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The first question was whether the investment in securities made by the assessee in pursuance of section 24 of the Banking Regulation Act, being a statutory obligation, can be treated as a transaction in the course of carrying on of trade. The court noted that this issue is covered against the assessee by the decision in State Bank of Hyderabad v. CIT [1985] 151 ITR 703 (AP). Therefore, the question was answered in the affirmative, in favor of the Revenue and against the assessee.
Issue 2: Claims in Reassessment Proceedings u/s 147The second question involved multiple claims by the assessee during reassessment proceedings under section 147, specifically regarding gratuity, pension fund, staff welfare expenses, and the devaluation of the rupee for the assessment years 1967-68 and 1968-69.
The court observed that the assessments were initially made u/s 143(3) and later reopened u/s 148 due to income escaping assessment. During reassessment, the assessee claimed deductions for gratuity, pension fund, and staff welfare expenses, which were rejected by the Income-tax Officer (ITO). The ITO also rejected the claim that the surplus from the devaluation of the rupee was not taxable.
The Commissioner of Income-tax (Appeals) upheld the ITO's orders, stating that these claims were considered and disallowed in the original assessments. The Tribunal also upheld the Commissioner's orders, noting that the claims were not liable to be considered as they were not made in the original assessments.
The court referred to the principles established by the Rajasthan High Court in CIT v. Rangnath Bangur [1984] 149 ITR 487 and the Calcutta High Court in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204, which state that once an assessment is reopened u/s 148, the entire assessment is at large, allowing the assessee to make new claims for deductions. However, the income for reassessment cannot be reduced beyond the income originally assessed.
The court noted a controversy regarding the facts, as the Tribunal did not categorically indicate whether the claims for gratuity and pension fund were put forward and rejected in the original assessments. Therefore, the court remitted the matter to the Tribunal to verify the correctness of these claims.
Regarding the labour welfare expenses, it was common ground that the original assessments allowed the claim to the extent preferred. The assessee claimed a larger sum during reassessment, which the Tribunal must verify for genuineness and deductibility under law. As for the devaluation profits, the court confirmed that the matter was considered and rejected in the original assessments, and thus, it cannot be re-agitated in reassessment proceedings.
In conclusion, the court declined to answer question No. 2 regarding the allowability of expenses under gratuity, pension fund, and labour welfare expenses, remitting the matter to the Tribunal for further consideration. The question related to the assessability of devaluation profits for the assessment years 1967-68 and 1968-69 was answered in favor of the Revenue. The reference was disposed of with no costs.
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