TMI Blog1996 (2) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, Addl. [IT Appeal No. 190 (Pune) of 1987 dated 9-5-1991],though the facts of the case are similar to the above case referred to be decided by the Pune Bench on 22-11-1990, the learned Accountant Member took a different view and held that the facts mentioned in the Supreme Court decision in Indo-Aden Salt Mfg. Trading Co. (P.) Ltd.'s case were different and not applicable to the facts of the case. Again while deciding another case of Mrs. Sudha P. Kulkarn v. Ist ITO[IT Appeal Nos. 1620 to 1623 (Pune) of 1986 dated 28-2-1992], the Pune Bench held that reopening of the assessment could not be sustained and for this decision also the learned Accountant Member was a party. Therefore, the Department contended that there was conflict in the decisions of the Tribunal on identical facts and the facts involved in these appeals relating to two assessment years are similar to the facts of those appeals decided already by the Tribunal for and against and, therefore, since there was conflict of decisions the matter may be referred to the President to constitute a Special Bench to hear and dispose them of. The learned Division Bench comprising of Shri T.V.K. Natarajachandran and Shri T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhotra are two HUFs headed by Baldevraj Sitaram Malhotra and Satpal Sitaram Malhotra who are brothers. Each of them are heading their respective families. Smt. Ranjander Mohini Malhotra is the wife of Satpal Sitaram Malhotra. For assessment year 1981-82, Shri Baldevraj Sitaram Malhotra heading his HUF filed the Income-tax return on 24-8-1981 whereunder he returned a total income of Rs. 33,990. Original assessment was completed under section 143(3) on 8-11-1982 on the same income returned. Similarly, for assessment year 1982-83, Shri Baldevraj Sitaram Malhotra filed his income-tax return on behalf of his HUF on 30-8-1982 under which he returned a total income of Rs. 64,988. Original assessment was completed under section 143(3) on 30-3-1983 on a total income of Rs. 64,990. For assessment year 1981-82, reopening was made under section 147(a) on 14-8-1985. Having received the notice of reopening, the assessee filed his return for assessment year 1981-82 on 15-11-1985. The total income shown in the return in response to notice under section 148 is Rs. 1990. Similarly, for assessment year 1982-83, the proceedings were reopened under section 147(a) on 18-3-1986. After receiving the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hwar, Distt. Satara on 13-4-1966. All the three of them had constructed a farm house, servant quarters, store house, after the land was purchased. Subsequently, Harish Kumar Malhotra Hindu Undivided Family released its share on 18-3-1978 in equal proportions to the assessee and Satpal Sitaram Malhotra (HUF). Thus the assessee came to own half of the land. The assessee applied to the Collector, Satara through Tehsildar Mahabaleshwar on 15-9-1979 for grant of permission to put the said land to non-agricultural use. The assessee intended to develop the land, divide it into plots and sell it, at a profit. Tehsildar Mahabaleshwar granted N.A. permission by his order No. LND/NA/SN. 68/79 dated 19-12-1979, subject to certain conditions. 9. The land was subsequently valued by Shri J.V. Gandhe, Chartered Architect and Government valuer. However Shri Gandhe excluded from his valuation, the entire plot No. 1, (admeasuring approx. 32,000 sq. ft.), Farm House used as residential bungalow and out house and valued the land at Rs. 63,74,028. 10. An affidavit was sworn in by the assessee on 25-3-1981. The assessee converted a portion of the land valued by Shri Gandhe as stock-in-trade. He also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1981-82, it is stated that from the trading profit and loss a/c filed for the first time before the IAC in 144A proceedings it is seen that the assessee had sold some plots in the course of its business and the business went into loss. However, during the course of the proceedings under section 144A, the IAC gave a direction to hold that the assessee did not trade in land. The sale price of plots was directed to be treated as realisation of capital asset. The IAC also issued direction to take any alternative stand so as to protect the interests of revenue. 