CIT v. MARTHANDOM COMMERCIAL BANK LTD. TRIVANDRUM — 1976 DIGILAW 110 (KER)

Judgment :- In relation to the assessment for the year 1966-67 of the Marthandom Commercial Bank Ltd., the following question has been referred to this Court by the Income Tax Appellate Tribunal, Cochin Bench: "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the reopening of the assessment proceedings is not valid". 2. In the assessment order dated 6th September 1966, Annexure B, the income of the assessee was fixed at Rs. 56,565. This income included income from Government securities The relevant accounting period for the assessment year 1966-67 was the calendar year 1965. During that year, the assessee had collected Rs. 74,991.04 as interest on Government securities. Deducting therefrom interest on tax free securities and deducting a further sum of Rs. 27,958.20, the statement appended to the return indicated a sum of Rs. 50,201.84. In making the assessment this income in the statement appended to the return was accepted by the Income Tax Officer. The sum of Rs. 27,958.20 sought to be deducted from interest actually collected during 1965 was stated to be interest that had accrued in the accounting year 1964. It came to light that during the accounting year 1964, which was the accounting period for the assessment year 1965-66, the assessee had disclosed only a sum of Rs. 10,899 as income that had accrued during the accounting period, the year 1964. The Income Tax Officer after recording his reasons for thinking that income had escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment year 1966-67 issued a notice to the assessee under S.148 and after considering the return filed by the assessee and after hearing the assessee passed an assessment order which is Annexure C on 30th November 1971 adding Rs. 18,452 to the assessment for the year 1966-67 the above sum being the difference between Rs. 29,351 and Rs. 10,899. The assessee appealed from the assessment order but the Appellate Assistant Commissioner dismissed the appeal. He however met with success in appeal before the Appellate Tribunal. The Appellate Tribunal stated towards the end of Para.3 of its order "In order to arrive the correct amount to be taxed, the assessee should have claimed a deduction of only Rs. 10,899 instead of Rs. 27,958. He however met with success in appeal before the Appellate Tribunal. The Appellate Tribunal stated towards the end of Para.3 of its order "In order to arrive the correct amount to be taxed, the assessee should have claimed a deduction of only Rs. 10,899 instead of Rs. 27,958. However, the Income Tax Officer accepted this return with some modifications and completed the as ess-men'on 6th September 1966". And in stating so, it proceeded to state at the end of Para.7: "The only thing the assessee has not done is to point out to the Income Tax Officer that a deduction of Rs. 7,958 has been claimed. Now, since the computation has been given along with the return, it will be unnecessary to bring pointed attention of the Income Tax Officer to this item. We, therefore, hold that the assessee had not failed in furnishing mate-terials required for the assessment." 3. It was argued before the Income-Tax Appellate Tribunal that if for any reason reopening of the assessment was held to be unjustified under S.147 (a) the reopening must be upheld as leaving been initiated under S.147 (b). This argument was negatived by the Tribunal by relying on the decision of the Supreme Court in Johri Lal (H. U. P) v. Commissioner of Income Tax, U. P. (1973) 88 ITR 439 An application was moved by the department before the Tribunal which is at page 19 of the paper book by which the department was required to state a case and refer two questions reading as follows to this court as arising from the order of the Tribunal. 1. Whether on the facts and in the circumstances of the case, the Tribunal, having found that in order to arrive at the correct amount to be taxed, the assessee should have claimed a deduction of only Rs. 10,899 instead of Rs. 27,958, was justified in law in holding that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and the provisions of S.147 (a) are not attracted? 2. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in not upholding the assessment under S.147 (b) of the Income Tax Act, 1961"? The Tribunal however referred only the question which we have already extracted above. 2. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in not upholding the assessment under S.147 (b) of the Income Tax Act, 1961"? The Tribunal however referred only the question which we have already extracted above. We must at this stage refer to a few sentences in Para.9 of the statement of the case: "It will be seen from the above that we had looked at the question of reopening from the angle of furnishing all material particulars It is also possible to look at the claim of deduction of Rs. 27,758 as an untrue claim thus leading to an under statement of the income. Since the interpretation of S.147 is involved here, we are of opinion that a question of law does arise and would, therefore, refer the following question for the opinion of the High Court: 4. Counsel on behalf of the revenue has contended before us that the reliance on the decision of