9911796707
TMI Blog1992 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... income on November 17, 1960, showing a loss of Rs. 36,418. For the assessment year 1961-62, the return of income was filed on October 4, 1961, declaring a loss of Rs. 24,314. The Income-tax Officer, after discussion with the authorised representative of the assessee, Shri A. B. Chowdhury, considered both the returns on December 12, 1962, and, in respect of the return for the assessment year 1960-61, recorded on the order sheet that "the return filed beyond time. No action is necessary, filed - N. D. ". For the assessment year 1961-62, the Income-tax Officer recorded "the loss return is beyond time. Filed as N. D." The Income-tax Officer conveyed to the respondent, vide communication dated December 12, 1962 (see at page 168 of 111 ITR) : " Sub : Assessment years 1960-61 and 1961-62 With reference to above and your authorised representative's discussion with me I am to inform you that the loss returns submitted beyond time for the assessment years under reference being invalid, no action on them is necessary. Hence, the proceedings for both these years are filed. " The assessee challenged the order of the Income-tax Officer before the Appellate Assistant Commissioner. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set it off against the escaped income from other sources but also that the unabsorbed loss, if any, should be carried forward and set off against the income in the subsequent years. Aggrieved by this order, the Revenue went up in appeal before the Income-tax Appellate Tribunal. The Tribunal accepted the plea of the Revenue that the action of the Income-tax Officer in filing the assessment proceedings for 1960-61 and 1961-62 on the grounds indicated by him in the letter dated December 12, 1962, referred to amounted to nil assessment and that the Income-tax Officer had not allowed the losses as claimed by the assessee in the returns which has been filed beyond time. The Tribunal opined that, since the decision of the Income-tax Officer dated December 12, 1962, had been upheld in appeal by the Appellate Assistant Commissioner and the assessee had not taken up the matter in any further appeal or revision, the order of the Income-tax Officer dated December 12, 1962, had acquired finality. The Tribunal found that the Appellate Assistant Commissioner had fallen in error in holding that the determination of the losses claimed originally was still open to review in proceedings under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer in proceedings under section 147 of the Act could not consider items which had become final in the original assessment proceedings unconnected with any escapement of income. On behalf of the assessee, however, it was contended that once reassessment proceedings are initiated, the initial order of assessment does not survive for any purpose whatsoever and, while making a fresh order of assessment in the reassessment proceedings, the Income-tax Officer has the power to give benefit to the assessee which might have been available to it in the original assessment Proceedings. In support of these submissions, the assessee had relied upon the judgments in Deputy Commissioner of Commercial Taxes v. H. R. Sri Ramulu [1977] 39 STC 177 (SC) and V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC). The Division Bench, after hearing the arguments in the leave to appeal petition, opined: "In the instant case, it appears that the question which is involved, is not the power and the jurisdiction of the Income-tax Officer but the right of the assessee to agitate a matter concluded in the earlier assessment which is unconnected with any escaped item of income for the limited purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that the loss of profits and gains (including depreciation allowance) sustained by it in the previous year should be determined in the course of such proceedings. " The Bench noticed that the assessee had, in response to the notice calling for a return submitted a "nil" return which was accepted by the assessing authority. Subsequently, the Income-tax Officer sent the assessee a notice tinder section 34(1)(b) of the 1922 Act in the following terms (at page 84): "Whereas in consequence of definite information which has come into my possession, I have discovered that your income assessable to income-tax for the year ending March 31, 1942, has, (a) escaped assessment, I, therefore, propose to assess the said income that has, (a) escaped assessment. I hereby require you to deliver to me not later than,.......a return in the attached form of your total income and total world income assessable for the said year . . . . " In reply, the assessee again submitted a " nil " return and also filed a statement showing " loss ". The Income-tax Officer made the following order (at page 84) : " As the net result for the world business is only a loss, there can be no question of profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Ar. Rm. Arunachalam Chettiar v. CIT [1936] 4 ITR 173. In the present case, the loss is computed by striking a balance in the profit and loss account of just the one business and consequently no question of different heads arises. On both these grounds, therefore, the assessee's contention must fail because, unless the loss can be set off under sub-section (1) of section 24, it cannot be carried forward under sub-section (2) and if it cannot be carried forward the question of its determination and computation becomes irrelevant." (emphasis supplied). Dealing with the reasoning of the High Court, the learned judge observed (at page 86) : " The High Court proceeds on the ground that when proceedings are taken under section 