TaxTMI 
TaxTMI 
2005 (6) TMI 29
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....for the accounting period April 1,1972 to November 18, 1972, on the ground that the business of the assessee-firm was taken over by the Government on November 13, 1972. Assessment of the assessee for this year was originally completed by the Assessing Officer under section 143(3) of the Act on December 11, 1975, determining the taxable income at Rs. 45,130. After completion of the assessment proceedings, the Income-tax Officer had received the information, that, since the undertaking of the assessee-firm had been taken over by the State Government, the assessee is entitled to get compensation amount on that account. In view of this information, the Assessing Officer was of the opinion that by reason of the aforesaid omission or failure on the part of the assessee to disclose fully and truly all material facts in the return of income filed under section 139 of the Act for the assessment year 1973-74, for his assessment, the income chargeable to tax has escaped assessment for that year, as envisaged under section 147(a) of the Act. Accordingly, in order to bring to tax the escaped income, the Assessing Officer had issued and served a notice to the assessee under section 148 of the Ac....
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....e had made enquiries with the Karnataka Electricity Board, and ascertained that the assessee had claimed a compensation amount of Rs. 36 lakhs. He has also observed in his order, that from the letters dated October 23, 1972, and December 18, 1972, addressed to the Executive Engineer, Electricity Maintenance Division, Bagalkot, by the assessee-firm, it is clear that the firm had filed its claim for compensation, immediately it was taken over by the Karnataka Electricity Board and the same was never disclosed in the return of income filed before the Income-tax Officer when the original assessments were completed on December 11, 1975. He has further observed, that during the original assessment proceedings, the assessee had only disclosed the fact of taking over of its business by the Karnataka Electricity Board on November 13, 1972, but did not disclose the claim of compensation made before the Karnataka Electricity Board or estimate the profits thereof from such acquisition and, therefore, the assessee had failed to disclose fully and truly all material facts for the purpose of assessment and income chargeable to tax under the head "Capital gains and profits" under section 41(2) the....
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....same is justiciable, for the reason, that though the assessee in its return of income filed for the assessment year 1973-74 had disclosed the taking over of the assessee's business by the Government on November 13, 1972, it had not disclosed the claim of compensation made before the Karnataka Electricity Board or the compensation that may be paid by the Karnataka Electricity Board. In so far as the letter dated March 24, 1975, to the Income-tax Assistant Commissioner in respect of recovery proceedings for the assessment year 1972-73 is concerned, it does not amount to disclosure regarding the compensation receivable and, therefore, the Income-tax Officer was justified in reopening the concluded assessment for the assessment year 1973-74 under section 147(a) of the Act. Aggrieved by the order passed by the appellate authority, the assessee had carried the matter by way of second appeal before the Income-tax Appellate Tribunal. The only ground that was taken in the memorandum of appeal and argued at the time of hearing, was with regard to the jurisdiction of the Income-tax Officer to initiate reassessment proceedings under section 147(a) of the Act. The Tribunal by its order dated M....
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....d counsel has relied on the law declared by the apex court in the case of Central India Electric Supply Co. v. CIT [2001] 247 ITR 54 and in the case of Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC). In our view, the only issue that requires to be decided by us, is, whether the Income-tax Officer was justified in reopening the concluded assessments by invoking the provisions of section 147(a) of the Act? The question of law referred by the Tribunal for our opinion is in two parts. They are, whether the Tribunal was right in holding that the assessee had not disclosed all the primary facts necessary for completing the assessment, as available with the assessee; and secondly, whether the assessee had disclosed all the primary facts necessary for completing the assessment before completion of the original assessment. The question before us in these reference proceedings is the jurisdiction of the Income-tax Officer to initiate action under section 147(a) of the Act. Before considering the issues raised and case law cited at the time of hearing, it is necessary in the first instance to analyse the provisions of section 147 of the Act as in force during the relevan....
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....sequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year subject to the provisions of sections 148 to 153 of the Act, he may assess or reassess such income or recompute the loss or depreciation allowance for the relevant assessment year. Explanation 1 deems, escapement of income chargeable to tax, where tax has been underassessed; or income had been assessed at too low a rate; or where the income had been made subject of excessive relief under the Act; or where excessive loss or depreciation had been computed. Explanation 2 lays down that production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of the section. The limitation for issue of notice in cases falling under section 147(b) of the Act is four years from the date of the assessment year and eight years in cases falling under section 147(a) of the Act. As can be seen from section 147(a) of the Act and under section 147(b) of the Act, under specified circumstances....