13. The assessee's version regarding the value of reopening stock of land as on 13-4-1980 has been rejected for the detailed reasons discussed in the assessment orders for assessment year 1983-84. This has resulted in restructuring the trading profit and loss a/c of the business. This restructured trading profit and loss a/c shows a gross profit of Rs. 8,28,108. The profit and loss account is restructured as under: Profit loss a/c (Assessment year 1982-83): Rs. Rs. To expenses 15,925 By G.O. 8,28,108 To net profit 8,12,183 ------------------ ----------------- 8,28,108 8,28,108 -------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Mohini Malhotra in the month of July 1980. The resultant capital gains arising out of this transaction, however, had not been shown by the assessee for Income-tax purposes. The assessee was called upon to explain why the capital gains arising on conversion of farm house and adjoining land into non-agricultural land and subsequently sold, should not be brought to tax. 16. As already stated the investigations and enquiries conducted by the Assessing Officer and also by the IAC while passing the order under section 144A for assessment year 1983-84 had led the Assessing Officer to obtain facts relating to assessment years 1981-82 and 1982-83 which would show or make him to believe that income which is liable to tax had escaped assessment by virtue of the assessee's failure to disclose truly and fully all necessary facts for completion of the assessment. 17. In the assessment order passed for assessment year 1983-84, dated 18-3-1986, the Assessing Officer clearly stated that the assessee did not disclose in his Income-tax return for assessment year 1982-83 that he was trading in lands and that he had according to his trading account incurred losses in the business. In fact the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authority were to hold that the correct head of income is business, he computed the business profit as follows as per the particulars given in para 10 of his reassessment orders: Rs. Sale price: 3,00,000 Less: Cost as on date of conversion: Rs. Building 1,07,847 Land 32000 X 1.40 = 44,800 1,52,647 ------------------ ----------------- Profit : 1,47,353 ----------------- For assessment year 1982-83, the Assessing Officer computed the reassessment as per his orders dated 14-3-1990 passed under section 143(3) read with section 147(a). He had adopted the finding of business profits for assessment year 1982-83. He had treated the sale of agricultural land as sale of stock-in-trade. He had adopted the position that the assessees were trading in land, keeping the plots of land as stock-in-trade with them. The total income was computed as follows: Total income as per original Rs. assessment order before deduction under Chapter VIA: 69,614 Add: (1) Profit on sale of plots at Malhotra Silver Hills Rs. share as discussed: 3,22,485 (2) Profit on trading of agricultural land: 7,439 3,29,924 ------------------ ---------------- 3,99,538 Less: Rs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement was furnished alongwith W.T. return. At page No. 7, is the letter of the assessee dated 28-3-1981 addressed to the WTO Pune wherein it was stated that he was granted extension of time for filing W.T. return till 31-1-1981. Since the fate of the agricultural land which was converted by him in financial year 1980-81 as non-agricultural and was not finalised by the Government and the appellate authorities ultimately had given decision in his favour on 16-3-1981, he is filing the return soon after the decision. In that letter itself, it was stated that he was granted permission to convert the agricultural land into non-agricultural use on 19-12-1979. However, he could not convert the same into non-agricultural purposes till 12-4-1980. He had converted the same into non-agricultural use on 13-4-1980. Thereafter he had received an order from the concerned authorities that the land was forfeited, though ultimately the matter was decided in his favour by the Appellate Authority. Pages 9 10 of the paper book are the statement of wealth as on 31-3-1980 filed on behalf of Shri S.P. Malhotra (HUF) for assessment year 1980-81. At pages 11 13, payment and reconciliation statement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty was agricultural land. The land was situated at 3 or 4 kms. to Panchgani Municipality. It was claimed that the said Municipality had a population of less than 10,000 at that time. It was also claimed that even though the said land was a capital asset, no capital gains arising out of the sale of the said land was exigible to tax under section 10 of the Income-tax Act. The conversion of the said land into stock-in-trade took place on 13-4-1980. However, there was no document evidencing the said fact except the Affidavit dated 25-3-1981. There was no prescribed form or rule to follow at the time when conversion took place from the capital asset into stock-in-trade. 