Punjab & Haryana H.C : The petitioner is the proprietor of Khanna Engineers, Pathankot, and was assessed to income-tax within the jurisdiction of the ITO.

High Court Of Punjab & Haryana

Vipan Khanna vs. CIT

Section 147

Asst. Year 1992-93, 1993-94

N.K. Sodhi & N.K. Sud, JJ.

Civil Writ Petn. No. 17615 of 1998 & Civil Misc. No. 8052 of 1999

5th July, 2000

Counsel Appeared

Hemant Kumar, for the Petitioner : R.P. Sawhney with Rajesh Bindal, for the Respondent

ORDER

N.K. SUD, J. :

The petitioner is the proprietor of Khanna Engineers, Pathankot, and was assessed to income-tax within the jurisdiction of the ITO. He filed his return of income for the asst. yr. 1992-93 on 31st March, 1994 declaring a loss of Rs. 8,100. On the same day this return was processed under s. 143 (1)(a) of the IT Act, 1961 (‘the Act’) wherein a minor adjustment of Rs. 104 was made and the loss was determined at Rs. 7,996. Later on the ITO noticed that in the statement of accounts filed with the return the petitioner had claimed depreciation on trucks at the rate of 50 per cent against 40 per cent admissible to him and that he had not included the income of Rs. 23,391 from B.C. Khanna & Sons, Chamba, in the total income shown in the return. With a view to rectify these mistakes, the ITO issued a notice under s. 154/155 of the Act on 1st May, 1995 requiring the petitioner to file objections, if any, to the proposed rectification of the aforesaid mistakes. In response to the said notice the petitioner furnished replies, dt. 11th May, 1995 and 29th May, 1995 claiming that no rectification was called for. He claimed that the depreciation claimed in the return was Rs. 8,97,902 whereas the depreciation admissible to him even at the rate of 40 per cent worked out to Rs. 8,98,321. For this purpose a depreciation chart was enclosed with the reply. It was explained in the reply that there was one more truck owned by the petitioner on which depreciation had not been claimed in the return and it was because of this reason the claim of depreciation worked out to an amount higher than what was claimed in the return. Similarly, he explained that the income from B.C. Khanna & Sons, Chamba, had duly been accounted for in the returned income.

During the pendency of proceedings under s. 154/155 the petitioner filed his return of income for the asst. yr. 1993-94 on 31st March, 1995 declaring an income of Rs. 76,586. From the statements of account attached with the return it was evident that the depreciation on trucks had again been claimed at the rate of 50 per cent The ITO, therefore, processed the return under s. 143(1)(a) on 5th May, 1995, wherein he restricted the claim of depreciation to 40 per cent and added the excess depreciation of Rs. 89,790 to the returned income by way of an adjustment. The requisite intimation was sent to the petitioner. The petitioner challenged the adjustment made by the ITO under s. 143(1)(a) before the CIT(A), Jammu, who by his order dt. 14th Aug., 1996 allowed the appeal and deleted the addition of Rs. 89,790 on the ground that such a disallowance did not fall within the ambit of prima facie adjustments permissible under s. 143(1)(a).

In the above factual background the ITO chose not to proceed further with the proceedings under s. 154/155 initiated in respect of asst. yr. 1992-93. Instead he initiated proceedings under s. 147 of the Act for assessing the income which had escaped assessment due to excessive claim of depreciation by issuing notices under s. 148 of the Act on 31st Dec., 1996 for both the assessment years, viz., 1992-93 and 1993-94. Before initiating the above proceedings the following reasons were recorded as required under sub-s. (2) of 148 of the Act: “Asst. yr. 1992-93 31st Dec., 1996. In this case the assessee claimed excessive depreciation @ 50 per cent whereas assessee was entitled to depreciation @ 40 per cent under IT Rules. Hence I have reasons to believe that income chargeable to tax has escaped assessment for asst. yr. 1992-93; Accordingly issue notice under s. 148 of the IT Act, 1961 for asst. yr. 1992-93.” Identical reasons were recorded in respect of asst. yr. 1993-94 as well.

4. In response to the aforesaid notices under s. 148 the petitioner filed his returns of income on 1st April, 1997 declaring the same income as had been shown in returns originally filed for both the years. During the pendency of proceedings under s. 147 the jurisdiction of the case stood transferred to the Asstt. CIT, Circle, Pathankot. To finalise the assessments on the basis of proceedings initiated under s. 147, the Asstt. CIT issued notice under ss.

