Karnataka H.C : 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 AO had jurisdiction to reopen the assessment under s. 147(a) of the Act ?

High Court Of Karnataka

Venkatesh Power Works vs. CIT

Sections 147(a), 147(b)

Asst. Year 1973-74

H.L. Dattu & H.N. Nagamohan Das, JJ.

IT Refd. Case No. 10 of 1997

1st June, 2005

Counsel Appeared

Parthasarathi, for the Applicant : M.V. Seshachala, for the Respondent

JUDGMENT

H.L. Dattu, J. :

The Tribunal, Bangalore Bench, Bangalore, at the instance of the assessee, has stated the case and has referred the following question of law for consideration and opinion of 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 AO had jurisdiction to reopen the assessment under s. 147(a) of the Act ?”

2. The assessee was carrying on the business of generating and supplying electricity in the township of Bagalkot. For the asst. yr. 1973-74, the assessee had filed its return of income on 3rd Nov., 1975, declaring the income of Rs. 32,953 for the accounting period 1st April, 1972 to 18th Nov., 1972, on the ground that the business of the assessee-firm was taken over by the Government on 13th Nov., 1972. Assessment of the assessee for this year was originally completed by the AO under s. 143(3) of the Act on 11th Dec., 1975, determining the taxable income at Rs. 45,130. After completion of the assessment proceedings, the ITO had received the information, that, since the undertaking of the assessee-firm had been taken over by the State Government, the assessee is entitled to get compensation amount on that account. In view of this information, the AO was of the opinion that by reason of the aforesaid omission or failure on the part of the assessee to disclose fully and truly all material facts in the return of income filed under s. 139 of the Act for the asst. yr. 1973-74, for his assessment, the income chargeable to tax has escaped assessment for that year, as envisaged under s. 147(a) of the Act. Accordingly, in order to bring to tax the escaped income, the AO had issued and served a notice to the assessee under s. 148 of the Act, inter alia, directing the assessee to show cause why the concluded assessment should not be reopened and to bring to tax the income which has escaped assessment. In response to the said notice, the assessee-firm had filed the return of income under protest on 4th Sept., 1980, declaring the business income of Rs. 32,953 and the compensation of Rs. 6,94,912 was shown in Part III of the return.

Before the ITO, it was the contention of the assessee’s representative, that there was no material on record on the basis of which a belief has been formed that income has escaped assessment within the meaning of s. 147(a) of the Act and in the absence of such material, the ITO could not have initiated any reassessment proceedings. The other contention that was canvassed was that the primary facts of taking over the business concern by the Karnataka Electricity Board had been disclosed in the return of income filed at the time of original assessment and the claim made for payment of compensation before the Karnataka Electricity Board was brought to the notice of the AO and the same is taken note of by the ITO at the time of completing the original assessment under s. 143(3) of the Act and therefore, the AO has no jurisdiction to initiate any action under s. 147(a) of the Act for the asst. yr. 1973-

74. These facts would show that the assessee had disclosed fully and truly all material facts necessary for his assessment for the asst. yr. 1973-74.

The assessing authority while considering the contention of the assessee’s representative, in his order of reassessment dt. 27th Jan., 1988, has observed, that subsequent to the original assessment order for the asst. yr. 1973-74, the assessee for the first time had brought to the notice of the IAC, Belgaum Range, Belgaum, by his letter dt. 18th Feb., 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 and 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 was ascertained that the assessee had claimed a compensation amount of Rs. 36 lakhs. He has also observed in his order, that from the letters dt. 23rd Oct., 1972 and 18th Dec., 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 ITO when the original assessments were completed on 11th Dec., 1975. He has further observed, that during the original assessment proceedings, the assessee had only disclosed the fact of taking over of its business by the Karnataka Electricity Board on 13th Nov., 1972, but did not disclose the claim of compensation made before the Karnataka Electricity Board or estimated the profits thereof from such acquisition and therefore, the assessee had failed to disclose fully and truly all material facts for the purpose of assessment and income chargeable to tax under the head ‘Capital gains’ and ‘profits’ under s. 41(2) thereof had escaped assessment and secondly, the claim of the assessee for depreciation in respect of assets sold to Karnataka Electricity Board was wrongly allowed in the year of sale in the original assessment for the asst. yr. 1973-74.