24. Through a Note provided under the statement of income appended to the return of income for assessment year 1980-81, the fact regarding the sale of farm house alongwith land and its conversion into non-agricultural property was duly disclosed before the Assessing Officer who completed the original assessment. It was also disclosed that the entire land was converted into stock-in-trade and one plot was sold during the year alongwith farmhouse but there was no profit resulting from such sale. The difference in cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. CIT v. Anamalai Bus Transports (P.) Ltd. [1976]105 ITR 267 (Mad.). 3. Addl. CIT v. Ganeshilal Lal Chand [1985] 154 ITR 274 (Raj.). 4. Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC). If the ITO failed to conduct diligent enquiries when the proceedings were pending, but due to negligence or for any other reason did not probe into the matter sufficiently, that deficiency in enquiry does not authorise to make a re-assessment and for this purpose, the following case laws are cited:--- 1. Bibi Gurdarshan Kaur v. CIT [1964] 51 ITR 1 (Punj.). 2. Akula Venkatasubbaiah v. CIT [1963] 47 ITR 458 (AP). 3. CIT v. Delhi Cement Stockists [1971] 81 ITR 515(Delhi). It is further submitted that even though the information is available in the wealth-tax records, that also amounts to information and for that purpose, the following case laws are cited: --- 1. CIT v. P.N. Sreenivasa Rao [1980] 171 ITR 562 (Ker). 2. Mrs. Leela Nath v. CIT [1987] 164 ITR 216 (Cal.). 26. In order to disclose what are the valid conditions to be fulfilled for reopening the learned counsel relied upon the following case law : --- 1. Indo-Aden Salt Mfg. Trading Co. (P.) Ltd.'s cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attach a statement indicating the amounts of turnover or gross receipts, gross profits, expenses and net profit of the business or profession and the basis on which such amounts have been computed disclosing the amounts of the total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year." None of the particulars required as per the columns of the I.T. return, mentioned above, were furnished by the assessee either for assessment year 1981-82 or 1982-83. 28. Then the learned Departmental Representative had cited in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) and Delhi High Court decision in Genl. Marigendra Shum Sher Jung Bahadur Rana v. ITO [1980] 123 ITR 329 at page 335 in order to highlight as to what amounts to failure to disclose primary facts necessary for the completion of assessment. Our attention was also drawn to page 50 of this paper book which is the valuer's report given by Shri J.V. Gandhe, Chartered Architrect and Government Valuer. The report is dated 18-4-1980. Under the said report, the valuer had valued 10,62,488 sq.ft. at Rs. 6 per sq. ft. i. e., at Rs. 63,74,928. It is stated in the said report that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal light connections and provide other services and facilities and amenities and thereafter to construct thereon and sell the sub-divided plots with or without buildings as business expediency dictates. The said land remained agricultural till 12-4-1980 and on and from the auspicious day of Baisakhi i.e. on 13-4-1980, he commenced the use of the land for nonagricultural purposes and converted the same from that day as his stock-in-trade. He got the land valued as non-agricultural as on 13-4-1980. From Government approved valuer vide his report dated 18-4-1980. It is significant that the affidavit mentioned above disclosed that sub-plot No. 1/31 was already sold away to Rajinder Mohini S. Malhotra on 21-7-1980 i.e. from 21-7-1980, the land was never in the possession of the assessees. Similar affidavit by Rajinder Mohini Malhotra was not affirmed before any authority to show that the land and farm house sold to her was already put to non-agricultural use. We agree with the contention of learned D.R. when he argued that a fair reading of the affidavit extracted above does not include that the land in Sub-Division No. 1/31 was not converted into non-agricultural use nor was it conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sh. B.R. Malhotra, the original Income-tax assessment was completed on 8-12-1982. For assessment year 1982-83, the income-tax assessments of Shri S.P. Malhotra and Shri B.R. Malhotra (HUFs) were completed after giving only one hearing on 30-3-1983. Rather the original assessment order also was passed on the same day. It was only after passing of the assessment order on 30-3-1983, the ITO, took up the wealth-tax proceedings in the cases of these two assessees on 31-3-1983. The Wealth-tax assessment for assessment year 1981-82 in the case of B.R. Malhotra (HUF) was at pages 69 to 71 of the assessee's paper book. Thus it is not correct to state that the proceedings of Income-tax as well as wealth-tax for assessment years 1981-82 and 1982-83 were taken up simultaneously by the same Assessing Officer in the case of these two assessees. We find that the assessment proceedings were taken up separately for the two separate years and the assessments also were completed separately in income-tax and wealth-tax proceedings. Thus there is no question of the material produced or information furnished in wealth-tax return or the annexures made to the said return being made use of by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to value the stock in trade at Rs. 2,00,850 as suggested by the valuer Shri Rajput. 