143(3) and 142(1) of the Act requiring the petitioner to produce the books of account and furnish the information specified in his letter dt. 30th July, 1998. Since this letter is in dispute, the same is being reproduced as under for facility of reference : “Office of the Asstt. CIT, Circle-Pathankot. Dt., Pathankot the 30th July, 1998 To, Shri Vipan Khanna, C/o Pushap Palace, Dhangu Road, Pathankot. Dear Sir, Sub : Asst. yrs. 1992-93 and 1993-94 regarding. In order to facilitate the finalisation of your abovesaid assessments, you are required to please furnish/produce the following details/information : (i) Copies of tenders submitted and agreements made with the authorities concerned for carriage contract may please be furnished. (ii) You have claimed carriage expenses. In this connection, you are requested to please furnish copy of agreements in case the carriage contract was given to sub-contractors by you. (iii) Income and expenditure account relating to each truck may please be furnished. (iv) Certificates from the banks for obtaining overdraft facility and payment of interest on loans along with nature of security offered for obtaining the loans may please be furnished. (v) Details of right payable account may please be furnished. (vi) If any new truck is purchased during the accounting period relevant to the assessment years under consideration, photostat copy of the assessment years under consideration, photostat copy of the purchase bill along with documentary evidence that the same had been used for business purposes may please be furnished. 2. Your case stands fixed for hearing on 11th Aug., 1998, when you are requested to please produce complete account books together with the supporting vouchers etc. relating to contract business and truck income. Notices under ss. 143(2) and 142 are enclosed herewith. Yours faithfully, Sd/ (Labh Singh) Asstt. CIT Circle- Pathankot”

The petitioner was of the view that the aforesaid letter requiring him to produce the books of account and furnish information on various points was not warranted in proceedings under s. 147 as the same were totally unrelated to the issue which was the basis for initiation of such proceedings. According to him, the reasons recorded by the ITO clearly showed that the only ground for initiating the proceedings under s. 147 was that depreciation on trucks had been allowed at the rate of 50 per cent against the permissible rate of 40 per cent and, therefore, he could not be required to furnish information on other issues which stood concluded by the assessments framed under s. 143(1)(a) on 31st March, 1994 and 5th May, 1995 for asst. yrs. 1992-93 and 1993-94, respectively. He, therefore, made an application under s. 144A of the Act before the Dy. CIT, Amritsar requesting him to direct the Asstt. CIT to confine his inquiry in proceedings under s. 147 to the issue of depreciation alone and treat the letter dt. 30th July, 1998 issued by him on other unrelated issues as redundant. For this purpose the petitioner placed reliance on the decision of the apex Court in the case of CIT vs. Sun Engg. Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) : TC 51R.314. The Dy. CIT vide his order, dt. 26th Oct., 1998 (Annexure P-7) rejected the assessee’s contention on the ground that in view of the changes incorporated in ss. 143 and 147 of the Act by the Direct Tax Laws (Amendment) Act, 1987, the judgment of the Supreme Court in Sun Engg. Works (P) Ltd. case (supra) was not applicable. On the other hand, he relied on another decision of the apex Court in the case of V. Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373 (SC) : TC 51R.313 to hold that once an assessment was reopened by issue of a notice under s. 148, the ITO’s jurisdiction was not restricted only to the portion of escaped income in respect of which the proceedings had been initiated but also to all other items of income which may have escaped assessment. It is against this order that the present writ petition has been filed.

Shri Hemant Kumar, advocate, appearing on behalf of the petitioner, contended that the assessments for asst. yrs. 1992-93 and 1993-94 stood concluded on 31st March, 1994 and 5th May, 1995, respectively, when intimation under s. 143(1)(a) had been sent. He has conceded that the depreciation on trucks in the return had been claimed at the rate of 50 per cent However, he has also pointed out that it had been explained to the AO in response to his notice under s. 154/155 for the asst. yr. 1992-93 that the petitioner had omitted to claim depreciation on one truck and if the depreciation on all the trucks was computed even at the rate of 40 per cent, the petitioner would be entitled to deduction of a bigger amount than what had been claimed in the return. Similar explanation had also been furnished before the CIT(A) during the course of appellate proceedings for asst. yr. 1993-94 wherein the petitioner had challenged the adjustment made under s. 143(1)(a) on this issue. According to the learned counsel, the AO was satisfied with this explanation as he had not taken any action under s. 154/155 for asst. yr. 1992-93 nor had the Revenue preferred an appeal before the Tribunal against the order of the CIT(A) for asst. yr. 1993