In the appeal filed against the aforesaid reassessment order passed by the ITO, it was contended that there was no omission or failure on the part of the appellant while filing the return of income for the asst. yr. 1973-74 and therefore, the provisions of s. 147(a) of the Act are not attracted and the ITO had no jurisdiction to initiate reassessment proceedings. It was also contended that in the return of income filed for the asst. yr. 1973-74, the assessee had stated that the business of distribution of electricity which the assessee was doing was taken over by the Government on 13th Nov., 1972 and hence, the income was disclosed only upto 13th Nov., 1972 and by a letter dt. 1st Dec., 1972, it was also intimated to the ITO that the business of the assessee was closed. It was also contended that in connection with the recovery proceedings initiated by the ITO to recover tax due for the assessment year, the assessee had intimated the Asstt. CIT by letter dt. 24th March, 1975, that the compensation amount that requires to be paid for taking over its business is not yet paid and therefore, a request had been made to keep the recovery proceedings in abeyance, till the compensation amount is received and a copy of the letter was also given to the ITO and in view of these facts made known to the ITO, it was contended that there was no omission to disclose the material facts regarding taking over of the business by the Government and therefore, the provisions of s. 147(a) of the Act are not applicable. The appellate authority while rejecting the contentions canvassed, has noticed in his order that the ITO had reopened the assessment under s. 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 assets sold to Karnataka Electricity Board and according to the appellate authority, the same is justiciable, for the reason, that the assessee though in its return of income filed for the asst. yr. 1973-74, had disclosed the taking over of the assessee’s business by the Government on 13th Nov., 1972 but had not disclosed about the claim of compensation made before the Karnataka Electricity Board or the compensation that may be paid by the Karnataka Electricity Board. Insofar as the letter dt. 24th March, 1975 to Asstt. CIT in respect of recovery proceedings for the asst. yr. 1972-73, it does not amount to disclosure regarding the compensation receivable and therefore, the ITO was justified in reopening the concluded assessment for the asst. yr. 1973-74 under s. 147(a) of the Act.

6. Aggrieved by the order passed by the appellate authority, the assessee had carried the matter by way of second appeal before the Tribunal. The only ground that was taken in the memorandum of appeal and argued at the time of hearing, was with regard to jurisdiction of the ITO to initiate reassessment proceedings under s. 147(a) of the Act. The Tribunal by its order dt. 29th March, 1995, while rejecting the assessee’s appeal, proceeds on the assumption that the assessee did not disclose even the primary fact relating to taking over of its business undertaking by the Electricity Board. Secondly, on the materials available on record, the assessee did not disclose that it had lodged claim for compensation with regard to such taking over, though it had the knowledge of these facts before the original assessments were completed. [emphasis, italicized in print, is supplied by us]

7. The assessee aggrieved by the aforesaid order of the Tribunal, had requested the Tribunal to state the case and refer the question of law, which according to it, would arise out of the order passed in ITA No. 1805 of 1988 dt. 29th March, 1995, for opinion of this Court, to which we have already made reference in the earlier part of our order.

8. Sri Parthasarathi, learned counsel for the assessee would reiterate the contentions canvassed by the assessee’s representative while contending, that, the ITO in order to save the period of limitation prescribed under the Act, has deliberately stated, that the assessee, while filing the return of income under s. 139 of the Act for the asst. yr. 1973-74, had not disclosed fully and truly all the material facts necessary for his assessment; and therefore, income chargeable to tax has escaped assessment for the year. According to the learned counsel, even assuming for the sake of arguments that the case may fall under s. 147(b) of the Act, the limitation for issue of notice in such a case would be four years from the end of the relevant assessment year, and since the proceedings are initiated beyond the period of limitation prescribed under the Act, the same is without jurisdiction and therefore, the first appellate authority and the Tribunal were not justified in sustaining the illegal action of the ITO initiated under s. 147(a) of the Act. The 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.

9. Sri Seshachala, learned counsel for the Revenue sought to justify the findings and the conclusions reached by the authorities under the Act and that of the Tribunal. In support of his contention, the learned counsel has relied on the law declared by the apex Court in the case of Central India Electric Supply Co. vs. CIT (2000) 162 CTR (SC) 406 : (2001) 247 ITR 54 (SC) and in the case of Malegaon Electricity Co. (P) Ltd. vs. CIT (1970) 78 ITR 466 (SC).

10. In our view, the only issue that requires to be decided by us, is, whether the ITO was justified in reopening the concluded assessments by invoking the provisions of s. 147(a) of the Act ?

11. The question of law referred by the Tribunal for our opinion is in two parts. They are, whether 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 secondly, whether the assessee had disclosed all the primary facts necessary for completing the assessment before completion of the original assessment ?