34. Further these two assessees sold several plots in the accounting years relevant to assessment years 1982-83 and 1983-84. It is significant to note that after converting the said land from agricultural to non-agricultural, the assessees had invested several huge amounts for laying of roads, for plotting them, etc. Even then the plots sold never fetched the price of Rs. 6 per sq. ft. For instance from 13-4-1980 to 31-3-1981, the assessees incurred Rs. 61,389.03 towards development and other expenses as can be seen from page 79 of the assessee's paper book. From 1-4-1981 to 31-3-1982, they have incurred developmental charges of Rs. 76,150 as can be seen from page 83 of the assessee's paper book. For assessment year 1982-83 1,51,068 sq. ft. of plots were sold and it had fetched only Rs. 8,76,222 which gives the maximum of Rs. 5.80 per sq. ft. whereas the value of the land on the date of conversion was taken at Rs. 6 per sq. ft. even without any development charges. Further in the accounting year relevant to assessment year 1983-84,37,337 sq. ft. of land plotted was sold for Rs. 2,04,800 which gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly intimated following at para 2: "In para 4 of your letter, you have mentioned that while filing the return of income your client submitted inter alia the valuation report of the approved valuer in confirmation of the fact that the said property sold to Mrs. Rajinder Mohini S. Malhotra is at the prevailing market rate. I have checked the records of Baldevraj S. Malhotra and Shri Satpal S. Malhotra for assessment year 1981-82 very carefully. There is no evidence on record to show that any valuation report was filed alongwith the return or at the subsequent proceedings stage." It is also intimated in the same letter that only one hearing took place on 8-11-1982 and there is no record of any details having been filed by the assessee on that date. Further the assessment order also was passed oil the same day. Thus it is clear, argued the learned D.R., that when the land was said to have been converted into non-agricultural use on 13-4-1980 and when it was got valued at its market price on that day and the same market price is adopted as the price at which the stock-in-trade was entered in the account books of the assessee, it was not proved by any cogent evidence. 37. After ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings if it can be proved that the assessee had failed to disclose fully and truly all material facts required for the purpose of assessment for that year. It is also contended that disclosure said to have been made in the wealth-tax returns cannot absolve the assessee of his responsibility to disclose material facts in the Income-tax return because income-tax and wealth-tax are separate proceedings. 38. When it was admitted that regular books of account were maintained by these assessees, it was obligatory on them to have filed the profit and loss a/c and balance sheets alongwith their returns. However, the learned Departmental Representative argued that a vague Note was appended to the return of assessment year 1981-82 and absolute silence maintained about the sale of the plots in the income-tax return for assessment year 1982-83 by the assessees with a mala fide intention of concealing the real state of affairs regarding the profits derived from the sale of plots. It is more evident from the fact that all information regarding the sale of a single plot of agricultural land at village Dhonjee including profits derived therefrom have been disclosed in the statement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's paper book. In the said letter it is intimated that after scrutiny of the relevant documents and other details furnished by Smt. Rajinder Mohini Malhotra in respect of the transfer of above immovable property, it is not considered a fit case for acquisition under Chapter XXA of the Income-tax Act, 1961. This order is dated 28-11-1981. That order emanated from the proceedings between the vendee of sub-plot No. 1 of Survey No. 31 under which she purchased 2,972.76 sq. mtrs. as on 21-7-1980. This cannot be taken to be a material fact brought to the notice of the Assessment Officer at the time of original assessment for assessment year 1981-82. 