1983 (4) TMI 24 - HC - Income Tax

Court upholds reassessment under Surtax Act, emphasizing limits on revisiting prior assessments.

The court upheld the reopening of assessments under s. 8(a) of the Surtax Act due to the assessee's failure to disclose the correct exchange rate, leading ... Company, Reassessment, Surtax Issues Involved:1. Justification of reopening the assessment u/s 8(a) of the Companies (Profits) Surtax Act, 1964.2. Consideration of matters concluded in the original assessment during reassessment proceedings.Summary:Issue 1: Justification of reopening the assessment u/s 8(a) of the Companies (Profits) Surtax Act, 1964The Income-tax Appellate Tribunal referred two questions to the court. The first question concerns the jurisdiction of the Income-tax Officer (ITO) to reopen the assessment u/s 8(a) of the Companies (Profits) Surtax Act, 1964. The assessee, conducting business in India and Ceylon, had initially converted Ceylon rupees to Indian rupees at par value, which was accepted by the ITO. However, post-assessment, the ITO discovered that due to the devaluation of the Indian rupee on June 6, 1966, the official exchange rate was 63.60 Ceylon rupees for 100 Indian rupees. The assessee had failed to disclose this correct exchange rate, leading to an understatement of income. Consequently, the ITO reopened the assessment u/s 147 of the I.T. Act and revised the total income and chargeable profits, invoking s. 8(a) of the Surtax Act. The court held that the assessee's omission to disclose the correct exchange rate constituted a failure to disclose all material facts necessary for the assessment, justifying the reopening under s. 8(a). Alternatively, the court noted that even if there was no omission, the ITO could invoke s. 8(b) based on new information indicating escaped chargeable profits. Thus, the reopening of assessments for both years was upheld.Issue 2: Consideration of matters concluded in the original assessment during reassessment proceedingsThe second question addressed whether the Tribunal should consider the assessee's contentions on matters concluded in the original assessment during reassessment proceedings. The assessee argued that once the assessment is reopened, the entire matter is at large, allowing them to contest previously settled issues. The court referred to precedents, including V. Jaganmohan Rao v. CIT and AL. VR. ST. Veerappa Chettiar v. CIT, which established that the ITO's jurisdiction in reassessment extends to all items of income that escaped assessment. However, the court distinguished this from the current case, where the assessee sought to revisit issues already decided in the original assessment. The court concluded that reassessment proceedings should not allow the assessee to reopen settled matters unless they are directly related to the escaped income being reassessed. Therefore, the court answered the second question against the assessee, maintaining that reassessment should focus on the escaped income and not on previously concluded issues.Conclusion:The court upheld the reopening of the assessment u/s 8(a) of the Surtax Act and ruled that reassessment proceedings should not revisit matters concluded in the original assessment unless directly related to the escaped income. The Revenue was awarded costs, and leave to appeal to the Supreme Court was granted on the second question due to conflicting opinions and the absence of a direct Supreme Court decision.