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1992 DIGILAW 333 (KAR)

Commissioner of Income Tax v. Faruk Anvar Co.

1992-10-09

K.SHIVASHANKAR BHAT, R.RAMAKRISHNA

body1992
JUDGMENT K. Shivashankar Bhat, J.—This is a reference under section 256(1) of the Income Tax Act, 1961. An identical question has been referred to us for consideration which reads thus : "Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that reopening of assessment under section 147(b) was bad in law on the ground that the findings of the Commissioner of Income Tax did not constitute information ?" 2. The question arises in respect of the assessment years 1978-79 and 1979-80. 3. Earlier, there was an order of assessment under section 143(3) read with section 144B of the Act. Subsequently, in a proceeding under section 263 of the Act, the Commissioner of Income Tax had occasion to consider the assessment made for the year 1980-81. While disposing of the said proceedings pertaining to the assessment year 1980-81, the Commissioner made certain observations regarding the weighted deduction claimed by the assessee under section 35B of the Act. Various items of expenses claimed by the assessee as deductible were referred to and considered and it was stated by the Commissioner that the assessee can claim the deduction provided the expenses squarely fell within the provisions of section 35B. A general claim based on the theory that the expenses were incurred in connection with the export business by itself will not be sufficient, was the ratio of the decision of the Commissioner. The Commissioner also referred to a decision of this court in Ullal Narayan Hallya and Sons v. CIT [1975] 1 Kar LJ 487. 4. The assessing authority having gone through this order, obviously improved his knowledge and proceeded to initiate proceedings to reopen the earlier assessment under section 147(b) of the Act. According to the Revenue, the order of the Commissioner was the source of information which entitled the assessing authority to reopen the proceedings under section 147(b) of the Act. The assessing authority rejected the contentions of the assessee that there was no information at all and a mere change of opinion cannot be equated to the concept of information. On merits also, the assessee pleaded that the deduction granted earlier was a valid deduction falling under section 35B of the Act. Both these contentions were rejected by the assessing authority. On merits also, the assessee pleaded that the deduction granted earlier was a valid deduction falling under section 35B of the Act. Both these contentions were rejected by the assessing authority. The appellate authority, however, accepted the assessee's contention that the order of the Commissioner cannot be treated as information so as to enable the assessing authority to reopen the assessment in respect of another year under section 147(b) . This view of the appellate authority was affirmed by the Income Tax Appellate Tribunal, Bangalore Bench. Hence, this reference at the instance of the Revenue. 5. It is too late in the day to contend that the order of a superior authority cannot be treated as information. The assessing authority may gain knowledge as to the provisions of law or as to the interpretation of certain facts relevant to the particular assessment year through whatever source and the same is generally treated as information. This question is now settled by the decision of the Supreme Court in A.L.A. Firm Vs. Commissioner of Income Tax, Madras, (1991) 189 ITR 285 SC the Supreme Court quoted an earlier decision of the Supreme Court in Kalyanji Mavji and Co. Vs. Commissioner of Income Tax , West Bengal-II, AIR 1976 SC 203 wherein four propositions were laid down by the Supreme Court, which read as follows : "(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 committed by the Income Tax Officer. 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 the investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law." 6. In the said A.L.A. Firm Vs. In the said A.L.A. Firm Vs. Commissioner of Income Tax, Madras, (1991) 189 ITR 285 SC the assessing authority had omitted to consider a decision of the Madras High Court in G. R. RAMACHARI AND CO. Vs. COMMISSIONER OF Income Tax, MADRAS., (1961) 41 ITR 142 Mad Subsequently, on coming to know of the said decision, the assessing authority proceeded to take action under section 147(b) . This was upheld by the Supreme Court by pointing out that proposition No. (4) stated in Kalyanji Mavji and Co. Vs. Commissioner of Income Tax , West Bengal-II, AIR 1976 SC 203 governed the fact situation. At page 297, the Supreme Court pointed out that this proposition (4) clearly envisages a formation of opinion by the Income Tax Officer on the basis of material already on record provided the formation of such opinion is consequent upon "information" in the shape of some light thrown on any aspect or law which the Income Tax Officer had not earlier been conscious of. 7. The Supreme Court pointed out that there may be a situation where the Income Tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax, but on further research into law, he finds that there was a direct decision holding that category of receipt to be an income receipt. In such a situation, he would be entitled to reopen the assessment under section 147(b) according to proposition (4). Thereafter, the Supreme Court proceeded to analyse the difference between the propositions Nos. (2) and (4) and it was observed thus (at page 297) : "Proposition (4) refers to a case where the Income Tax Officer initiates reassessment proceedings in the light of 