in the end of paragraph No. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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