12. The question before us in this reference proceedings is the jurisdiction of the ITO to initiate action under s. 147(a) of the Act ?

13. Before considering the issues raised and case laws cited at the time of hearing, it is necessary in the first instance to analyse the provisions of s. 147 of the Act as was in force during the relevant assessment year. It is as under : “147. Income escaping assessment : If— (a) the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the ITO 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 cl. (a) on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in ss. 148 to 153 referred to as the relevant assessment year), Explanation 1 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian IT Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2 : Production before the ITO of account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure within the meaning of this section.”

14. The provisions relating to reassessment are contained in ss. 147 to 153 of the Act. Sec. 147 of the Act is the main section providing for reopening of assessment under s. 147(a) of the Act, if the ITO (prior to amendment of section in the year 1989 w.e.f. 1st April, 1989) had reason to believe that by reason of the omission or failure on the part of the assessee to make a return under s. 139 of the Act or to disclose fully and truly all material facts necessary for his assessment and under s. 147(b) of the Act, notwithstanding such omission or failure as mentioned in cl. (a) on the part of the assessee, the ITO has in consequence of information in his possession, reason to believe that the income chargeable to tax has escaped assessment for any assessment year subject to the provisions of ss. 148 to 153 of the Act, 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 Act; or where excessive loss or depreciation had been computed. Explanation 2 lays down that production before the AO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure within the meaning of the section. The limitation for issue of notice in cases falling under s. 147(b) of the Act is four years from the date of assessment year and eight years in cases falling under s. 147(a) of the Act.

15. As can be seen from s. 147(a) of the Act and under s. 147(b) of the Act, under specified circumstances, the ITO is given power to make reassessment under s. 147(a) of the Act. Proceedings under this section can be initiated by the AO/ITO, if he has a reason to believe that, by reason of the omission or failure on the part of the assessee to make a return under s. 139 of the Act for any assessment year; or by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment of that year; income chargeable to tax has escaped assessment for that year. Sec. 147(b) of the Act is made applicable under circumstances, namely, even though there is no omission or failure on the part of the assessee as required in cl.(a); the AO has information in his possession, consequent to which he has reason to believe that income chargeable to tax has escaped assessment for that assessment year.

16. Sec. 149 of the Act provides the time-limit for issue of notice under s. 148 of the Act, for opening or reopening the assessment or the reassessment in respect of assessments made either under s. 143(3) of the Act or s. 147 of the Act or otherwise. This section before its substitution by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, provided for limitation for issue of a notice under s. 148 of the Act. In cases falling under s. 147(a) of the Act, the time-limit for issuing a notice under s. 148 of the Act was eight years from the end of the relevant assessment year, in cases where income that escaped assessment was expected to be Rs. 50,000 or more. In cases falling under s. 147(b) of the Act, the time-limit was four years from the end of the relevant assessment year.

17. 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 ITO before he issued notice under s. 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.

18. The primary reason for the AO for issuing notice under s. 148 of the Act is that, he has reason to believe that by reason of the omission or failure on the part of the assessee-firm while filing a return of income under s. 139 of the Act for the asst. yr. 1973-74, has failed to disclose fully and truly all material facts necessary for his assessment for the asst. yr. 1973-74, and thereby the income chargeable to tax has escaped assessment for that year. If this circumstance stated by the AO is accepted by this Court, then the precondition required under s. 147(a) of the Act would be satisfied and the AO would be justified in issuing the notice under s. 148 of the Act, since the time-limit provided for initiation of proceedings under this section would be eight years from the end of the relevant assessment year. If for any reason, this Court comes to the conclusion, that, the notice so issued is pursuant to the information gathered or collected, has reason to believe that the income chargeable to tax has escaped assessment, then the time-limit for issuing notice under s. 148 of the Act would be four years from the end of the relevant assessment year.

