High Court Of Madras
CIT vs. Sundaram Industries Ltd.
Section 147(b)
Asst. Year 1971-72
Thanikkachalam & Balasubramaniam, JJ.
Tax Case No. 720 of 1982
10th April, 1996
Counsel Appeared
C.V. Rajan, for the Applicant : S.A. Balasubramanian, for the Respondent
THANIKKACHALAM, J.:
At the instance of the Department, the Tribunal referred the following two questions, for the opinion of this Court, under s. 256(1) of the IT Act, 1961 :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the ITO had not validly taken recourse to s. 147(b) of the IT Act, 1961 and hence thereassessment made for the asst. yr. 1971-72 was invalid?
2. Whether, on the facts and in the circumstances of the case and having regard to the provisions of s. 38(2) of the IT Act, 1961 the Tribunal was justified that for purposes of working out the terminal allowance under s. 32(1)(iii) or the profit under s. 41(2) the property which was sold should be considered to be an asset of the business of the assessee in its entirety even though only 1/3rd portion of the building was used for purposes of business ?”
2. The original assessment in this case was completed on 22nd Dec., 1971. It has been held by the ITO that it was noticed that the terminal allowance worked out and claimed by the assessee in respect of property sold by it in Pudukotai to another concern M/s Southern Roadways (P) Ltd., was not correct. He, therefore, reopened the assessment under s. 147 of the Act, and in response to the notice, the assessee filed a revised return declaring the same income as was originally furnished. It was also stated before the ITO that the assessee had furnished all the material particulars in respect of the property sold, including the depreciation allowed, the sale proceeds realised and the terminal depreciation claimed by it under s. 32(1)(iii) and therefore the reopening of the assessment under s. 147 was not valid. According to the ITO in the assessment order that the assessment has been reopened on 20th March, 1975 under s. 147(b) of the Act, and therefore it was reopened within the time limit prescribed for such action. The ITO has narrated the facts relating to the property and has given in the assessment the terminal depreciation what was worked out by the assessee and the terminal profits that is actually assessable according to the ITO. This is reproduced hereunder : .Sale value Rs. 1,18,000 Difference between Rs. 1,35,002 – Rs. 1,18,000 is claimed as deduction and allowed. Now as a portion of the building viz., 1/3rd was used for business use and depreciation duly allowed. Sec. 41 (2) profit on this portion has to be separately worked out as under : .. Rs (a) Original cost of 1/3rd portion of land and 63,122 building used for business (Rs. 3,000 and Rs. 60,122) (b) W.D.V. at time of sale in respect or 1/3rd 8,779 portion (Rs. 3,000 + Rs. 5,779) (c) 1/3rd of sale value pertaining to portion used 39,333 for own purpose-1/3rd of Rs. 1,18,000 to be assessed (d) Sec. 41(2) profit (Rs. 39,333 minus Rs. 8,779) 30,554”
In the place of the original terminal allowance of Rs. 17,022 which was allowed by the ITO in the original assessment, in the reassessment, the ITO computed a profit of Rs. 30,544 under s. 41(2) of the Act. It can be seen from the working by the ITO that he had bifurcated the cost of the property as 1/3rd only used for the purpose of the business. The depreciation allowed was entirely adjusted against this and WDV was arrived at by deducting the depreciation actually allowed from this 1/3rd portion of the building to the assessee. The sale value was also taken for the purpose of computing the profit under s. 41(2) at 1/3rd portion. There is no dispute that only 1/3rd portion of the property was used by the assessee for the purpose of its business. The depreciation on this property for the purpose of computing the business income of the assessee has been calculated at 1/3rd of the depreciation that would have been allowed had the property been used entirely for the purpose of its business. Aggrieved the assessee filed an appeal before the AAC, challenging the validity of reopening under s. 147 r/w s. 143(3) of the Act and also contesting the order passed by the ITO on merits. The AAC has observed that on the facts that were before the ITO at the time of original assessment, ITO had allowed a loss of Rs. 17,022 which was actually the terminal allowance that was allowed by the ITO under s. 32(1)(iii) of the Act. He further pointed out that the action of the ITO in revising his opinion on the same facts and in determining profit under s. 41(2) at Rs. 47,576 merely amounts to a change of opinion on the same facts. He, therefore, held that the ITO had no jurisdiction to reopen the assessment under s. 147 of the Act. The AAC further pointed out that even on merits the loss of Rs. 17,022 is admissible as originally allowed in view of the decision in