41. The order sheet dated 26-2-1990 in the case of S.P. Malhotra (HUF) for assessment years 1981-82 to 1984-85 a copy of which is kept at page 105 of the Departmental paper book is very much relied upon by the teamed D.R. on the ground that it contained important admission made by the learned counsel for the assessee during the hearing stage on 26-2-1990. At para No. 4, of the order sheet, the following is what is stated: "Mr. Khandelwal was shown copies of profit and loss account filed before the then Assessing Officer during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following Note was given on a computation sheet. 'The farm house alongwith land has been converted as non-agricultural property in the financial year 1980-81 and the same has been convered as stock-in-trade and sold. There is no profit made on the same. The difference in the cost and the value realised is due to above change and such difference is not treated as forming part of income for assessment year 1981-82'. 5. The above note gives an impression that the farm house alongwith sub plot No. 1 was also converted by you as stock-in-trade. However, on going through the affidavit executed by you I find that it is not so. The farm house alongwith sub plot No. 1 remained as a capital asset with you and was subsequently sold by you to Smt. Rajinder Mohini Malhotra in the month of July 1980. The resultant capital gains arising out of this transaction have not been shown by you for income-tax purposes. 6. You are, therefore, requested to submit your say as to why the capital gains arising on conversion of farm house and adjoining land into N.A. land subsequently sold should not be brought to tax. A reply is requested within 8 days from the date of receipt of this letter." Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from him were provided on pages 132 and 133. In the statement it is clearly admitted that when the land was purchased at Bhose village in Satara in 1966, the intention was to put to agricultural use. Agricultural operations were carried on till 12-4-1980. They did not want to dispose of the land in 1979 since agricultural operations were going on. Question Nos. 5 and 6 are important and hence they are extracted as under: "Q. 5: Why did you apply for permission to convert the land into N.A.? Ans.: In case I get the permission, I will divide the land into plots and sell the land. Q. 6: Have you maintained any books of account vis-a-vis either agricultural operations carried out on the said land or with regard to expenses incurred for surveying the land, dividing them into plots, making approach roads, etc. alongwith the realisations received from sale of the said land ? Ans.: No accounts for the agricultural operations were maintained but estimated income was filed every year. With regard to getting the land converted into plots, the expenses were incurred and for the sales also the accounts were maintained and the same was submitted alongwith the returns." It is stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact some reasonable grounds for the ITO to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under assessment, that would be sufficient to give jurisdiction, to the ITO to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the ITO to act is not a justifiable issue. It is of course open for the assessee to contend that the ITO did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to them by the Tehsildar Mahabaleshwar on 19-12-1979 and after thus converting the said land into non agricultural use, the land was made into plots so that they may be useful to be sold as house plots. Roads were laid in the area and all other layouts essential to convert the said area into a residential area were being laid. 148 plots were carved out in total. The total extent of the land was 33 acres 19 gunthas. It was purchased in 1966 for Rs. 1,26,000 as agricultural land. Sub Plot No. 1/31, measuring 2972.40 sq. mts. equivalent to 32000 sq. ft. In the said land a bungalow and a out-house, servant quarters, storehouse were all constructed at a cost of Rs. 44,000 in 1968. The extent of 32000 sq. ft. represent all those constructions together with apartments land thereto. The whole of the said land together with the construction was sold away for Rs. 30 lacs under the aforesaid sale deed. Thus the difference between the cost price of sub plot No. 1 of survey No. 31 on the date of sale vis-a-vis the sale consideration received was considerable. 