19. The learned counsel for the assessee Sri Parthasarathi, would contend that the assessee had furnished in its return of income filed under s. 139 of the Act for the asst. yr. 1973-74 (accounting period 1st April, 1972 to 18th Nov., 1972), the primary fact of taking over its business of distribution of electricity in Bagalkot District by the State Government and in fact, the same is taken note of by the AO while completing the assessments under s. 143(3) of the Act by its order dt. 11th Dec., 1975 and therefore, could not have issued notice dt. 24th Sept., 1979 under s. 148 of the Act to reopen the assessment on the ground that there is omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the asst. yr. 1973-74 and therefore, the notice so issued alleging omissions envisaged under s. 147(a) of the Act, is beyond the time-limit prescribed under s. 149 of the Act. Alternatively, it is also contended that before completion of the assessment by the AO by his order dt. 11th Dec., 1975, the assessee by its letter dt. 1st Dec., 1972, had informed the AO about the fact of taking over of its business of distribution of electricity by the Mysore State Electricity Board w.e.f. 14th Nov., 1972 and the closure of its business and dissolution of the firm w.e.f. 14th Nov., 1972 and further by a letter dt. 24th March, 1975, i.e., much earlier to the completion of the assessment proceedings, to Asstt. CIT and a copy furnished to the ITO pursuant to notice issued for recovery proceedings initiated to recover tax dues of the asst. yr. 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 AO before completion of the assessment for the asst. yr. 1973-74 and therefore, the provisions of s. 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.

20. 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 placed by the learned counsel for the assessee is that of CIT vs. Bhanji Lavji (1971) 79 ITR 582 (SC). In the said case, the Court has observed, that it is not for the assessee to satisfy the ITO that there was no concealment with regard to any question; it is for the ITO, if that issue is raised to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. The Court has observed that when primary facts necessary for assessment are fully and truly disclosed at the stage of the original assessment proceedings; he is not entitled, on a change of opinion to commence proceedings under s. 147(a) of the Act and the said provision cannot be invoked to remedy an error resulting from the oversight of ITO.

21. The CIT vs. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC), was a case, where for the asst. yr. 1949-50, the ITO included in the income of the assessee a sum of nearly Rs. 88 lakhs as half share of the profits of a joint venture, the other half having been paid to the other party, who had financed the joint venture. But for the next year 1950-51, the ITO came to the conclusion that the joint venture was a fake affair and accordingly taxed the entire profit in the hands of the assessee. On the basis of these facts, the ITO reopened the assessment for the year 1949-50 under s. 147(a) of the Act, in order to bring to tax the entire profit of the joint venture. In the fact situation of that nature, the Supreme Court has observed, that the action was invalid as the assessee had disclosed all the primary facts and it was for the ITO to draw the correct inference about the true nature of the transactions.

22. The Supreme Court in the case of Gemini Leather Stores vs. ITO 1975 CTR (SC) 1127 : (1975) 100 ITR 1 (SC) has observed that : “In proceedings for the original assessment of the appellant-firm, though the appellant did not disclose certain transactions evidenced by certain drafts, the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant. Subsequently, the ITO issued a notice under s. 147(a) of the IT Act, 1961, with a view to assess the amounts as the appellant’s income from undisclosed sources. On a writ petition filed by the appellant, the High Court held that the ITO 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 was not recorded in the account books, all the conditions for invoking the jurisdiction under s. 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 s. 147(a) to remedy the error resulting from his own oversight.”

23. The Karnataka High Court in the case of T.M. Kousali vs. ITO (1985) 155 ITR 739 (Kar) has stated : “The Act nowhere provides that the assessee should disclose the fact that legal proceedings had been initiated and were pending before the civil Court or High Court when he files his returns or assessment is completed. Hence, the failure to disclose that the assessee’s claim for higher compensation under the Land Acquisition Act in the civil Court was pending when returns were filed, would not amount to failure to disclose material facts necessary for assessment and would not justify action under s. 147(a).”

24. In the case of CIT vs. Kalappa (1987) 66 CTR (Kar) 205 : (1987) 167 ITR 22 (Kar), the Karnataka High Court has observed : “The duty of the assessee is to disclose primary facts necessary for assessment. If the assessee has disclosed primary facts relating to transactions, it was for the ITO to make the necessary enquiries and draw proper inference as to whether the income returned is correct or not. It would be the plain duty of the ITO to make an enquiry and if he did not make an enquiry, it is 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 assessee to disclose fully and truly all material facts. Reassessment under the provisions of s. 147(a) of the IT Act, 1961, would not be valid in such a case.”