'information' obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income Tax Officer having considered all the facts and law, arrives at a particular conclusion, and reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, AIR 1979 SC 1960 it also ropes in cases of a 'bare or mere change of opinion' where the Income Tax Officer (very often a successor-officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income Tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, AIR 1979 SC 1960 has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji and Co. Vs. Commissioner of Income Tax , West Bengal-II, AIR 1976 SC 203 The second paragraph from the judgment in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, AIR 1979 SC 1960 earlier extracted, has also reference only to this situation and insists upon the necessity of some information which makes the Income Tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas and Co. (P.) Ltd. Vs. S.P. Kushare, S.T.O. Nagpur and Others, AIR 1968 SC 565 Even making allowance for this limitation placed on the observations in Kalyanji Mavji and Co. Vs. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas and Co. (P.) Ltd. Vs. S.P. Kushare, S.T.O. Nagpur and Others, AIR 1968 SC 565 Even making allowance for this limitation placed on the observations in Kalyanji Mavji and Co. Vs. Commissioner of Income Tax , West Bengal-II, AIR 1976 SC 203 the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) : '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 Income Tax Officer subsequent to the original assessment. If the Income Tax Officer 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 Income Tax Officer 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 section 147(b) of the Act'." 8. Thereafter, the Supreme Court pointed out that the assessing authority was entitled to reopen the assessment on realising that the question was covered by the decision of the Madras High Court in G. R. RAMACHARI AND CO. Vs. COMMISSIONER OF Income Tax, MADRAS., (1961) 41 ITR 142 Mad which he had omitted to consider while passing the earlier assessment order. 9. In this connection, at page 300, the Supreme Court observed that : "Though it was a decision of 1961 and the Income Tax Officer could have known of it had he been diligent, the obvious fact is that he was not aware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings for reassessment." 10. In the light of the above observations, there can be no doubt that the assessing authority was entitled to be enlightened by any source which could be considered as information for the purpose of reopening the assessment under section 147(b) . In the light of the above observations, there can be no doubt that the assessing authority was entitled to be enlightened by any source which could be considered as information for the purpose of reopening the assessment under section 147(b) . The Commissioner certainly is a superior authority and his views could be taken as a source of information by a subordinate officer like the Income Tax Officer. 11. A learned judge of this court in Mysore Cements Limited Vs. Income-tax Officer, (1987) 167 ITR 370 KAR held that the order of the Appellate Tribunal could be the source of information and, relying on such an order, the assessing authority may initiate proceedings under section 147(b) in respect of another assessment year. 12. Sri Ramabhadran, however, contented that the order of the Commissioner should have a bearing on the concluded assessment sought to be reopened under section 147(b) and, in the instant case, the Commissioner's order had no such bearing on the earlier assessment order. According to learned counsel, the assessing authority had considered all the details and had granted the deduction. 13. A reading of the Commissioner's order shows that several items were referred to by the Commissioner and he then proceeded to apply section 35B to the deductions claimed by the assessee during the year 1980-81. In respect of some of the items they were held not deductible under section 35B. As in the instant case, we find that many of the items such as office expenses, packing materials, etc., were also referred to in the order of the Commissioner. This apart, the scope of section 35B itself was considered by the Commissioner, which certainly has a direct bearing on the deductions claimed by the assessee in the instant case. Therefore, it cannot be held that the Commissioner's order had no bearing on the fact situation. 14. Sri Ramabhandran then contended that the assessing authority was not right in excluding all the deductions claimed by the assessee. This is a matter for the appellate authority to consider. The appellate authority has not considered as to whether, on the facts, the assessee in the instant case is entitled to the deductions under section 35B and on merits whether the order of the assessing authority requires any change or modification. 15. We are concerned only with the question of law referred to us. The appellate authority has not considered as to whether, on the facts, the assessee in the instant case is entitled to the deductions under section 35B and on merits whether the order of the assessing authority requires any change or modification. 15. We are concerned only with the question of law referred to us. The question referred to us necessarily will have to be answered in the negative and in favour of the Revenue. Since the merits of the case will have to be decided by the first appellate autority, the case is now remitted to the first appellate authority for considering the other questions for both the years involved in these references. References are answered accordingly.