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....t the assessee-firm has put in a claim of about Rs. 36,00,000 for payment of compensation to the Karnataka Electricity Board. If the above amount is taken as estimated compensation receivable by the assessee-firm, the estimated capital gains works out to Rs. 26,92,000 and, therefore, he has reason to believe that income chargeable to tax has escaped assessment for that year. The primary reason for the Assessing Officer for issuing notice under section 148 of the Act is that, he has reason to believe that by reason of the omission or failure on the part of the assessee-firm while filing a return of income under section 139 of the Act for the assessment year 1973-74, has failed to disclose fully and truly all material facts necessary for his assessment for the assessment year 1973-74, and thereby the income chargeable to tax has escaped assessment for that year. If this circumstance stated by the Assessing Officer is accepted by this court, then the pre-condition required under section 147(a) of the Act would be satisfied and the Assessing Officer would be justified in issuing the notice under section 148 of the Act, since the time-limit provided for initiation of proceedings under ....
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....mission or failure to disclose the material facts to the Assessing Officer before completion of the assessment for the assessment year 1973-74 and, therefore, the provisions of section 147(a) of the Act are not applicable and, therefore, the view taken by the Tribunal is contrary to the view expressed by the apex court and also this court. Now let us refer to the decisions on which reliance is placed by learned counsel for the assessee-firm in support of his contentions. The first decision on which reliance was placed by learned counsel for the assessee is that of CIT v. Bhanji Lavji [1971] 79 ITR 582 (SC). In the said case, the court has observed, that it is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question; it is for the Income-tax Officer, if that issue is raised to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. The court has observed that when the primary facts necessary for assessment are fully and truly disclosed at the stage of the original assessment proceedings; he is not entitled, on a change of opinion to co....
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.... proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This the officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts. He could not, thereafter, take recourse to section 147(a) to remedy the error resulting from his own oversight." The Karnataka High Court in the case of T.M. Kousali v. Sixth ITO [1985] 155 ITR 739 has stated: "The Act nowhere provides that the assessee should disclose the fact that legal proceedings had been initiated and were pending before the civil court or High Court when he files his returns or assessment is completed. Hence, the failure to disclose that the assessee's claim for higher compensation under the Land Acquisition Act in the civil court was pending when returns were filed, would not amount to failure to disclose material facts necessary for assessment and would not justify action under section 147(a)." In the case of CIT v. Kalappa [1987] 167 ITR 22, the Karnataka High Court has o....
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....true. If, factually, the information furnished by the assessee is not true, even for an inadvertent reason, that section is attracted inasmuch as, the material particulars furnished by the assessee are found to be either false or incomplete. This argument, in our view, is fallacious and has to fail. As explained earlier, the duty on the part of the assessee is to disclose fully and truly all material facts. Omission or failure to discharge this duty alone will attract the section and not otherwise. If, factually, the information is untrue not for a reason or on account of the omission or failure to disclose fully and truly, this would attract section 147(b) and not section 147(a). Hence, we reject this contention. However, Sri Srinivasan contended that we should not place an interpretation on the provision which may result in public mischief, inasmuch as, in each case, the assessee will have to be attributed with the knowledge of the information furnished by him in the return in order to invoke section 147(a) of the Act. We are afraid this contention is misconceived. The requirement of the section is that there is a duty cast upon the assessee to disclose fully and truly all materi....
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....by the apex court in the case of Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466, wherein the court has held that the assessee's failure to disclose the profit under section 10(2)(vii) of the Act notwithstanding the disclosure of factum of sale, attracted the provisions of section 34(1)(a) of the Act and the reassessment was valid. The other decision on which reliance was placed by learned counsel for the Revenue is that of the Supreme Court in the case of Central India Electric Supply Co. v. CIT [2001] 247 ITR 54, wherein the apex court has confirmed the findings and conclusions reached by the Madhya Pradesh High Court in the reference proceedings brought before the High Court at the instance of the assessee. The question before the Supreme Court in Central India Electric Supply Co.'s case [2001] 247 ITR 54, was, whether the market price of the plant and machinery of the assessee taken over by the Board under the Indian Electricity Act, had become payable and due in the financial year 1969-70 relevant to the assessment year 1970-71. The apex court in this decision has observed that on acquisition of the plant and machinery of the assessee, its price under section 7A o....
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.... the Assessing Officer required him to produce. The Assessing Officer having come to know, since it was made known in the return of income that its business of distribution of electricity is taken over by the Karnataka Electricity Board, under the Indian Electricity Act, there was an obligation on the part of the Assessing Officer to have enquired with the assessee whether he has made any claim for payment of compensation, since he was passing an order under section 143(3) of the Act. As observed by the apex court in Gemini Leather Stores' case [1975] 100 ITR 1, it was for the Assessing Officer to have made necessary enquiries and drawn proper inference and since the officer has not done so, it was plainly a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee-firm to disclose fully and truly all material facts. To arrive at this conclusion, we draw support from the view expressed by this court in Kalappa's case [1987] 167 ITR 22, wherein this court has observed that "the duty of the assessee is to disclose primary facts necessary for assessment. If the assessee has discl....