TMI Blog2005 (6) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had not disclosed all the primary facts necessary for completing the assessment, as available with the assessee, and before completion of the original assessment and hence, the Assessing Officer had jurisdiction to reopen the assessment under section 147(a) of the Act?" The assessee was carrying on the business of generating and supplying electricity in the township of Bagalkot. For the assessment year 1973-74, the assessee had filed its return of income on November 3, 1975, declaring the income of Rs. 32,953 for the accounting period April 1,1972 to November 18, 1972, on the ground that the business of the assessee-firm was taken over by the Government on November 13, 1972. Assessment of the assessee for this year was originally completed by the Assessing Officer under section 143(3) of the Act on December 11, 1975, determining the taxable income at Rs. 45,130. After completion of the assessment proceedings, the Income-tax Officer had received the information, that, since the undertaking of the assessee-firm had been taken over by the State Government, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal assessment order for the assessment year 1973-74, the assessee for the first time had brought to the notice of the Inspecting Assistant Commissioner, Belgaum Range, Belgaum, by his letter dated February 18, 1976, that the firm has to receive compensation from the Government, in lieu of the acquisition of its business undertaking and on the basis of this information, he had directed not only the assessee but also the Karnataka Electricity Board, Bangalore, to furnish information regarding valuation of the assets given by the firm for the purpose of compensation, and since the assessee had failed to supply the necessary information, he had made enquiries with the Karnataka Electricity Board, and ascertained that the assessee had claimed a compensation amount of Rs. 36 lakhs. He has also observed in his order, that from the letters dated October 23, 1972, and December 18, 1972, addressed to the Executive Engineer, Electricity Maintenance Division, Bagalkot, by the assessee-firm, it is clear that the firm had filed its claim for compensation, immediately it was taken over by the Karnataka Electricity Board and the same was never disclosed in the return of income filed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion to disclose the material facts regarding taking over of the business by the Government and, therefore, the provisions of section 147(a) of the Act are not applicable. The appellate authority while rejecting the contentions canvassed, has noticed in his order, that the Income-tax Officer had reopened the assessment under section 147(a) of the Act, on the ground that the assessee had not disclosed anything regarding the claim of compensation made before the Karnataka Electricity Board and that depreciation was wrongly allowed in respect of the assets sold to the Karnataka Electricity Board and according to the appellate authority, the same is justiciable, for the reason, that though the assessee in its return of income filed for the assessment year 1973-74 had disclosed the taking over of the assessee's business by the Government on November 13, 1972, it had not disclosed the claim of compensation made before the Karnataka Electricity Board or the compensation that may be paid by the Karnataka Electricity Board. In so far as the letter dated March 24, 1975, to the Income-tax Assistant Commissioner in respect of recovery proceedings for the assessment year 1972-73 is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first appellate authority and the Income-tax Appellate Tribunal were not justified in sustaining the illegal action of the Income-tax Officer initiated under section 147(a) of the Act. Learned counsel, has relied on several decisions including a few decisions of this court in aid of his submissions and reference to those decisions will be made by us while discussing the issues posed for our consideration and opinion. Sri Seshachala, learned counsel for the Revenue sought to justify the findings and the conclusions reached by the authorities under the Act and those of the Income-tax Appellate Tribunal. In support of his contention, learned counsel has relied on the law declared by the apex court in the case of Central India Electric Supply Co. v. CIT [2001] 247 ITR 54 and in the case of Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC). In our view, the only issue that requires to be decided by us, is, whether the Income-tax Officer was justified in reopening the concluded assessments by invoking the provisions of section 147(a) of the Act? The question of law referred by the Tribunal for our opinion is in two parts. They are, whether the Tribunal was right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment are contained in sections 147 to 153 of the Act. Section 147 of the Act is the main section providing for reopening of assessment under section 147(a) of the Act, if the Income-tax Officer (prior to amendment of section in the year 1989 with effect from April 1, 1989) had reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 of the Act or to disclose fully and truly all material facts necessary for his assessment and under section 147(b) of the Act, notwithstanding such omission or failure as mentioned in clause (a) on the part of the assessee, if 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 assessment year subject to the provisions of sections 148 to 153 of the Act, he may assess or reassess such income or recompute the loss or depreciation allowance for the relevant assessment year. Explanation 1 deems, escapement of income chargeable to tax, where tax has been underassessed; or income had been assessed at too low a rate; or where the income had been made subject of excessive relief under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r years from the end of the relevant assessment year. Sri Seshachala, learned counsel for the Department, on our request, has produced before us the relevant assessment records and in particular, the reasons recorded by the Income-tax Officer before he issued notice under section 148 of the Act for reopening the concluded assessments. The relevant information we could gather from this document is, at the first instance, he had addressed letters to the firm to ascertain the liability to capital gains arising out of the capital gains receivable by the assessee-firm. Since the assessee has not supplied the information, he has made local enquiries and ascertained that the assessee-firm has put in a claim of about Rs. 36,00,000 for payment of compensation to the Karnataka Electricity Board. If the above amount is taken as estimated compensation receivable by the assessee-firm, the estimated capital gains works out to Rs. 26,92,000 and, therefore, he has reason to believe that income chargeable to tax has escaped assessment for that year. The primary reason for the Assessing Officer for issuing notice under section 148 of the Act is that, he has reason to believe