Allied Publishers (P) Ltd. vs. CIT (1968) 68 ITR 546 (Bom) : TC 18R.121. According to the AAC the ITO has not assumed valid jurisdiction under s. 147. Aggrieved the Department filed an appeal before the Tribunal. Before the Tribunal the Department contended that the AAC erred in holding that the ITO has not validly reopened the assessment. According to the Department the re-opening of the assessment by the ITO could be confirmed in view of the principles enunciated by the Supreme Court in Kalyanji Mavji & Co. vs. CIT 1976 CTR (SC) 85 : (1976) 102 ITR 287 (SC) : TC 51R.1379. On merits, it was contended that the computation of the profit of Rs. 47,576 computed under s. 41(2) has been correctly made by the ITO. It was pointed out that the assessee itself had claimed depreciation only on one-third of the cost and therefore the computation made by the ITO in the reassessment is in order. It was pointed out that the decision in (1968) 68 ITR 546 (Bom) : TC 18R.121 (supra) was rendered under different context. According to the Department in any event, the AAC should have held that the entire loss claimed by the assessee is not sustainable in view of the provisions of s. 38(2). On the question of the validity of reopening the assessment, the Department argued that the ITO, while making the original assessment had ignored the admitted position that only 1/3rd of the property was used for the business and the provisions of ss. 32(2) and 41(2). It was submitted that after the original assessment was completed, the head clerk of the ITO had put up a note pointing out the fact that in giving the terminal allowance of Rs. 17,022 under s. 32(1)(iii) the fact that only 1/3rd of the property has been used for the purpose of business had been ignored. The allowance has been given on the basis of the working made by the assessee itself while submitting the return. If the terminal allowance is properly worked out, there would be no terminal depreciation, but on the other hand, there will be profit under s. 41(2). The learned standing counsel submitted that the reopening is valid in that the ITO had lost sight of the statutory provision, viz. s. 38(2) at the time of the original assessment, that the head clerk had not only pointed out that the granting of terminal allowance had not been done in accordance with law, that the note of the head clerk to the ITO constitutes an information under s. 147(b) and therefore the re-opening has been validly made under s. 147 of the Act. The assessee, on the other hand contended that the reopening is without jurisdiction, when the entire material regarding the original cost, the depreciation allowed and the value for which the property has been sold were before the ITO at the time of original assessment. The assessee relied upon the decision in (1968) 68 ITR 546 (Bom) : TC 18R.121 (supra) and the decision in CIT vs. Chiranji Lal (1969) 74 ITR 480 (Del) : TC 18R.118. In effect, it was argued that in the place of Rs. 17,022 allowed as the terminal allowance, a fair proposition, say, 1/3rd of that only can be considered to be allowable under s. 32 (1)(iii). It was argued that there can be no question of profit to be considered as arising under s. 41(2). According to the assessee, the ITO has not reopened the assessment, keeping in view the provisions of s. 38(2). On the other hand, he had reopened the assessment on entirely different basis on such material that was disclosed for coming to the conclusion that the claim of the allowance under s. 32(1)(iii) is permissible without any further information or material.
According to the Tribunal it is necessary for the ITO before initiating action under s. 147 of that Act to entertain a bona fide belief that income had escaped assessment by virtue of the circumstances narrated either under s. 147(a) or under s. 147(b). It is true that the ITO had passed entry in the order-sheet for this assessment year stating that income had escaped assessment. But the income that he considered to have escaped assessment is only a profit under s. 41(2), which, in fact, has not escaped assessment. According to the Tribunal what was escaped in the assessment is only an excess allowance under s. 32(1)(iii). That has not been adverted to either in the note given by the head clerk to the ITO or by the ITO himself in the order passed by him for the issue of notice under s. 147. Therefore, according to the Tribunal, it cannot be said that the reopening has been validly made by the ITO since entertaining an honest belief contemplated under s. 147 of the Act is absent in this case. According to the Tribunal, If the ITO entertained a belief about the escapement of an item of income, which had not in fact escaped assessment, then he cannot validly reopen the assessment and make a reassessment of an amount which has actually escaped assessment. Therefore, the Tribunal held that the argument advanced on behalf of the assessee that the ITO cannot reopen the assessment even for considering the correctness or otherwise of the allowance granted under s. 32(1)(iii) of the Act, in the circumstances of the case, is unacceptable. Further, the Tribunal pointed out that if the head clerk in the instant case has pointed out that the ITO has lost sight of the provision of s. 38(2), that would, in the opinion of the Tribunal, have constituted valid information under s. 147(b) of the Act. Unfortunately that
was not the case here according to the Tribunal. Hence it was held that the reopening of the assessment under s. 147 of the Act is not valid.