94. He further contended that despite this factual background the ITO initiated proceedings under s. 147 on the ground that the excessive depreciation at the rate of 50 per cent had been claimed against the entitlement of 40 per cent The petitioner, therefore, had challenged the very initiation of proceedings under s. 147 before the Asstt. CIT and for this purpose a detailed letter dt. 13th July, 1998 was addressed to him. In this letter the petitioner had placed reliance on some decisions of the Supreme Court and various High Courts to show that the proceedings had not been validly initiated. The grievance of the petitioner is that instead of dealing with objections raised by him, the AO issued the impugned letter dt. 30th July, 1998 requiring him to furnish explanations on issues which were totally unconnected with the issue of depreciation on the basis of which the proceedings had been initiated. This, according to the petitioner, tantamount to a review of concluded matters which was not permissible under the law. For this purpose reliance was placed on the decision of the Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra). The petitioner claims that when he approached the Dy. CIT under s. 144A seeking direction to the AO to confine the scope of his enquiry to the issue of depreciation and not to make fishing inquiries into concluded items unconnected with the escapement of income, the Dy. CIT wrongly rejected the same by his order dt. 26th Oct., 1998 by misapplying certain observations of the Supreme Court in the case of V. Jaganmohan Rao (supra). It was argued that the Dy. CIT had failed to notice that the scope of these very observations had duly been explained by the Supreme Court itself in its subsequent judgment in the case of Sun Engg. Works (P) Ltd. (supra).

7. Shri R.P. Sawhney, Advocate, appearing on behalf of the respondents, supported the order dt. 26th Oct., 1998 on the ground that once proceedings under s. 147 are validly initiated, the jurisdiction of the AO extends to assess or reassess not only the escaped income to which the proceedings relate but also other items of income which may have escaped assessment and which come to the notice of the AO during the course of such proceedings. According to him, the case law relied upon by the petitioners related to the law as it stood prior to amendment of s. 147 w.e.f. 1st April, 1989. He elaborated this argument by comparing the language of s. 147 before and after the amendment. The relevant provisions of s. 147 before the amendment read as under : “147. Income escaping assessment—If— (a) the AO 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 AO 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 AO 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 recompute 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 underassessed; 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 AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of this section.” However, after the amendments w.e.f. 1st April, 1989 this section presently reads as under: “147. Income escaping assessment—If the AO has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 143’ of this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation

1—Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2—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 no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.”

8. According to the learned counsel, under the unamended provision, the AO could assess or reassess only ‘such income’ which, according to him, had escaped assessment on the basis of which the proceedings had been initiated. However, after the amendment he has been empowered not only to assess such income but ‘also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the proceedings under this section’. Thus, according to him, this material change in the language of s. 147 entitles the AO to make the entire assessment afresh.

We have heard the learned counsels for the parties and perused the records. We may mention that the initiation of proceedings under s. 147 has not been challenged in this writ petition. However, in the replication to the written statement the petitioner has raised this point and had also reiterated it during the course of arguments. The petitioner claims that the only ground on which the proceedings under s. 147 had been initiated was that the depreciation on trucks had been claimed at the rate of 50 per cent against the admissible rate of 40 per cent However, according to the petitioner even if the depreciation was to be calculated at the rate of 40 per cent, the depreciation admissible to him would be higher than what has been claimed in the return because he was entitled to depreciation on another truck owned by him on which he had omitted to claim the depreciation. We are unable to accept this contention. From the facts already noticed, it is absolutely clear that the petitioner has claimed depreciation in the returns at the rate of 50 per cent and he has nowhere disputed the fact that the admissible rate of depreciation to him was 40 per cent This fact alone was sufficient for the ITO to initiate proceedings under s. 147 as has been done in the present case. It is interesting to note that on the one hand, the petitioner maintains that he is entitled to higher depreciation, yet on the other hand while filing the returns in response to the notice under s. 148 he has once again claimed the same amount of depreciation as claimed in the original return. Even otherwise the petitioner could not possibly be allowed to make a fresh claim of depreciation in the proceedings under s. 147 as has been held by the Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra). Thus, no fault can be found in the action of the ITO initiating proceedings under s. 147 of the Act.