25. The Karnataka High Court in the case of Canara Sales Corpn. Ltd. vs. CIT (1989) 79 CTR (Kar) 64 : (1989) 176 ITR 340 (Kar), has explained the meaning of the expression “disclose truly and fully the material facts” that finds a place in s. 147(a) of the Act. In the said decision, the Court has observed : “The implication of the word ‘disclose’ is that one is expected to disclose a thing or is said to have failed to disclose the facts only if it is a matter which one knows. Further, this view gets reinforced by looking at cl. (b) of s. 147. Clause (b) deals with a situation where there is no omission or failure as mentioned in cl. (a). Therefore, in cases where there is no such omission or failure, then the obligation to disclose fully and truly does not arise and in such a case, there is no omission or failure. Even in the absence of such omission or failure, cl. (b) would be attracted. However, Sri Srinivasan, learned counsel for the Revenue, contended that 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 & Ors. vs. ITO (1972) 84 ITR 51 (Mad), wherein the expression ‘true’ and ‘full’ have been explained and it was contended that what is contemplated under s. 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, factually, the information is untrue not for a reason or on account of the omission or failure to disclose fully and truly, this would attract s. 147 (b) and not s. 147(a). Hence, we reject this contention. However, Sri Srinivasan contended that we should not place an interpretation on the provision which may result in public mischief, inasmuch as, in each case, the assessee will have to be attributed with the knowledge of the information furnished by him in the return in order to invoke s. 147(a) of the Act. We are afraid this contention is misconceived. The requirement of the section is that there is a duty cast upon the assessee to disclose fully and truly all material facts. That duty can be said not to have been discharged only when he does not place all the material facts necessary for the assessment or falsely states the facts in the returns. Therefore, if the facts stated are false, then there is no question of attributing any knowledge to the assessee because when stating that the matter is false, that by itself will indicate that the assessee had knowledge of the same. So far as incomplete particulars being furnished is concerned, inasmuch as the assessee had no knowledge of the same, he could not have furnished them, as in the case on hand. Hence, we have no hesitation in rejecting this contention.”

26. The Supreme Court in the case of Associated Stone Industries (Kotah) Ltd. vs. CIT (1997) 138 CTR (SC) 260 : (1997) 224 ITR 560 (SC) has observed : “The duty of the assessee is only to disclose fully and truly all material facts necessary for his assessment for the relevant year. The expression ‘material facts’ in s. 34(1)(a) of the Indian IT Act, 1922, refers only to primary facts and the duty of the assessee is to disclose such primary facts. There is no duty cast on the assessee to indicate or draw the attention of the ITO to what factual or legal, or other inferences can be drawn from the primary facts disclosed.”

27. Per contra, Sri Seshachala, learned counsel for the Revenue would contend, that the assessee in the returns filed under s. 139 of the Act for the asst. yr. 1973-74 was obliged, not only to bring to the notice of the AO, the fact of acquisition of its business by the Karnataka Electricity Board and also the amount of compensation claimed before the Karnataka Electricity Board. It is not sufficient compliance of the mandatory requirement while filing the return of income to have brought to the notice of the AO only about the acquisition of its business and the assessee was also obliged to have brought to the notice of the AO about the compensation claimed, and since that is not done, the AO was justified in issuing notice under s. 148 of the Act to reopen the concluded assessment, on the ground that the assessee has failed to disclose fully and truly necessary facts material for assessment, within eight years from the end of relevant assessment years. In aid of his submissions, firstly, the learned counsel relies on the law declared by the apex Court in the case of Malegaon Electricity Co. (P) Ltd. vs. CIT (supra), wherein the Court has held that the assessee’s failure to disclose the profit under s. 10(2)(vii) of the Act notwithstanding the disclosure of factum of sale, attracted the provisions of s. 34(1)(a) of the Act and the reassessment was valid.

28. The other decision on which reliance was placed by the learned counsel for the Revenue is that of the Supreme Court in the case of Central India Electric Supply Co. vs. CIT (supra), wherein the apex Court has confirmed the findings and conclusions reached by the Madhya Pradesh High Court in the reference proceedings brought before the High Court at the instance of the assessee. The question before the Supreme Court in Central India Electric Supply Co.’s case (supra), was, whether the market price of the plant and machinery of the assessee taken over by the Board under the Indian Electricity Act, had become payable and due in the financial year 1969-70 relevant to the asst. yr. 1970-71. The apex Court in this decision has observed that on acquisition of the plant and machinery of the assessee, its price under s. 7A of the Electricity Act had become payable on the date of acquisition and it was quantified when the umpire resolved the dispute between the parties and made the award, but it becomes due only when the decree in terms of the award came to be passed by the civil Court under s. 17 of the Arbitration Act. The Court has further observed, that, in the instant case, the umpire by his award resolved the dispute of difference of price and quantified the price, but it did not become due for payment soon after passing of the award. The award was filed in the Court and the price became due for payment only when the decree in terms of the award came to be passed. Therefore, the Tribunal was not justified in holding that no income accrued to the assessee under s. 41(2) of the Act for the asst. yr. 1970-71. Therefore, the High Court was justified in coming to the conclusion that the income had accrued to the assessee under s. 41(2) of the Act and therefore, the High Court was justified in coming to the conclusion that the parameters of s. 147(a) of the Act were justified for the purposes of reopening the assessment for the asst. yr. 1970-71.