34, the assessee is not entitled to reopen the whole proceedings as the further proceedings are limited to assessing that portion of the income which has escaped assessment. We need not express any opinion on this. The question we have to answer is confined to the facts and circumstances of this case and those circumstances are : (1) that no return was filed at any stage of the case disclosing any income, profits or gains at all, (2) that proceedings were l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of assessment had, thus, become final on the conclusion of the proceedings and dismissal of the appeal. Could the assessee in the above fact situation be permitted to claim" set off ", not granted in the original assessment proceedings by raising that plea once again in the reassessment proceedings initiated under section 147 of the Act ? To answer this question, it is necessary to first extract the provisions of sections 147 and 148 of the Act (as they existed at the relevant time).Section 147 read thus : 147. Income escaping assessment. -if (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that, income chargeable to tax has escaped assessment for any ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable to tax of an assessee has escaped assessment by reason of the omission or failure on the part of the assessee either to make return under section 139 for the relevant assessment year or to disclose fully and truly material facts necessary for the assessment for that year. Both the conditions must exist before an Income-tax Officer can proceed to exercise jurisdiction under section 147(a) of the Act. Under section 147(b), the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason to believe, on the basis of information in his possession, that income chargeable to tax has been either underassessed or has been assessed at too low a rate or has been made the subject of excessive relief under the Act or that excessive loss or depreciation allowance has been computed. In either case, whether the Incometax Officer invokes his jurisdiction under clause (a) or clause (b) or both, the proceedings for bringing to tax an " escaped assessment " can only commence by issuance of a notice under section 148 of the Act within the time prescribed under the Act. Thus, under section 147, the Assessing Officer has been vested with the power to " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole assessment and seek to be allowed credit in respect of some item which has been overassessed, but on the other hand it is open for an assessee to show that income alleged to have escaped assessment has in truth and in fact not escaped assessment but has been brought in under some inappropriate head. . . . " The Rajasthan High Court in Hiralal v., CIT [1980] 121 ITR 89 (Raj), was requested to answer the following question in a reference under section 256(1) of the Income-tax Act, 1961 (at page 91) : " Whether, on the facts and circumstances of this case, the Tribunal was right in holding that the Income-tax Officer's jurisdiction under section 147 of the Income-tax Act, 1961, was confined to the assessment of such income as had escaped assessment and did not extend to revising or reopening the whole original assessment ?" The question was answered in the affirmative and it was held that the jurisdiction of the Income-tax Officer under section 147 of the Act was confined to the assessment of such income as had escaped assessment and did not extend to revising or reopening the whole assessment. The Bench followed the judgment in Kevaldas Ranchhodas v. CIT (1968] 68 ITR 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in Kevaldas Ranchhoddas v. CIT [1968] 68 ITR 842 and of the Allahabad High Court in Sir Shadi Lal and Sons v. CIT [1973] 92 ITR 453, held, in a case arising under the Wealth-tax Act, that during the reassessment proceedings initiated by the Wealth-tax Officer to assess the escaped net wealth under section 17(1) of the Wealth-tax Act, 1957, an assessee could not, during the reassessment proceedings to tax the escaped net wealth, be allowed to seek recomputation of the net wealth and redoing of the assessment and be allowed a claim which the assessee had failed to make at the time of the regular assessment, especially when that assessment of the assessee had become final. The Bench opined that there was no material difference in this respect between the provisions of the Income-tax Act, 1961, and the Wealth-tax Act, 1957. In CWT v. Ballarpur Industries Ltd. [1979] 118 ITR 711 (Bom), again in a case arising under the Wealth-tax Act, Kantawala C. J., speaking for the Bench of the Bombay High Court, opined that the nature of the jurisdiction to assess under section 17 of the Wealth-tax Act, 1957, is limited and that there is nothing in the scheme of the Wealth-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o charge in the reassessment, they can also be considered. But other items of disallowance or relief claimed by the assessee which are not relevant to items which are the subject-matter of the enquiry in the reassessment proceedings cannot be considered again by the Income-tax Officer at the stage of reassessment." (emphasis supplied). In Deputy Commissioner of Commercial Taxes v. Indian Refrigeration Industries P. Ltd. [1980] 46 STC 264, the Madras High Court, in a sales tax case, opined that, when the Assessing Officer proceeds to make reassessment, he does so for the purpose of redetermining the annual taxable turnover as a whole and the reassessment order reflects the assessable turnover in its entirety and the original order of assessment is virtually set aside. By reassessing the assessee, the taxing officer is bound to determine the taxable turnover