On merits, the Tribunal pointed out that the property is by all accounts a business asset of the assessee. The assessee has used the part of it that is necessary for its business and let out the balance, that was not used for its business. Nevertheless the asset should be considered to be an asset of the business of the assessee in its entirety. If this is the correct position, then the determination of the WDV will have to be made in accordance with the provisions of s. 43 of the Act. Thus, ultimately the Tribunal dismissed the appeal filed by the Department. Before us the learned standing counsel appearing for the Department submitted that the AAC erred in holding that the ITO has not validly reopened the assessment. According to the learned standing counsel, the reopening should have been sustained by the AAC and the Tribunal on the basis of the principles enunciated by the Supreme Court in Kalyanji Mevji & Co. vs. CIT (supra). It was argued that the ITO while making the original assessment had ignored the admitted position that only 1/3rd of the property was used for the business and the provisions of ss. 38(2) and 41 (2). It was submitted that after the original assessment was completed, the head clerk of the ITO had put up a note pointing out the fact that in giving terminal allowance of Rs. 17,032 under s. 32 (1)(iii), the fact that only 1/3rd of the property has been used for the purpose of the business had been ignored. The allowance has been given on the basis of the working made by the assessee itself while submitting the return. If the terminal allowance is properly worked out, there would be no terminal depreciation, but, on the other hand, there will be profit under s. 41(2) of the Act. After perusing the note prepared by the head clerk, the ITO passed an order, directing the issue of notice under s. 148 for reopening the assessment under s. 147(b) of the IT Act, 1961. According to the learned standing counsel the reopening was valid, since the ITO had lost sight of a statutory provision viz., s. 38(2) at the time of the original assessment : that the head clerk had not only pointed out that the granting of the terminal allowance had not been done in accordance with law, that the note of the head clerk to the ITO, constitutes an information under s. 147(b) of the Act, and therefore the reopening has been validly made under s. 147 of the Act.
According to the learned standing counsel, if the ITO had already considered the materials available on record, then on reappraisal of the same materials, it would not have been possible for him to come to the conclusion that the income had escaped from assessment. But in the present case the ITO has not considered that terminal allowance is allowable only with regard to the one-third of the property, which alone was used for the purpose of the business of the assessee. Inasmuch as this aspect was not considered, it was submitted that the reopening is valid. Therefore, it was submitted that it cannot be said that the reopening was made on merely a change of opinion on the same materials available on record when the original assessment was completed. Further, it was submitted that the assessee had given a working of the allowance under s. 32(1)(iii), which has been accepted, without question by the ITO and hence there was no change of opinion involved in his assumption of jurisdiction under s. 147(b) of the Act. It was also urged that the ITO cannot be considered to have originally formed an opinion on the issue of actual cost as defined under s. 43(2), since only a portion of the building was utilised for the purpose of business. Hence, it was submitted that the reopening under s. 147(b) of the Act was valid and the Tribunal was not correct in stating that the reopening under s. 147(b) of IT Act, 1961 is bad. It is the contention of the learned standing counsel that in the present case that the sale value is more than WDV. Therefore, there is no question of allowing terminal allowance under s. 32(1)(iii), but only the profit has got to be assessed under s. 41(2) of the IT Act, 1961.
11. On the other hand, the learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, submitted that the reopening is without jurisdiction. The entire materials regarding the original cost, depreciation allowable and the value for which the property had been sold were placed before the ITO at the time of original assessment. According to the definition of WDV in s. 43, it has to be calculated only on the basis of the cost of the asset to the assessee/reduced by the depreciation actually allowed. Therefore, in the original assessment, the ITO considered the terminal allowance allowable under s. 32(1)(iii) in the case of the assessee on the materials available on record. Thereafter, no new materials were brought on record. On the same materials on which the ITO completed the assessment under s. 143(3) originally cannot reopen the assessment simply because he made a mistake in the earlier original assessment order. According to the learned counsel appearing for the assessee, it is not correct to state that the ITO has not considered the terminal allowance allowable in the case of the assessee. Even though all the particulars were furnished, the ITO allowed the terminal allowance on the particulars furnished by the assessee. Hence, it is not correct on the part of the Department to contend that allowing terminal allowance on one-third of the cost of the building, which was actually used by the assessee, was not considered by the ITO at the time when the original assessment was completed. The learned counsel for the assessee further submitted that the reasoning recorded by the ITO, the income that he considered to have escaped assessment is only a profit under s. 41(2) of the Act, which in fact has not escaped assessment. What appears to be the escaped assessment is only an excess allowance under s. 32(1)(iii) of the Act. This was not stated either is the note given by the head clerk to the ITO or in the reasons recorded by the ITO in his record for reopening the assessment. For these reasons, it was submitted that the Tribunal was correct in holding that reopening under s. 147(b) of the IT Act, 1961, is not valid.
