1997 (11) TMI 125 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the reassessment under Section 147(a) of the Income-tax Act.
2. Inclusion of other escaped incomes in the reassessment.
3. Impact of the CIT (Appeals) finding that the foreign liquor shop income did not belong to the assessee.

Detailed Analysis:

1. Validity of the Reassessment under Section 147(a):

The assessee challenged the reassessment under Section 147(a), arguing that the CIT (Appeals) should have canceled the reassessment when it was found that the income from the foreign liquor shop belonged to the firm M/s Malanad Liquors and not to the assessee. The reassessment was initiated based on the belief that income from the foreign liquor shop had escaped assessment. The CIT (Appeals) later deleted the addition of Rs. 2,77,473, which was initially included as income from the foreign liquor shop.

The Revenue argued that the reassessment was validly initiated based on the profit and loss account seized during the search, which indicated that the foreign liquor shop was in the name of the assessee. The Assessing Officer had reason to believe that income liable to tax had escaped assessment, justifying the reopening of the assessment under Section 147(a).

The Tribunal held that the original assessment was validly reopened based on the materials gathered during the search. The Assessing Officer had valid jurisdiction to reopen the assessment under Section 147(a) as the assessee had not made a true and full disclosure of his income liable to tax for the assessment year 1981-82.

2. Inclusion of Other Escaped Incomes in the Reassessment:

The assessee contended that the Assessing Officer was not correct in adding other incomes, particularly income under the head 'other sources,' when the original assessment had been reopened on the presumption that the income from the foreign liquor shop had escaped assessment. The Tribunal referred to several judicial precedents, including the Supreme Court's decision in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, which held that once proceedings under Section 34 (now Section 147) are validly initiated, the jurisdiction of the Income-tax Officer extends to all items of income that had escaped assessment.

The Tribunal also referred to the Madras High Court's decision in AL.VR.ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116 and CIT v. Standard Motor Products of India Ltd. [1983] 142 ITR 877, which supported the view that once an assessment is reopened, the Income-tax Officer has the jurisdiction to assess the entire income that had escaped assessment.

In view of these decisions, the Tribunal held that the Assessing Officer was justified in bringing to tax other items of escaped income, particularly income from unexplained investments in bank accounts.

3. Impact of the CIT (Appeals) Finding that the Foreign Liquor Shop Income Did Not Belong to the Assessee:

The assessee argued that once the CIT (Appeals) found that the foreign liquor shop did not belong to the assessee, the entire reassessment became a nullity, and the other additions could not survive. The Tribunal disagreed, citing several judicial precedents, including the Calcutta High Court's decision in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204, which held that a subsequent reversal of the decision that formed the basis for reopening the assessment does not render the reassessment proceedings void ab initio.

The Tribunal also referred to the Madras High Court's decision in Family of V.A.M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314 and the Gujarat High Court's decision in CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24, which supported the view that the non-existence of the original ground for reopening the assessment does not bar the reassessment of escaped income.

In light of these decisions, the Tribunal held that the basis for the reassessment proceedings did not disappear because of the subsequent finding that the foreign liquor shop was not run by the assessee. The Assessing Officer was fully justified in bringing to tax other items of escaped income, and there was no infirmity in the order of the CIT (Appeals) in upholding the validity of the reassessment proceedings.

Conclusion:

The Tribunal upheld the validity of the reassessment under Section 147(a) and the inclusion of other escaped incomes in the reassessment. The reassessment proceedings were validly initiated, and the Assessing Officer was justified in bringing to tax other items of escaped income, even though the basis for reopening the assessment was later found to be incorrect.