The next question for our consideration is whether after initiating the proceedings under s. 147 on the ground that the petitioner had claimed depreciation at a higher rate, the AO would be justified in launching inquiry into the issues which were not connected with the claim of depreciation. During the course of arguments the petitioner has time and again emphasised that the original assessments for asst. yrs. 1992-93 and 1993-94 had been framed under s. 143(1)(a) on 31st March, 1994 and 5th May, 1994, respectively. At the outset we may mention that under the new procedure of assessment introduced w.e.f. 1st April, 1989 the processing of a return under s. 143(1)(a) cannot be equated with framing of an assessment. Prior to the amendment the AO could frame an assessment under s. 143(1) without requiring the presence of the assessee. Alternatively, he could issue a notice under sub-s. (2) of s. 143 and require the assessee to produce his books of account and other evidence in support of the return filed by him and thereafter frame an assessment under sub-s. (3) of s. 143. Therefore, it was necessary that an assessment order either under sub-s. (1) or under sub-s. (3) of s. 143 had to be passed. However, after the amendment made w.e.f. 1st April, 1989 the position has materially changed. Now the AO initially processes the return under s. 143(1)(a) and determines the amount payable or refundable on that basis. It is not necessary for him to frame an assessment in each and every case. However, in case he chooses to verify the return and frame an assessment, he has to issue a notice under sub-s. (2) of s. 143 and require the assessee to produce his books of account and other material in support of the return. Thereafter he can make an assessment under sub-s. (3) of s. 143. Another important change incorporated in sub-s. (2) of s. 143 is that the notice under this sub-section cannot be served on an assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, in a case where a return is filed and is processed under s. 143 (1)(a) and no notice under sub-s. (2) of s. 143 thereafter is served on the assessee within the stipulated period of 12 months, the assessment proceedings under s. 143 come to an end and matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. The CBDT vide its Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1 : (1990) 182 ITR (St) 1] has explained the new procedure of assessment in paras 5.12 a 5.13 as under : “5.12 Since, under the provisions of sub-s. (1) of the new s. 143, an assessment is not to be made now, the provisions of sub-ss. (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-s. (2) which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income, This means that, under the new provisions, in an assessment order passed under s. 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of s. 143(1)(a)(ii). 5.13 A proviso to sub-s. (2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. This means that the Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under s. 143(2) from the Department within the aforesaid period, he can take it that the return filed by him has become final and no scrutinyproceedings are to be started in respect of that return.” [Emphasis, italicised in print, supplied] Thus, it is evident that the Board itself concedes that if the assessee after furnishing the return of income does not receive a notice under s. 143(2) within the stipulated period, he can take that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. Here it needs to be clarified that in the Board circular (supra) the stipulated period has been referred to as six months as it was the period specified originally when new provision was introduced w.e.f. 1st April, 1989. However, vide amendment made by the Finance (No. 2) Act, 1991, this period was enhanced to twelve months w.e.f. 1st Oct., 1991. In the present case, it is an admitted position that no notice under s. 143(2) has been served to the petitioner within the stipulated period and as such his return had become final.

In the background of this settled position we may now examine the validity of the letter, dt. 30th July, 1998 (Annexure P-5) issued by the Asstt. CIT which has been upheld by the Dy. CIT vide his order dt. 26th Oct., 1998 (Annexure P-7). There can be no dispute about the argument advanced on behalf of the Revenue that in view of the amendment made in s. 147 w.e.f. 1st April, 1989, the AO could not only assess or reassess the escaped income in respect of which proceedings under s. 147 have been initiated but also any other income chargeable to tax which may have escaped assessment and which comes to his knowledge subsequently in the course of such proceedings. This proposition is not even disputed by the learned counsel for the petitioner. However, what is disputed is the action of the AO in embarking upon fresh inquiries on issues which are unconnected with the issue which forms the basis of proceedings under s. 147. From the letter dt. 30th July, 1998 it is evident that the AO was seeking general information on other issues merely to verify the return. As already observed such general inquiry could only be made by issuing a notice under sub-s. (2) of s. 143 within the stipulated period which in the present case had already expired. Admittedly it is not the case of the Revenue that during the course of proceedings under s. 147 it had come across any material relating to the item mentioned in the impugned letter dt. 30th July, 1998 suggesting escapement of income under any of those heads. In this view of the matter the petitioner would be justified in claiming that the letter dt. 30th July, 1998 issued by the Asstt. CIT tantamounts to making fishing