12. On merits, the learned standing counsel appearing for the Department submitted that in the present case, there is no terminal allowance, but there is only profit ascontemplated under s. 41 (2) of the Act. It was submitted that the property sold was not used entirely for the purpose of the business of the assessee. Only one-third of the property was used for the business purpose. The depreciation was allowed only on the value of the one-third of the sale consideration. All along the assessee was claiming depreciation on the value of one-third of the property, which was actually used for the purpose of the business. It was, therefore, submitted that even s. 41(2) profit should be ascertained on the basis of the one-third value of the property, which was actually used for the business. According to the learned standing counsel, the asset is capable of division, and therefore only one-third of the property, which was utilised for business purpose of which depreciation was allowed in the earlier orders alone would be considered for assessing the profit under s. 41(2) of the Act.
13. On the other hand, the learned counsel appearing for the assessee submitted the terminal allowance was granted by the ITO in the original assessment on the basis of the calculation submitted by the assessee. In fact, the assessee was using only one-third of the property in question for business purpose and 2/3rd of the property was let out. In the earlier orders also depreciation was claimed on the value of one-third of the property. In order to ascertain profit under s. 41(2), the asset cannot be bifurcated, because, according to the learned counsel appearing for the assessee like s. 38(2) where for the purpose of allowing depreciation or terminal allowance, a portion of the property, which is used for business purpose can be taken into consideration. Likewise, it is not possible under s. 41(2) to take into consideration only a portion of the property, which was utilised for the purpose of the business, since there was no provision like s. 38(2) for ascertaining the profit under s. 41(2) of the Act. The learned counsel also submitted that inasmuch as there is no provision like s. 38(2) for the purpose of allowing depreciation on a portion of the building used for business purposes, under s. 41(2) for assessing the profit, the ITO would not have entertained an honest belief that s. 41(2) profit had escaped from the assessment. Therefore, even on this ground also the learned counsel for the assessee submitted that reopening is bad.
14. We have heard both the learned standing counsel appearing for the Department as well as the learned counsel appearing for the assessee. We have already set out the facts in detail. In the original assessment terminal allowance was granted at Rs. 17,022. In the reassessment, the ITO computed the profit of Rs. 30,544 under s. 41(2). It will be seen from the working by the ITO that he had bifurcated the cost of the property as one-third only used for the purpose of the business. The depreciation allowed was entirely adjustable against this and WDV was arrived at by deducting the depreciation actually allowed from this one-third portion of the building to the assessee. The sale value was also taken for the purpose of computing the profit under s. 41(2) at one-third portion. There was no dispute between the parties that only one-third portion of the property was used by the assessee for the purpose of business. For determining terminal allowance under s. 32(1)(iii) of the Act and the profit under s. 41(2), the difference between the sale proceeds and the WDV to the extent of actual allowance of depreciation becomes material. If the difference is more than the actual allowance of depreciation, then the excess depreciation allowed is withdrawn under s. 41(2) of the Act. If the difference is loss, then a further allowance is given to the assessee so as to compensate for the actual cost incurred by the assessee. Under s. 38(2) when the asset has been partly used for the purpose of business and partly for personal purposes, terminal allowance will have to be restricted to a fair proportion of the total terminal allowance, if the property had been used entirely for business purpose. In the present case, the total terminal allowance is Rs. 17,022. Under s. 38(2) of the Act, the ITO should have allowed only a proportion of it. The ITO himself in the earlier assessments regarding the grant of depreciation on this property, the allowance under s. 32(1)(iii) of the Act after this building was sold should be only one-third of this amount of Rs. 17,022. If the assessment in the original assessment had been made properly, then the terminal allowance should have been restricted only to 1/3rd of Rs. 17,022. To that extent there has been an excess allowance of depreciation.
