1998 (5) TMI 39 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated by the Assessing Officer for assessment years 1981-82 and 1982-83.
2. Quantum of deduction under section 80J computed by the Assessing Officer for the two assessment years under appeal.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

Background Facts:
For the assessment year 1981-82, the original assessment was framed on a total income of Rs. 4,88,976, allowing a deduction under section 80J amounting to Rs. 3,44,370 for the Rail Track Division. The Assessing Officer later initiated proceedings under section 147(a) on the grounds that excessive deduction under section 80J was allowed due to the assessee's failure to disclose fully and truly material facts necessary for assessment, particularly the omission of separate audited accounts for the Rail Track Division and the allocation of interest paid to the bank.

For the assessment year 1982-83, the assessee initially declared an income of Rs. 6,03,250 and claimed a deduction under section 80J of Rs. 2,75,621. The Assessing Officer allowed a deduction of Rs. 24,234 based on the written down value (WDV) of the machinery, subject to recalculation upon submission of the Rail Track Division's balance sheet. Upon submission, the deduction was recomputed to Rs. 2,74,012. However, reassessment proceedings were initiated under section 147(a) on similar grounds as the previous year.

Arguments and Findings:
The assessee argued that all material facts were disclosed during the original assessment proceedings and that the reassessment was based on a change of opinion, citing decisions from the Supreme Court and the Punjab and Haryana High Court. The Department, however, contended that the disclosure was neither full nor true, as no separate audited accounts for the Rail Track Division were provided, leading to an inflated deduction claim under section 80J.

The Tribunal considered the conditions under section 147(a), which require the Assessing Officer to have 'reason to believe' that some income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The Tribunal referenced Supreme Court decisions, including Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT, which emphasized the assessee's duty to disclose all primary facts material for assessment.

Conclusion:
The Tribunal upheld the reassessment proceedings, noting that the assessee failed to disclose material facts, such as separate audited accounts for the Rail Track Division and the allocation of interest expenses, which led to an inflated deduction claim under section 80J. The Tribunal rejected the argument of change of opinion, stating that the initial assessments lacked full and true disclosure of material facts.

2. Quantum of Deduction Under Section 80J:

Background Facts:
For both assessment years, the Assessing Officer recomputed the deduction under section 80J by allocating interest paid to the bank between the head office and the Rail Track Division in proportion to their respective sales.

Arguments and Findings:
The assessee contested the quantum of deduction, arguing that the Assessing Officer's allocation of interest expenses was incorrect. The Tribunal, however, found no grounds for interference, supporting the Assessing Officer's method of proportionate allocation based on sales.

Conclusion:
The Tribunal upheld the quantum of deduction computed by the Assessing Officer, affirming the proportional allocation of interest expenses between the head office and the Rail Track Division.

Final Judgment:
The appeals were dismissed, affirming the validity of the reassessment proceedings and the quantum of deduction under section 80J for the assessment years 1981-82 and 1982-83.