inquiries on concluded matters unconnected with the issue on the basis of which proceedings under s. 147 had been initiated. This indeed is not permissible under the law. The petitioner has rightly relied on the decision of the Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra) to contend that the jurisdiction of the ITO in proceedings under s. 147 is confined only to such income which has escaped tax or has been underassessed and does not extend to revising, reopening or re-considering the whole assessment. In the present case, the impugned letter dt. 30th July, 1998 requiring the petitioner to furnish information on issues in respect of which there is no allegation of any escapement or underassessment of income either in the reasons recorded or during the course of proceedings under s. 147 tantamounts to reviewing the whole assessment. This could not be done. The returns filed in response to notices under s. 148 were the same as filed originally. The AO had the option to issue a notice under s. 143(2) requiring the assessee to produce evidence in support of the returns if he considered it necessary to ensure that the assessee had not understated the income or had not computed excessive loss or had not underpaid the tax in any manner. Such a notice could be issued only within twelve months from the end of the month in which the respective returns had been filed originally. Admittedly, no such notice had been served on the petitioner within the stipulated period and, therefore, it has to be held that the AO had not found it necessary to require the petitioner to produce any evidence in support of the returns. Thus, the returns filed by the petitioner had become final. This finality could not be disturbed even in proceedings under s. 147 in respect of issues on which there is no material on record suggesting any escapement of income. In the present case except for excessive claim of depreciation there is no material to suggest any underassessment or escapement of income under any other item. There is no gainsaying the fact that in proceedings under s. 147 it is only the escaped income which has to be assessed or reassessed. Thus, we are of the considered view that as per the law laid down by the apex Court in the case of Sun Engg. Works (P) Ltd. (supra) when proceedings under s. 147 are initiated, the proceedings are open only qua items of underassessment. The finality of assessment proceedings on other issues remains undisturbed. According to us it makes no difference whether the assessment proceedings have become final on account of framing of an assessment under s. 143 (3) or on account of non-issue of a notice under s. 143(2) within the stipulated period. The amendments made in ss. 143 and 147 w.e.f. 1st April, 1989 do not in any manner negate this proposition of law as enunciated by the Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra).

13. We may also mention that the interpretation placed on the observations of the Supreme Court of V. Jaganmohan Rao’s case (supra) by the Dy. CIT in his order dt. 26th Oct., 1998 is not correct. He was not correct in holding that once valid proceedings under s. 147 are started the whole assessment proceedings start afresh. This has been explained by the apex Court itself in Sun Engg. Works (P) Ltd.’s case (supra) as under : “The principle laid down by this Court in V. Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373 (SC), therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under s. 22(2) of the 1922 Act (corresponding to s. 148 of the Act), the previous underassessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of ‘underassessment’ based on cls. (a) to (d) of Expln. 1 to s. 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Rao’s case (supra), therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in V. Jaganmohan Rao’s case (supra) as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to ‘escaped assessment’ or ‘underassessment’ but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality is not only erroneous but also against the phraseology of s. 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decisions to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings….” [Emphasis, italicised in print, supplied]

In view of the above discussion, we are satisfied that the letter dt. 30th July, 1998 issued by the AO insofar as it relates to matters unconnected with the issue of depreciation as also the directions issued by the Dy. CIT under s.

144A of the Act dt. 26th Oct., 1998 cannot be sustained. The same are hereby vacated. The AO will now proceed with the assessment under s. 147 in accordance with law. For the sake of clarification, we may repeat that nothing observed by us in this case would debar the AO to bring to tax any other item of income which may have escaped assessment and which comes to his notice during the course of the proceedings under s. 147. However, for this purpose he cannot be allowed to make fishing inquiries to probe if any other income had escaped assessment or not. Such inquiries can only be permitted if in the first instance some material comes to his notice to suggest that some other item of income may have escaped assessment or had been underassessed. In that event he would be perfectly justified in requiring the petitioner to furnish the requisite information on such other issue as well.

The writ petition is, therefore, allowed in the above terms. However, in the circumstances of the case, there will be no order as to costs. Petition allowed.

[Citation : 255 ITR 220]

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