The ITO reopened the assessment on the basis of the note submitted by his head clerk. The note put up by the head clerk pointed out the fact that in giving the terminal allowance of Rs. 17,022 under s. 32(1)(iii) of the Act, the fact that only one-third of the property has been used for the purpose of business had been ignored. The allowance has been given on the basis of the working made by the assessee himself while submitting the return. If the terminal allowance is properly worked out, there would be no terminal depreciation, but, on the other hand there will be a profit under s. 41(2) of the Act. Admittedly the ITO has not taken into consideration the provisions of s. 38(2) of the Act while reopening the assessment. The note, in fact, has not pointed out the consequence of a correct application of s. 38(2) to the facts of this case. On the other hand, it proceeds on an entirely different footing, viz., that the building is to be divided into two portions; one used for the purpose of business and the other not used for such purpose, that the cost of the assessee should also be apportioned in the same manner and only the cost apportioned for the business use should be taken into account for the purpose of determining the allowance under s. 32(1)(iii) of the Act and for the profit under s. 41(2). Therefore, it is clear that even an indirect reference to the position that would emerge by proper application of s. 38(2) has not been made in the note given by the head clerk to the ITO. According to the reasons recorded by the ITO, the income that he considered to have escaped the assessment is only the profit under s. 41(2), which in fact has not escaped assessment. What actually escaped assessment was only an excess allowance granted under s. 32(1)(iii) of the Act. This was not stated either in the note given by the head clerk or in the notice given by the ITO. It can be seen that the ITO had made a mistake in determining the allowance under s. 32(1)(iii) of the Act. It remains to be seen that even at the time of the original assessment, all the material particulars for claiming terminal allowance were placed before the ITO. The ITO was also aware of the fact that in the earlier years, depreciation under s. 32(1)(iii) of the Act was claimed on one-third of the valuation of the building, which was actually used for the purpose of business. Therefore, on taking into consideration all these facts, the ITO would have granted terminal allowance in the original assessment. It may be wrong, but whether this wrong can be set right by reopening the assessment under s. 147(b) of the Act. If the ITO considered the materials available on record and come to a conclusion in the original assessment, if later on he found that such assessment was wrong, then it is open to him to reopen the assessment to correct the mistake. But if the materials on record were already considered by him while making the assessment, if he found that such an order was not correct, at a later stage, he cannot reopen the assessment by reassessing the same materials, which were already considered by him in the original assessment.
18. In Kalyanji Mavji & Co. vs. CIT (supra), the Supreme Court while considering the provisions of s. 34(1)(b) of the Indian IT Act, 1922, held that on a combined review of the decisions of this Court, the following tests and principles would apply to determine the applicability of s. 34(1)(b) to the following category of cases : “(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake by the ITO. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority; (3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law. If these conditions are satisfied, then the ITO would have complete jurisdiction to reopen the original assessment. It is obvious that where the ITO gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, s. 34(1)(b) would have no application.”
In Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC) : TC 51R.1371, the Supreme Court, while considering s. 147(b) of the IT Act, 1961, held that “in our opinion an error discovered on a reconsideration of the same material (and no more)
does not give him that power. That was the view taken by this Court in Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR 1 (SC) : TC 51R.1317, CIT vs. A Raman & Co. (1968) 67 ITR 11 (SC) : TC 51R.423 and Bankipur Club Ltd. vs. CIT 1972 CTR (SC) 245 : (1971) 82 ITR 831 (SC) : TC 51R.1523, and we do not believe that the law has since taken a different course. An observations in Kalyanji Mavji & Co. vs. CIT (supra) suggesting the contrary, do not, we say with respect, lay down the correct law.” The Supreme Court has had an occasion again to consider the provisions of s. 147(b) of the IT Act, 1961 in A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC) : TC 51R.1413 wherein the Supreme Court held as under: “that though the ITO, at the time of the original assessment, had looked at the facts and accepted the assessee’s contention that the surplus was not taxable, in doing so, he had obviously missed to take note of the law laid down in the case of G.R. Ramachari & Co. vs. CIT (1961) 41 ITR 142 (Mad) : TC 2R.429 and there was nothing to show that the case has been brought to his notice. When he, subsequently, became aware of the decision, he initiated proceedings under s. 147(b). The material which constituted information and on the basis of which the assessment was reopened was the decision in G.R. Ramachari & Co. vs. CIT (supra). This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the ITO could had known of it, had he been diligent, the obvious fact was that he was not aware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings forassessment”. It was further held that even making allowance for this limitation placed on the observations in Kalyanji Mavji vs. CIT (supra) the position as summarised by the High Court in the following words represents, in our view, the correct position of law : “The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the ITO subsequent to the original assessment. If the ITO had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the ITO had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of s. 147(b) of the Act.”