29. We have carefully considered the rival submissions made by the learned counsel for the parties to the lis and also the case laws on which reliance was placed. In the instant case, the assesseefirm while filing its return of income for the asst. yr. 1973-74, had brought to the notice of the AO, that its business of distribution of electricity was taken over by the Mysore Electricity Board during the accounting year, i.e., on 13th Nov., 1972 and the firm has returned the income only upto the period 13th Nov., 1972 and it was also brought to the notice of the AO that the firm is dissolved w.e.f. 18th Nov., 1972. This information is taken note of by the AO, while concluding the assessment under s. 143(3) of the Act for the assessment year in question. Under s. 143(3) of the Act, the AO 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 AO has to look into the evidence that the assessee may produce along with its returns and also at the time of hearing the assessee, as well as evidence which the AO required him to produce. The AO 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 Indian Electricity Act, there was an obligation on the part of the AO to have enquired with the assessee whether he has made any claim for payment of compensation, since he was passing an order under s. 143(3) of the Act. As observed by the apex Court in Gemini Leather Stores case (supra), it was for the AO to have made necessary enquiries and draw proper inference and since the officer has not done so, it was plainly a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee- firm to disclose fully and truly all material facts. To arrive at this conclusion, we draw support from the view expressed by this Court in Kalappa’s case (supra), wherein this Court has observed that “the duty of the assessee is to disclose primary facts necessary for assessment. If the assessee has disclosed primary facts, it was for the ITO to make the necessary enquiries and draw proper inferences as to whether the income returned is correct or not. It would be the plain duty of the ITO to make an enquiry and if he did not make an enquiry, it is a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts”.

In the present case, the Tribunal, in our opinion, has committed error of fact, when it observes in its order, that the assessee-firm had not even disclosed the primary fact relating to taking over of its business undertaking by the Mysore Electricity Board. This erroneous assumption of the Tribunal which is contrary to the fact situation, might have made them to conclude that the assessee has not disclosed truly and fully all material facts including primary facts for the purpose of assessment. In the instant case, facts would demonstrate that there was no failure on the part of the assessee-firm in furnishing the primary fact of acquisition of its business by a statutory authority during the accounting year while filing its return of income for the relevant assessment year under s. 139 of the Act. It was for the AO to have drawn proper inferences after making proper enquiries. Thus, therefore, there was no failure on the part of the assessee-firm to disclose fully and truly all material facts necessary for the assessment and as such, the conditions required to initiate proceedings under s. 147(a) of the Act is not available to the AO. Therefore, the reassessment under the provisions of s. 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 asst. yr. 1973-74, had brought to the notice of the AO 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 asst. yr. 1972-73 by his letter dt. 24th March, 1975, while requesting the IAC, Belgaum, to keep in abeyance the said demand. This would also show that the assesseefirm had not suppressed any material facts before the AO to attract provisions of s. 147(a) of the Act. Thus, therefore, the notice issued by the AO under s. 148 of the Act to reopen the concluded assessment for the asst. yr. 1973-74, is not valid in law.

Lastly, in the note sheet produced by the learned counsel for the Revenue wherein the reasons are recorded for initiating proceedings to reopen the concluded assessments, it is stated therein by the ITO that after making local enquiries, he has collected information about the claim for compensation made by the assessee-firm with the Karnataka Electricity Board and if that amount is taken as estimated compensation receivable by the assessee- firm, the essential 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. This noting would clearly indicate that before issuing notice under s. 148 of the Act, the ITO had information in his possession, consequent to which he had reason to believe that income chargeable to tax has escaped assessment. Therefore, the present case may attract the provisions of s. 147(b) of the Act, but the period of limitation within which proceedings could be taken if the ingredients under this sub-section are satisfied, is only four years from the end of the relevant assessment year. But in the instant case, the notice issued under s. 148 of the Act is dt. 24th Sept., 1979, much beyond the period of limitation prescribed under s. 149 of the Act. In our view, even on this ground also, the assessee-firm has to succeed.

In view of the above discussions, the question of law referred for our opinion is answered in the negative, i.e., in favour of the assessee and against the Revenue. Reference proceeding is accordingly disposed off. Ordered accordingly.

[Citation : 278 ITR 436]

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