49. Further according to the assessee, the land was converted into stock-in-trade on 19-12-1979, the date on which the permission wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lots were carved out, the average cost at which the plot was sold was less than Rs. 6 or to put it exactly at Rs. 5.40 per sq.ft. Admittedly Shri Gandhe's valuation report is not supported by any sales statistics. Shri Gandhe was examined by the Assessing Officer under section 131 of the I.T. Act on two days i.e. on 16-9-1985 and 19-9-1985. Under question No. 4 he was asked to substantiate the basis of valuation at Rs. 6 per sq.ft. which he had adopted in his report. The answer given is as follows: "I explain the basis of valuation as under: The land is located between Panchgani and Mahabaleshwar and situated at higher level than the main road which commands the panoramic view of the valley on the West. The surrounding. areas were being developed and the buildings were under construction in the surrounding plots. And another important point is that this land was converted into non-agricultural land in April, 1980. So value of the land so converted into non-agricultural land automatically goes up. The owners wanted to have a proposal of making a layout in the land and construct the bungalows for sale. There, is one road passing through this land of village Bhilar and this al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount, if any, to be written off that practical difficulties arise. The elements making up the cost of stock are: (a) direct expenditure on the purchase of goods bought for resale, and of materials and components used in the manufacture of finished goods; (b) other direct expenditure which can be identified specifically as having been incurred in acquiring the stock or bringing it to its existing condition and location; examples are direct labour, transport, processing and packaging, (c) such part, if any, of the overhead expenditure as is properly carried forward in the circumstances of the business instead of being charged against the revenue of the period in which it was incurred. Overhead expenditure may be divided into production expenses, administration expenses, selling expenses and finance charges, and each division may be sub-divided into fixed overheads and variable overheads. The inclusion of overhead expenditure in computing the cost of stock is a matter upon which the opinions of many accountants differ but it is generally agreed that it cannot properly include selling expenses and finance charges and other expenses which do not relate to the bringing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realised, however, the business profits or the sales were never shown. The very fact that the assessee carried on the business in plots were never mentioned in the income-tax return. 58. At pages 63 to 65 of the Departmental paper book, a photo copy of the affidavit sworn in by Shri S.S. Malhotra on 25-3-1981 was filed. We have carefully went through the affirmations in the affidavit and we hold that the affidavit does not concern itself with sub-division No. 1 of Survey No. 31 or the sold out portion of the property of 2973 sq.mts. Therefore, it would appear that it is not the whole land of 33 acres 19 gunthas which was sought to be converted into agricultural land, but permission was obtained only to convert the 33 acres 19 gunthas minus sub-plot No. 1/31, measuring 2973 sq.mts. into non-agricultural land. Therefore, the nature of sub-plot No. 1/31, which is 32000 sq.ft. in area, which was sold under sale deed dated 21-7-1980 remained only as farm house together with apartment land even at the time of its sale. Therefore, the revenue is perhaps right in thinking that for assessment year 1982-83, the assessee failed to disclose material facts relevant for the computation of cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of filing the returns. The Bombay High Court held that the reopening is not permissible. Here in the original assessments for 1981-82 and 1982-83, there is no mention at all either about the business profits or the capital gains having been accepted in the hands of the assessees. It is not even stated by the ITO that the assessees are not liable for capital gains or for business profits in these two assessment years. Thus no primary facts for computation of business profits or capital gains were furnished at the time of original assessments and, there was not even application of mind by the ITO on those aspects at the time of original assessments. This makes all the difference between the assessees' case as well as the Bombay case cited above. 