The learned standing counsel appearing for the Department, in order to support his contention that the reopening under s. 147(b) of the Act is valid, relied upon the decision in Salem Provident Fund Society vs. CIT (1961) 42 ITR 547 (Mad) : TC 51R.1411, CIT vs. Rathinasabapathy Mudaliar (1964) 51 ITR 204 (Mad) : TC 51R.1412 and United Mercantile Co. Ltd. vs. CIT (1967) 64 ITR 218 (Ker) : TC 51R.1403 and in order to support his contention that a mere mistake made by the ITO in the original assessment would entitle him to reopen the assessment under s. 147(b) of the Act. But in view of the latter decision of the Supreme Court cited supra, the law on this aspect has to be understood as adumbrated by the Supreme Court in the above cited decision. Therefore, if the ITO failed to consider a particular material in the original assessment and later on he came to know because of such omission to consider, certain income escaped from assessment, it is open to him to reopen the assessment under s. 147(b) of the IT Act, 1961. But on the same materials which were already considered by the ITO in the original assessment, even if a mistake is committed, he cannot reopen the assessment under s. 147(b) of the Act. In the present case, the learned standing counsel appearing for the Department, submitted that the fact that the assessee is entitled to terminal allowance under s. 32(1)(iii) of the Act only on the one-third of the value of the asset was not considered by the ITO, and, therefore, reopening under s. 147(b) of the Act is valid, if the ITO wanted to withdraw the escaped excessive terminal allowance granted in the original assessment. The fact remains that the ITO is aware of the fact that in the earlier assessment years, depreciation was allowed on the one-third value of the property, since only that portion was used for the purpose of business by the assessee. In the original assessment for the asst. yr. 1971-72 the ITO granted the terminal allowance as calculated by the assessee. The assessee calculated the terminal allowance by taking into consideration the entire value of the property. According to the ITO, the assessee is entitled to terminal allowance under s. 32(1)(iii) only with regard to the one-third of the sale consideration, because the assessee was using only one-third of the building for the purpose of business. In the reassessment, the ITO not only withdrew the terminal allowance already granted in the original assessment, but also brought to tax the profit under s. 41(2) of the Act. On those facts, the point for consideration is, whether it can be said that the ITO has considered in the original assessment the material relating to terminal allowance under s. 32(1)(iii) of the Act. In fact, all the informations on this aspect were furnished before the ITO and the ITO was also aware of the fact that in the earlier years, depreciation was allowed on one-third of the value of the property, which was used for business purpose. Under such circumstances, it cannot be said that without considering the materials for allowing terminal benefit, the ITO would not have allowed the terminal allowance of Rs. 17,022 under s. 32(1)(iii) of the Act. No doubt, the ITO was not correct in allowing terminal allowance of Rs. 17,022 under s. 32(1)(iii) of the Act on the basis of the entire value of the asset, even though only one-third of the asset was used for business purpose. On this basis, whether it is open to the ITO to reopen the assessment to correct the mistake. Inasmuch as the ITO has considered while granting terminal allowance under s.
32(1)(iii) of the Act in the original assessment all the materials available on record, it cannot be said that the ITO has not considered this aspect in the original assessment. Once if he has considered the materials for coming to the conclusion in granting terminal allowance under s. 32(1)(iii) of the IT Act, 1961, again on reappraisal of the same materials it is not possible for the ITO to correct the mistake if any, which was made by him in the original assessment. Therefore, we are of the opinion that the reopening of the assessment under s. 147(b) of the IT Act, 1961 by the ITO is without jurisdiction. Since we came to the conclusion that the reopening under s. 147(b) of the IT Act, 1961, is not valid, we are not deciding the question referred to us on merits. In that view of the matter, we answer Question No. 1 referred to us in the affirmative and against the Department.
24. Insofar as Question No. 2 is concerned, which relates to the merits of the case, we are not rendering any opinion on the same.
No costs.
[Citation : 231 ITR 776]
