TMI Blog1983 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies (Profits) Surtax Act, hereinafter referred to as " the Surtax Act " on July 20, 1972, on the ground that the net chargeable profit has escaped assessment and revised the assessment on March 17, 1973. According to the ITO, the chargeable profits returned by the assessee originally were understated and that material fact was not placed before the officer at the original stage. The assessee appealed against the said reopening of the assessment to the AAC contending that there was no basis for reopening the assessment under s. 8(a) of the Surtax Act. The AAC, however, came to the conclusion that s. 8(a) has been properly invoked and in that view upheld the assessment. The assessee went in appeal before the Income-tax Appellate Tribunal contending that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. But the Tribunal also upheld the assessment made under s. 8(b). For the year 1968-69 also, there was reopening of the surtax assessment invoking s. 8(b) of the Surtax Act and that was under challenge before the Tribunal. This assessment for the year 1968-69 also has been upheld by the Tribunal. Aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange rate between the Ceylon and Indian rupees, that difference should be taken as an appreciation of capital and not taxable profits and as such is not includible in the profits returned or the chargeable profits. According to the assessee, the exchange rate is not primarily a fact which the assessee has to necessarily place before the ITO and whether the assessee gives the correct exchange rate or not, the ITO is under an obligation to himself ascertain the exchange rate before finalising the assessment and the fact that he failed to inform himself of the correct exchange rate cannot be taken advantage of by him to invoke s. 8(a) of the Surtax Act and reopen the assessment. Alternatively, the assessee contends that even if a reopening is called for in this case, the assessment should have been reopened only under s. 8(b) and not under s. 8(a). For appreciating the said contention, it is necessary to extract s. 8 of the Surtax Act to consider its scope and ambit. Section 8 is as follows: 8. Profits escaping assessment.-If (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by the assessee. The adoption of par value by the assessee while converting Ceylon rupees into Indian rupees even after the devaluation that has taken place on June 6, 1966, has resulted in an understatement of the Ceylon income. The assessee who has got businesses both in Ceylon and in India should be taken to have been aware of the exchange rate at the time of his return. Therefore, notwithstanding the devaluation, adopting par value by the assessee while converting Ceylon rupees into Indian rupees, is clearly an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Admittedly, the assessee did not bring to the notice of the ITO the correct exchange rate but he misled him into thinking that there is no difference between the Indian rupee and the Ceylon rupee in the matter of conversion. We are not inclined to agree with the learned counsel for the assessee that exchange rate is not a primary or material fact and, therefore, the omission or failure to disclose the exchange rate will not attract cl. (a) of s. 8. The section uses the expression " all material facts necessary for the assessment ". In this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, by the ITO as to the correct exchange rate applicable to the case which indicated that certain portion of the chargeable income has escaped assessment, he can reopen the assessment by invoking s. 8(b). We are, therefore, of the view that in this case either of the provisions in s. 8 could be invoked. As a matter of fact, for the assessment year 1966-67, s. 8(a) has been invoked and for the assessment year 1968-69, s. 8(b) has been invoked and the reopening of the assessments for both the years has, therefore, rightly been upheld by the Tribunal. Coming to the merits of the reassessment, as already stated, the assessee's only contention was that the difference in exchange rate should be treated as an appreciation of capital and not taxable profits. This contention has been rightly rejected by the Tribunal, for the assessee himself has shown in the balance-sheet and in the profit and loss account the relevant income as Ceylon income and, therefore, the enhancement in value of the Ceylon income as a result of the correct exchange rate being applied cannot be taken to be an appreciation of capital as contended by the assessee. One of the questions that was urged before the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which were not referred to in the notice issued for reopening and the Supreme Court held that the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year and that his jurisdiction is not confined only to those items which have been referred to in the notice. In AL. VR. ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116, a Division Bench of this court to which one of us was a party has laid down that once reassessment proceedings are validly initiated by the ITO in respect of a particular item of income either under s. 34(1)(a) of the Indian I.T. Act, 1922, or under s. 34(1)(b), the jurisdiction of the ITO to reassess is not confined to the items of income in respect of which notice has been issued but extends to all items of income which have escaped assessment and which may fall under those sections. In Asa John Devinathan v. Addl. CIT [1980] 126 ITR 270, another Division Bench of this court has upheld the view expressed in the decision in AL. VR. ST. Veerappa Chettiar v. CIT. The question that arose in all the above cases was whether the ITO, in the reassessment proceedings, could bring to charge items wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surtax Act, we are of the view that the reopening can only be for the benefit of the Revenue. But this is subject to one exception. Where a particular item is sought to be brought to charge for the first time in the reassessment proceedings, any allowance, deduction or other relief in relation to that item can be put forward by the assessee and that has to be necessarily considered by the assessing authority and relief granted if the circumstances warrant. If any disallowance made during the course of the original assessment, which the assessee wants to be reconsidered during the reassessment, is relevant or has a nexus with items of income brought to charge by the ITO on reassessment, that can be considered. All other items of disallowance or relief claimed by the assessee which are not relevant to the items which are the subject-matter of the enquiry during reassessment cannot be considered again by the ITO at the stage of the reassessment. Therefore, in reassessment proceedings, the assessee cannot reagitate questions which have been decided in the original assessment; nor can the ITO make a reassessment inconsistent with the original assessment in respect of matters which are n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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