61. The next decision relied upon was the Supreme Court decision in the case of Malegaon Electricity Co. (P) Ltd. Here again the facts are quite different and they were extracted truly in the first para of the Head Note contained at pages 466 and 467 of the reported decision. However, when the Supreme Court found fault with the Tribunal stated that it had erred in declining to decide the question whether any portion of the sale p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case for the proposition that if the ITO did not evince proper interest while enquiring for purpose of finalising the original assessment and subsequently he finds out his overlooking a cash credit does not give him a ground for reopening of assessment. We do not think that the above case laws really help the assessee inasmuch as there is no material at all produced before the ITO at the time of original assessment to form an opinion. Therefore when there is no scope to form an opinion from the state of record, there is no question of change of opinion taking place subsequently. For the same reason we hold that the decision of the Hon'ble Supreme Court in Indian Eastern Newspaper Society's case does not apply to the facts of the case. Similarly the cases of Bibi Gurdarshan Kaur, Akula Venkatasubbaiah , Delhi Cement Stockists case were all cited for the proposition that deficiency in enquiry at the time of original assessment does not give a right to reopen the matter. Now in the facts of the present case, there is no question of any deficiency in enquiry at the time of framing original assessment and notice of reassessment also was not given to the assessees with a view to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, held that in respect of the sum of Rs. 75,417 received by the assessee towards his share at the time of his retirement from the firm, there was no liability to tax on capital gains. On a reference: Held, that the very fact that the assessee had recourse to section 230A clearly showed that it was the case of the assessee that the property was held by the assessee as co-owner and that it was not part of the partnership assets. The assessee had also filed returns under the Wealth-tax Act, 1957, disclosing the amount realised by relinquishment of his right as co-owner in respect of the lands. But when the assessee filed his returns under the Income-tax Act, he failed to disclose the receipt of income by way of capital gains by reason of the relinquishment. The sanction under section 230A of the Act was obtained long prior to the commencement of the assessment and the assessee did not produce those documents during the assessment proceedings. The stand of the assessee throughout the assessment proceedings was that the property was partnership property and not co-ownership property which showed that the fact of relinquishment was a crucial factor which the assessee failed to disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice for the contention that the reopening is bad in law. We are of the opinion that neither 230A certificate nor the certificate releasing Sub-Div. No. 1 of survey No. 31 from acquisition proceedings under Chapter XXA of the Income-tax Act were brought to the notice of the ITO at the time of original proceedings. However, their existence can never be doubted. We hold that unless and until they are brought to the notice of the ITO and considered they do not come in the way of the ITO to reopen the proceedings under section 147(a). Another decision pressed into service by the learned Advocate for the assessee was Mrs. Leela's Nath's case . In the facts of that case for assessment year 1959-60, I.T. return was filed without disclosing capital gains arising from sale of shares. However, the assessee showed reduction in the holding of shares in the W.T. returns for subsequent year 1960-61. The ITO reopened the assessment for 1959-60 and included capital gains in re-assessment. The question was whether the assessee succeeded in his contention that he had already made true and full disclosure of all primary facts. The ITO reopened the assessment under section 147(a) and completed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other side must be reflected in the order. The Income-tax returns or the original assessment orders of 1981-82 and 1982-83 never speak even one word about this activity. Therefore, there was no scope even to express an opinion to the ITO on the basis of material on record. When there could be no opinion which would be expressed in the original assessments, there is no question of change of opinion being expressed in the re-assessments. 68. Considering the whole of the discussion made in the above paras and for all the reasons given in our orders above, we hold that the reassessment proceedings started under section 147(a) in the case of both these assessees for assessment years 1981-82 and 1982-83 are quite valid, justifiable under the facts and circumstances, and hence they are upheld. Therefore, we answer the question referred to the Special Bench in favour of the Department and against the assessee. 69. We direct that the matter should go back to the Division Bench who should take up enquiry into other aspects of the matter and dispose of the appeal in conformity with the Special Bench order as for as reopening is concerned and according to law with regard to other aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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