for the assessment year in question as a whole and the assessing authority cannot be said to be merely assessing the assessee on the escaped turnover but it assesses him on his total turnover. This judgment, however, was dissented from by a subsequent Division Bench of that High Court in JCTO v. Ekambareeswarar Coffee and Tea Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that finding had become final, it is not open to an assessee to put forward those claims once again during the course of reassessment proceedings. " The Rajasthan High Court in CIT v. Rangnath Bangur [1984] 149 ITR 487 opined (at page 498) : "...... that once a reassessment proceeding is initiated, the original order of assessment is set aside or ceases to be operative. The finality of such an assessment order is wiped out and a fresh order of assessment would take the place of and completely substitute the initial order of assessment. It is, therefore, clear that when reassessment proceedings are taken, the former assessment is completely wiped out, the entire assessment is reopened and the total income of the assessee is determined afresh. The new order passed on reassessment completely replaces or substitutes the original order of assessment. . . . " (emphasis supplied). The High Court noticed an earlier judgment of the same High Court in Hiralal v. CIT [1980] 121 ITR 89 (Raj), (one of the judges Ms. Kanta Bhatnagar J. was common to both the judgments) wherein, it had been held that in reassessment proceedings, the jurisdiction of the Income-tax Officer was confined to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of just those suppressed items of sales which were actually brought to light during the subsequent inspection, but invoked his powers by assessing the entire turnover to the best of his judgment by including what he considered to be suppressed turnover. The estimated figure was larger than the aggregate of the amounts noted down in the surprise inspection report. The argument of the assessee that the assessing authority, while reopening the assessment for bringing to charge the escaped turnover, had no power to make a best judgment reassessment based on his own estimate was repelled. In Deputy Commissioner of Commercial Taxes v. H. R. Sri Ramulu, [1977] 39 STC 177, what was directly in issue before the Supreme Court was whether an order of enhancement made by the Deputy Commissioner sitting in revision was barred by limitation. That question arose under the Mysore Sales Tax Act, 1957. The said Act fixed a time limit for the exercise of revisions] power by the Deputy Commissioner. The Deputy Commissioner's order of enhancement in revision related to certain items which had already figured in the original assessment and not added for the first time in the reassessment. If the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward pleas only in respect thereof, rely upon the observations (at page 180 of 39 STC) : " When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year." Let us now examine the judgment in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) to appreciate as to what was laid down in that case as regards the scope of reassessment proceedings. In V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC), the facts were as follows : The assessee was the karta of a Hindu undivided family. The assessment related to the years 1944-45 to 1946-47. In 1941, the assessee had purchased a spinning mill known as Sri Satyanarayana Spinning Mills, Rajahmundry, for a sum of Rs. 54,731. At the time the purchase was made, there were certain litigations between the sons of the vendor and the vendor in respect of the spinning mill and certain other properties.. Ultimately, the matter went on appeal to the Privy Council. When the appeal was pending, the assessments were made for the years 1944-45 to 1946-47, and the assessee deposited the amounts for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of " underassessment " based on clauses (a) to (d) of Explanation 1 to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Rao's case, [1970] 75 ITR 373 (SC), therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the same cannot be allowed to be converted as " revisional " or " review " proceedings at the instance of the assessee, thereby making the machinery unworkable. As a result of the aforesaid discussion, we find that, in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of the notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights of an assessee to claim "redoing", "revising" or "recomputing" the entire income during the reassessment proceedings was left open, that question did not come up for consideration in the case of H. R. Sri Ramulu [1977] 39 STC 177 (SC) or H. M. Esufali's case [1973] 90 ITR 271 (SC) or even in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC). Some of the High Courts, therefore, fell in error in reading those judgments, divorced from the context in which the precise questions came up for consideration in those cases, and to hold that the assessee could " reagitate " the concluded issues and claim relief in respect of items finally concluded in the original assessment proceedings, during the reassessment proceedings, unconnected with the escapement of income. We cannot, therefore, approve the broad proposition laid down in that regard in Deputy Commissioner of Commercial Taxes v. Indian Refrigeration Industries P. Ltd. [1980] 46 STC 264 (Mad), CIT v. Ramsevak Paul [1977] 110 ITR 527 (Cal), CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal), CIT v. Standard Motor Products of India Ltd. [1983]142 ITR 877 (Mad), CIT v. Rangnath Bangur [1984] 149 ITR 487 (Raj), State Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