the Supreme Court in Johri Lal's case, 1973 88 I. T. R.439 was unjustified in view of the fact that the decision only dealt with the question whether proceedings initiated under S.34 (I) (b) of the Indian Income Tax Act, 1922 could be claimed to be supportable under S.34 (1) (a) of the same Act, for the first time in proceedings before the Income Tax Appellate Tribunal and that the question whether proceedings initiated under the earlier limb of the section (either S.34 of the Indian Income Tax Act, 1922 or S.147 of the Act) could be claimed to be supportable under the latter limb had not been considered by the Supreme Court. The view taken by the Calcutta High Court in Mriganka Mohan Sur v. Commissioner of Income Tax, West Bengal III (1974) 95 ITR 503 and in Income Tax Officer, "A" Ward, Companies District II and others v. Eastern Coal Co. Ltd. (1975) 101 ITR. 477 was pressed before us for our acceptance. So it was urged that the argument before the Tribunal that the proceedings initiated under S.147 (a) was supportable under S.147 (b) though it originated under S.147 (a) should have been accepted. Ltd. (1975) 101 ITR. 477 was pressed before us for our acceptance. So it was urged that the argument before the Tribunal that the proceedings initiated under S.147 (a) was supportable under S.147 (b) though it originated under S.147 (a) should have been accepted. Though we are inclined to doubt, with great respect, the correctness of the rulings in Mriganka Mohan Sur v. Commissioner of Income Tax, West Bengal III (1974) 95 ITR 503 and in Income Tax Officer, "A" Ward, Companies District II and others v. Eastern Coal Co. Ltd (1975) 101 TTR. 477, we do not wish to express any opinion on the question as it is unnecessary for deciding this case. 5. Counsel then contended that the action was supportable under S.147 (a). This contention was met by a preliminary objection by counsel on behalf of the assessee by stating that a finding has been entered by the Tribunal on the question of fact as to whether the assessee had failed to disclose truly and fully the material facts necessary for the assessment for the year 966-67 and since no question specifically challenging this finding has been referred to this court, this court must proceed on the basis of the finding entered by the Tribunal. The answer on behalf of the Revenue was that there is no finding on the question of fact and further that in the circumstances of this case the Revenue having been asked to refer two specific questions and the first question so sought to be referred having been specifically related to the alleged finding and the Tribunal having amalgamated the two questions into one which merely amounts to an alteration of the wordings of the questions sought to be raised, in substance and in essence, the question referred for our decision must be taken to encompass a question as to the correctness of the finding of fact. He also submitted that the position is clear from the decision of the Supreme Court in Commissioner of Income Tax, Bihar and Orissa v. 5. P. Jain (1973) 87 ITR. 370. We are inclined to accept the argument of counsel for the Revenue that the question referred would take in within its ambit the aspect as to whether the view taken by the Tribunal that there has been full and true disclosure is correct or not. P. Jain (1973) 87 ITR. 370. We are inclined to accept the argument of counsel for the Revenue that the question referred would take in within its ambit the aspect as to whether the view taken by the Tribunal that there has been full and true disclosure is correct or not. We think so for the reason that the application for reference moved before the Tribunal specifically questioned the correctness of the conclusions reached by the Tribunal on the aspect as to whether S.147 (a) has been satisfied or not. The questions sought to be raised have been amalgamated In such circumstances we must understand the Tribunal as having accepted the position that that aspect is also open to challenge. On the facts of this case that this has been so, is further clear from the statement of the Tribunal itself. We have extracted Para.9 of the statement of the case and when this paragraph is read with what we have stated above there can be little doubt that the Tribunal was of the view that the question referred would take in this aspect as to whether S.147 (a) was satisfied or not. We may extract a passage from the judgment of the Supreme Court in Commissioner of Income Tax, Bihar and Orissa v. S. P. Jain (1973) 87 ITR. 370. Three questions were sought to be raised before the Tribunal in that case. Those questions are at page 379 and reads as follows: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on record and which the department wanted to adduce as evidence? (2) Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the purchase of the shares by the Rana was not a benami transaction was legally valid? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the total income of the assessee by holding that the Rana was not the benamidar of the assessee?" The Tribunal did not refer question No. 3 which was sought to be raised. (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the total income of the assessee by holding that the Rana was not the benamidar of the assessee?" The Tribunal did not refer question No. 3 which was sought to be raised. Dealing with this aspect the court observed: "In our view there can be no doubt that unless the Tribunal has been asked to refer a question impugning the validity of the findings sustainable on any principle of law, the facts stated in the statement of the case would form the basis on which the legality or otherwise of the assessment would alone require to be considered by the High Court. In this case the revenue had in its application under S.66 of the Act asked for specific reference on the question: "Whether, on the facts and in the circumstances of the Case, the findings of the Tribunal thai a sum of Rs 10,80,000 paid for the purpose of the shares was not the assessee's own income was a perverse finding having regard to the evidence on the record?" This question was repeated in its application under S.66 (2), but perhaps the High Court thought that questions Nos 2 and 3 on which it directed the Tribunal to state a case would cover the scope and ambit of question No. 3 on which the revenue had asked for reference. We think that the two questions on which the reference has been made impugn the findings and the validity of the Tribunal's conclusion that Rs. 10,80,000 was not an income from undisclosed sources, but was the product of a genuine sale by the vendor-companies. Though this question does raise the validity of the finding given by the Tribunal, we have to ask ourselves the question, in what circumstances will this court interfere with the findings given by the Tribunal or arrive at a different conclusion to that arrived by it. 6. We do not think we can stultify the revenue accepting the position contended for by the assessee that there is a finding of fact entered by the Tribunal that S.147 (a) is not attracted standing in the way of an answer being given to the question in favour of the department. 7. 6. We do not think we can stultify the revenue accepting the position contended for by the assessee that there is a finding of fact entered by the Tribunal that S.147 (a) is not attracted standing in the way of an answer being given to the question in favour of the department. 7. Turning now to the facts, it is very clear that the assessee had not disclosed his full income for the assessment year 1966-67. It is still not clear whether Rs. 18,432 was interest that had accrued during the year 1964 or 1965. It is however clear that Rs. 18,452 had not been returned as income of the assessee for the accounting period of 1964 (assessment year 1965-66) and that this amount was received in the year 1 65 (referable to the assessment year 1966-67) A reference to pages 11 and 12 of the paper book wherein are Para.2 and 3 of the order of the Appellate Assistant Commissioner would make the position clear. In these circumstances, it is evident, particularly in the light of subsection (2) of S 8 of the Act which reads: "Nothing contained in sub-section (1) shall be construed as precluding an assessee from being charged to income tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income tax for any earlier previous year." that a part of the income which should have been assessed for the year 1966-67 had not been disclosed by the assessee in the return when it was filed with the statement appended to it. This would be sufficient for attracting S.147 (a). The Tribunal has referred to certain confusions and a change in the method on the basis of which income had been computed or returned by the assessee. We do not think that this 'confusion', if it existed, is material for deciding the question as to whether there has been a full disclosure of income for the year 1966-67. As far as we are able to discern, for the years 1964-65 and 1965-66 there have been no such confusion because the assessee has been following the same pattern of including for the relevant years of assessment the income that had accrued during the respective accounting periods. No doubt there was a change so far as the assessment year 1966-67 was concerned. No doubt there was a change so far as the assessment year 1966-67 was concerned. The assessee seems to have adopted the receipt method and excluded from the receipts what was alleged to have accrued in the year previous to the previous year. Even if Rs. 18,452 had really accrued during the year 1964 (assessment year 1965-66) that income not having been included in the return for 1965-66 and not having been assessed for that year and having been recovered only in the year 1965 should have been included in the return for the assessment year 1966-67. This not having been done, clearly a patent omission on the part of the assessee is discernible and thus there has been a failure to disclose fully and truly all material facts necessary for the assessment year 1966-67. There is thus a patent error committed by the Tribunal in proceeding on the basis that there has been no failure to disclose fully and truly the relevant facts and that S.147 (a) is not attracted. 8. We answer the question referred to us in the negative, that is, in favour of the revenue and against the assesses. We direct the parties to bear their respective costs. 9. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.