TaxTMI 
TaxTMI 
2011 (1) TMI 89
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the Tribunal was right in holding that valid approval had been accorded by the Central Board of Direct Taxes under section 151(i) of the Income-tax Act for reopening of the assessment of the assessee?" 3. The necessary facts are being set out hereinafter. The assessee-company was engaged in the generation and supply of electricity from its units at Bilaspur and Katni. These units were acquired by the Government of Madhya Pradesh in the year 1964 when the appellant's licence expired & not renewed. The compensation for compulsory acquisition of both the units was fixed at Rs. 5,85,000 and paid to assessee in the year 1964 itself. The assessee filed its return on 7-10-1965 claiming a loss of Rs. 50,572 and thereafter revised return on 16-12-1967 declaring a loss of Rs. 1,07,183 on account of retrenchment. The assessment was completed at the behest of the assessee at a total loss of Rs. 56,611 on 13-1-1969 for the assessment year 1965-66 which was not allowed to be carried forward due to closure of business. It is not disputed that the assessee-company also delivered possession to the M.P. Electricity Board in the year 1964 itself. 4. Since dispute arose in respect of the purchase....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessment year 1979-80 as per the provisions of section 54E. It was submitted by the assessee before the CIT(A) that the Assessing Officer had observed that as per section 45(1), any profit or gain arising from transfer of capital assets affected in a previous year was chargeable to tax under the head of 'Capital Gains' as income of the previous year when the transfer took place, i.e., 1964. Therefore, the assessee was liable to pay additional tax on the income that escaped assessment. 8. The CIT(A), while affirming the order of the Assessing Officer, held that the assessee had rightly been taxed on account of capital gain arising out of both the units at Bilaspur and Katni. It was further held that the assessee company was not entitled to the benefit of exemption under section 54E as it was inserted by the Finance Act, 1979 w.e.f. 1-4-1979. It was also observed that the case of the assessee company was not covered under section 155(7)(a) as the same was inserted by the Finance Act, 1978 with retrospective effect from 1-4-1974. 9. The appellant-assessee company being aggrieved by the order of the CIT(A) preferred an appeal before the Tribunal, which was partly allowed to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as stated to be unsustainable in view of the non-compliance of the provisions of section 151 of the IT Act. The case being one where the notice was issued beyond a period of 8 years, but within a period of 16 years, the satisfaction of the Board that it is a fit case for issue of such notice was a prerequisite and this had not been met. In this behalf, the satisfaction was stated to be contained in a proforma where against the column as to 'Whether the Board was satisfied of the reasons recorded', an endorsement was made 'Yes. The Board is satisfied', which was signed by the Under Secretary on 23-11-1981. This satisfaction was in the form of a rubber stamp and, thus, it was stated to be suffering from non-application of mind apart from the fact that nothing had been placed on record to show that the Under Secretary had been authorized to record such satisfaction of the Board. (ii) In order for the provisions of section 147 of the IT Act to apply, the ITO has to have reason to believe that income chargeable to tax had escaped assessment for that year as a consequence of 'omission or failure on the part of an assessee to disclose fully and truly all material facts necessary f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sarily postulates existence of a thing or material. If a material is not in existence or if a material is such of which the assessee had no knowledge there would be no duty to disclose such material." [Emphasis supplied] 13. In P.C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501 (Delhi), the Government acquired an electricity supply undertaking in 1954, but the compromise regarding compensation was reached only in 1962. It was held that even though by acquiring an undertaking, the Government may have been vested with the possession, unless the price is settled, the transaction does not become a sale and only after the price had been settled that it becomes due to the assessee. Thus, the amount did not become taxable in the assessment year 1955-56, but became assessable only in the previous year relevant to the assessment year 1963-64 when such price was settled. 14. A judgment commonly relied upon by both the sides was Harish Chandra v. CIT [1985] 154 ITR 4781 (Delhi) on the issue of year of chargeability in case of compulsory acquisition. In our considered view, the relevant ratio of the judgment, which would apply to this case, is that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th regard to the inference, which should be drawn from the primary facts and if an ITO draws an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for re-opening of assessment. 17. Learned counsel for the appellant also relied upon three judgments to show why on the principles laid down therein, the conduct of the Board would show non-application of mind. In Chugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 (SC), the report submitted by the ITO under section 151(2) did not mention any reasons for coming to the conclusion that it is a fit case for issue of the notice under section 148 of the IT Act. This judgment was relied upon in Chanchal Kumar Chatterjee v. ITO [1972] 93 ITR 130 (Cal.). In this case, there was only a rubber stamp above the signature of the Commissioner and no other relevant material was produced before the Court even when asked for. This was held to be a case of non-application of mind. The judgment in Govinda Choudhury & Sons v. ITO [1977] 109 ITR 370 (Ori.) was once again relied upon the judgment in Chugamal Rajpal's case (supra). 18. We have given our thoughtful c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or decisions recorded be shown to be manifestly just and reasonable. ..." [Emphasis supplied] This is completely absent in the present case. Thus, we find force in the contention of learned counsel for the appellant that there has not been proper application of mind by the Board and if a proper application had taken place, there would have been no reason to re-open the closed chapter in view of what we are setting out hereinafter. Second & Third Pleas 20. The twin condition of the satisfaction of the ITO, i.e., (i) there must be a reason to believe that income chargeable to tax has escaped assessment; and (ii) the ITO must also have reason to believe that such escapement of income from assessment is by reason of omission or failure on the part of the assessee to disclose fully and truly material facts necessary for assessment of that year, have to be satisfied in view of the judgment in Lakhmani Mewal Das' case (supra). 21. In the present case, there was no lack of disclosure by the assessee. This is, of course, apart from the fact that the assessee could hardly disclose as to what would be the compensation, which he may get ultimately if the plea of enhancement is sust....