2018 (3) TMI 1161 - HC - Income Tax

Reopening of assessment - assessee had not returned the income received as interest from deposits in Banks - Held that - In the present case, true, after regular assessment and after notice for reassessment was issued, there was a Supreme Court judgment finding the interest income received even before the commencement of production would be income from other sources. But, that decision is not the cause for the aforesaid reopening. It is only in the assessment order as seen from Annexure-A that the Assessing Officer relied on the decision of the Hon ble Supreme Court, to further sustain the re-assessment of undisclosed income to tax. The Assessing Officer, later to the regular assessment, saw from the P&L account that there was further income by way of interest from deposits, which had not been disclosed in the returns filed by the assessee. This was the reason for issuance of notice of reassessment, for bringing to tax income that escaped assessment within the six year period. The limitation of 4 years would not be applicable, since the specific allegation, which we have found to be correct, is of non-disclosure of full and true material facts necessary for assessment. We answer the question of law in favour of the Revenue and against the assessee.

Summary

Issues Involved:
1. Whether the first appellate authority and the Income Tax Appellate Tribunal were correct in finding a full and true disclosure of all material facts necessary for assessment, when the assessee had not returned the income received as interest from deposits in Banks?

Detailed Analysis:

Issue 1: Disclosure of Interest Income
The primary issue in this case revolves around whether the assessee made a full and true disclosure of all material facts necessary for assessment, specifically regarding the interest income from bank deposits that was not included in the original return.

1. Assessment Year and Initial Proceedings:
- The assessment year in question is 1994-95. The regular assessment was completed on January 3, 1997. Subsequently, re-assessment proceedings were initiated within six years, under the first proviso to Section 147 of the Income Tax Act, 1961, due to alleged non-disclosure of full and true material facts necessary for assessment.

2. Contentions by Revenue:
- The Revenue argued that the interest income, which was later taxed on re-assessment, was never disclosed by the assessee. The initial return filed disclosed a total income of ?3,14,050/-, which included some interest income. However, a significant amount of interest income amounting to ?34,51,954/- was not returned, leading to the issuance of a notice under Section 148 for re-assessment.

3. Contentions by Assessee:
- The assessee contended that full disclosure was made in the profit and loss account, which was available to the Assessing Officer (A.O.). The re-assessment was argued to be based on a subsequent Supreme Court decision, which, according to the assessee, could not justify re-assessment proceedings as per the ruling in Deputy Commissioner of Income Tax v. Simplex Concrete Piles (India) Ltd.

4. Findings of First Appellate Authority and Tribunal:
- The first appellate authority and the Tribunal found that the balance sheet under Schedule-IV mentioned the 'interest income net of income tax' as ?34,51,954/-. They concluded that there was no non-disclosure of material facts since the information was available in the balance sheet at the time of the regular assessment.

5. Court's Analysis:
- The Court scrutinized the assessment order and noted that the return filed declared a total income of ?3,14,050/-. The Accounts Officer of the Company had argued that the interest income was to be set off against interest liability from loans, as the company had not commenced production. However, the Court found no indication that the A.O. was aware of the additional interest income not disclosed in the return.
- The Court referred to the precedent set by Calcutta Discount Co. Ltd. v. Income Tax Officer, where the Supreme Court held that mere production of books of accounts does not amount to full disclosure. The duty lies on the assessee to disclose all primary facts necessary for assessment.

6. Distinguishing from Calcutta Discount Co. Case:
- The Court distinguished this case from Calcutta Discount Co. Ltd., emphasizing that in the latter, the transactions were fully disclosed and discernible from the books of accounts. In contrast, in the present case, the assessee had not disclosed the entire interest income in the return, which constituted non-disclosure of material facts as per Explanation-I to Section 147.

7. Conclusion:
- The Court concluded that the first appellate authority and the Tribunal erred in finding that the facts indicated full and true disclosure necessary for assessment. The assessee's failure to disclose the entire interest income in the return amounted to non-disclosure of material facts, justifying the re-assessment proceedings.

8. Re-assessment Based on Supreme Court Decision:
- The Court addressed the contention that the re-assessment was based on the Supreme Court's decision in Tuticorin Alkali Chemicals and Fertilisers Ltd. The Court clarified that the re-assessment was not solely based on this decision but was initiated due to the discovery of undisclosed interest income in the profit and loss account, which was not returned.

Judgment:
The Court answered the question of law in favor of the Revenue and against the assessee, allowing the appeal and concluding that the first appellate authority and the Tribunal were incorrect in their findings. The appeal was allowed, with each party bearing their respective costs.