1994 (9) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147(a) of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Addition of Rs. 11,72,779 to the income already assessed.
4. Addition of Rs. 36,000 under Section 40(c).

Issue-wise Detailed Analysis:

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

The original assessment for the assessment year 1977-78 was completed on 27th September 1980, with a total income of Rs. 42,87,880. Subsequently, the assessment was reopened under Section 147(a) by issuing a notice dated 19th August 1983, with the approval of the CIT. The assessment was reopened due to the alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment, particularly concerning the value of the closing stock and stores taken over from M/s Travancore Tea Estate Ltd.

The assessee argued that there was no omission or failure on their part to disclose all material facts, as the relevant documents were available in the file of M/s Travancore Tea Estate Ltd., which was assessed by the same Assessing Officer. However, the Assessing Officer dismissed this contention, stating that the relevant information was not available in the file of the appellant.

The CIT(A) upheld the reopening of the assessment, noting that the appellant did not file a copy of the conveyance deed during the original assessment. The conveyance deed was furnished only on 2nd March 1982, after the original assessment was finalized on 27th September 1980. The CIT(A) relied on the Supreme Court's decision in Malegaon Electric Co. (P) Ltd. vs. CIT (1970) 78 ITR 466 (SC) to support the view that the appellant had a duty to make a true and full disclosure of all material facts necessary for its assessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:

The CIT(A) held that the appellant failed to disclose fully and truly all material facts necessary for the assessment, as the conveyance deed was not filed during the original assessment proceedings. The CIT(A) noted that the appellant had claimed a deduction of Rs. 11,36,779 in the assessment of the sterling company, M/s Travancore Tea Estate Ltd., but did not explain why the book value was shown for the opening stock and stores in its own assessment.

The appellant argued that all material facts were available in the records of the Assessing Officer, and the reopening of the assessment was based on a change of opinion. The appellant also contended that the reopening was occasioned by the opinion of the audit party, which is not a valid ground for reopening under Section 147(a).

3. Addition of Rs. 11,72,779 to the Income Already Assessed:

The Assessing Officer made an addition of Rs. 11,72,779 to the income already assessed, attributing Rs. 5,87,637 to the overstatement of the value of closing stock and Rs. 5,49,142 to the overstatement of the value of stores consumed. The CIT(A) confirmed this addition, noting that the appellant did not provide a satisfactory explanation for showing the book value of the opening stock and stores, despite the actual cost being less by Rs. 11,36,779.

4. Addition of Rs. 36,000 under Section 40(c):

The CIT(A) upheld the addition of Rs. 36,000 under Section 40(c), holding that the assessee had commenced its business only from 1st September 1977, and only the expenditure incurred after the commencement of the business could be allowed. The remuneration allowable to the two directors was restricted to the period from 1st September 1976 to 31st March 1977.

Conclusion:

The Tribunal held that the reopening of the assessment under Section 147(a) was not justified, as the conveyance deed was already available in the records of the Assessing Officer. The Tribunal noted that the Revenue was aware of the factum of the agreement or the conveyance deed and its contents, as it formed the basis for the protective assessment in the hands of the appellant company and the assessment of the foreign company in relation to the assessment year 1976-77. The Tribunal concluded that the case of the assessee fell within the ratio of the Supreme Court's decision in Gemini Leather Stores vs. ITO 1975 CTR (SC) 127: (1975) 100 ITR 1 (SC), and hence, the reopening of the assessment under Section 147(a) could not be sustained.

The Tribunal also observed that even if the reopening could be justified under Section 147(b) based on the audit party's objections, the limitation for such action had already expired. Therefore, the reassessment proceedings initiated by the ITO failed.

As the learned Chartered Accountant did not address any arguments on the merits of the additions and disallowances, the Tribunal refrained from going into the same.

Final Decision:
The appeal was allowed, and the reassessment proceedings were cancelled.