that by reason of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity by the Mysore State Electricity Board with effect from November 14, 1972 and the closure of its business and dissolution of the firm with effect from November 14, 1972 and further by a letter dated March 24, 1975, i.e., much earlier to the completion of the assessment proceedings, to the Income-tax Assistant Commissioner and a copy furnished to the Income-tax Officer pursuant to notice issued for recovery proceedings initiated to recover tax dues of the assessment year 1972-73, that the assessee has not received compensation payable by the Karnataka Electricity Board for acquiring its business of distribution of electricity and, therefore, there was no omission or failure to disclose the material facts to the Assessing Officer before completion of the assessment for the assessment year 1973-74 and, therefore, the provisions of section 147(a) of the Act are not applicable and, therefore, the view taken by the Tribunal is contrary to the view expressed by the apex court and also this court. Now let us refer to the decisions on which reliance is placed by learned counsel for the assessee-firm in support of his contentions. The first decision on which reliance was plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from undisclosed sources. On a writ petition filed by the appellant, the High Court held that the Income-tax Officer did not apply his mind to the question whether the amounts could be treated as part of the total income of the appellant and as the appellant did not disclose the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction under section 147(a) were present. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that after discovery of the primary facts relating to the transactions evidenced by the drafts it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This the officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts. He could not, thereafter, take recourse to section 147(a) to remedy the error resulting from his own oversight." The Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the expressions 'omission', 'failure' and 'disclose' are used in the provision, each of them will have to be given a separate meaning and hence omission or failure have to be linked up with a disclosure to be made, and failure on the part of an assessee arises only when there is a pre-existing obligation and omission arises when there is no such pre-existing obligation to disclose. He relied upon the decision in K.P. Arthanariswamy Chettiar v. First ITO [1972] 84 ITR 51 (Mad), wherein the expressions 'true' and 'full' have been explained and it was contended that what is contemplated under section 147(a) is a true and full disclosure, that is, the disclosure must be fully true. If, factually, the information furnished by the assessee is not true, even for an inadvertent reason, that section is attracted inasmuch as, the material particulars furnished by the assessee are found to be either false or incomplete. This argument, in our view, is fallacious and has to fail. As explained earlier, the duty on the part of the assessee is to disclose fully and truly all material facts. Omission or failure to discharge this duty alone will attract the section and not otherwise. If, factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of the mandatory requirement while filing the return of income to have brought to the notice of the Assessing Officer only about the acquisition of its business and the assessee was also obliged to have brought to the notice of the Assessing Officer about the compensation claimed, and since that is not done, the Assessing Officer was justified in issuing notice under section 148 of the Act to reopen the concluded assessment, on the ground that the assessee has failed to disclose fully and truly necessary material facts for assessment, within eight years from the end of the relevant assessment year. In aid of his submissions, firstly, learned counsel relies on the law declared by the apex court in the case of Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466, wherein the court has held that the assessee's failure to disclose the profit under section 10(2)(vii) of the Act notwithstanding the disclosure of factum of sale, attracted the provisions of section 34(1)(a) of the Act and the reassessment was valid. The other decision on which reliance was placed by learned counsel for the Revenue is that of the Supreme Court in the case of Central India Electric Supply Co. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 13, 1972 and it was also brought to the notice of the Assessing Officer that the firm is dissolved with effect from November 18, 1972. This information is taken note of by the Assessing Officer, while concluding the assessment under section 143(3) of the Act for the assessment year in question. Under section 143(3) of the Act, the Assessing Officer has to pass an order computing the total income or loss determining the tax payable under the Act from such computation of income. While passing the order, the Assessing Officer has to look into the evidence that the assessee may produce along with its returns and also at the time of hearing by the assessee, as well as the evidence which the Assessing Officer required him to produce. The Assessing Officer having come to know, since it was made known in the return of income that its business of distribution of electricity is taken over by the Karnataka Electricity Board, under the Indian Electricity Act, there was an obligation on the part of the Assessing Officer to have enquired with the assessee whether he has made any claim for payment of compensation, since he was passing an order under section 143(3) of the Act. As observed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reassessment under the provisions of section 147(a) of the Act is not valid in the facts and the circumstances of the present case. Yet another factor which requires to be noticed in the present case, is that, the assessee-firm much earlier to the completion of the assessment proceedings for the assessment year 1973-74, had brought to the notice of the Assessing Officer that the firm has to receive compensation from the Karnataka Electricity Board and the same is not yet received, pursuant to the demand notice issued for recovery of tax dues for the assessment year 1972-73 by his letter dated March 24, 1975, while requesting the Inspecting Assistant Commissioner of Income-tax, Belgaum, to keep in abeyance the said demand. This would also show that the assessee-firm had not suppressed any material facts before the Assessing Officer to attract the provisions of section 147(a) of the Act. Thus, therefore, the notice issued by the Assessing Officer under section 148 of the Act to reopen the concluded assessment for the assessment year 1973-74 is not valid in law. Lastly, in the note sheet produced by learned counsel for the Revenue wherein the reasons are recorded for initiating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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