1985 (6) TMI 68 - AT - Income Tax

Reassessment, Non-Disclosure Of Primary Facts, Valuation Of Stock, Return Of Income, Interest For Late Filing Of Return, General Principles

Issues Involved:

1. Validity of assessment under Section 147(a) of the Income-tax Act, 1961.
2. Applicability of Section 144B to reassessment proceedings.
3. Allowability of depreciation and development rebate on machinery installed at the premises of JKCM.
4. Addition of Rs. 2,15,000 to closing stock.
5. Levy of interest under Sections 139 and 217.
6. Levy of excess dividend tax.
7. Entitlement to relief under Section 84.
8. Addition of Rs. 4,12,000 as 'trading receipts in cops deposits account'.

Detailed Analysis:

1. Validity of assessment under Section 147(a):

The assessee challenged the validity of the reassessment proceedings under Section 147(a), arguing that all material particulars were fully and truly disclosed in the original return, thus the conditions for reopening were not met. The department contended that the non-disclosure of the machinery and plant usage by JKCM was a material fact justifying reassessment. The Tribunal upheld the reopening, stating that the machinery used by another entity was a significant material fact not disclosed, thereby validating the reassessment under Section 147(a).

2. Applicability of Section 144B to reassessment proceedings:

The assessee argued that Section 144B, introduced in 1976, did not apply to reassessment proceedings for the year 1967-68. The Tribunal, referencing the Special Bench decision in Bela Singh Pabla v. ITO and the Madhya Pradesh High Court rulings, held that Section 144B was procedural and applicable to pending reassessments, rejecting the assessee's contention.

3. Allowability of depreciation and development rebate on machinery installed at JKCM:

The Tribunal upheld the disallowance of 50% depreciation and total disallowance of development rebate on machinery installed at JKCM, following its earlier decision for the assessment year 1971-72. It was held that the machinery was not exclusively used for the assessee's business, invoking Section 38(2) and Section 33.

4. Addition of Rs. 2,15,000 to closing stock:

The Tribunal found the ITO's addition of Rs. 2,15,000 to closing stock as unjustified, lacking specific material evidence. It upheld the deletion by the Commissioner (Appeals) and removed the conditional clause regarding the addition in future assessments.

5. Levy of interest under Sections 139 and 217:

The Tribunal agreed with the Commissioner (Appeals) that the ground regarding the levy of interest was not maintainable. The Full Bench decision of the Allahabad High Court in CIT v. Geeta Ram Kali Ram was cited, stating that the right of appeal is statutory and the levies were consequential, not part of the assessment order.

6. Levy of excess dividend tax:

The Tribunal rejected the objection to the levy of excess dividend tax, noting that the calculation was not shown to be incorrect and the omission in the draft order under Section 144B did not invalidate the levy.

7. Entitlement to relief under Section 84:

The Tribunal disagreed with the Commissioner (Appeals) that items barred under Section 147(b) could not be included in reassessment under Section 147(a). However, it upheld the deletion of Rs. 22,34,900, noting the original relief under Section 84 was correctly allowed, and the ITO's reassessment was based on a misunderstanding of the law applicable in 1967-68. The Tribunal also noted the relief had merged with appellate orders, limiting the ITO's jurisdiction.

8. Addition of Rs. 4,12,000 as 'trading receipts in cops deposits account':

The Tribunal, referencing its own decision for the assessment year 1975-76, upheld the deletion of Rs. 4,12,000. It agreed that the receipts were not trading receipts, supported by the assessee's accounting treatment and maintenance of separate accounts for cops.

Conclusion:

The assessee's appeal was partly allowed, granting partial relief on the addition to closing stock. The department's appeal, while failing in terms of quantum, was partly allowed on the legal issue regarding the scope of reassessment under Section 147(a).

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