1999 (8) TMI 140 - AT - Income Tax

Summary

Issues involved:
1. Validity of reassessment under section 147(a) when material facts were available during original assessment.
2. Addition of Rs. 65,000 as remission of liability under section 41(1).

Issue 1: Validity of reassessment under section 147(a):
The case involved the reassessment of an original assessment for the assessment year 1981-82 under section 147(a) of the IT Act, 1961, due to the alleged escapement of income of Rs. 65,000 assessable under section 41(1). The Assessing Officer (AO) reopened the assessment based on the contention that liabilities payable to agriculturists were written off, leading to the conclusion of cessation of liability and subsequent taxation under section 41(1). The Income Tax Appellate Tribunal (ITAT) noted that all primary facts were disclosed by the assessee during the original assessment proceedings. The ITAT highlighted correspondences indicating the transfer of Rs. 65,000 to partners' accounts and the subsequent writing off of liabilities to agriculturists. The ITAT held that the AO was aware of these primary facts, and the obligation of the assessee ended with furnishing these facts. Citing the Supreme Court's decision in Calcutta Discount Co. Ltd. vs. ITO, the ITAT concluded that the AO's action under section 147(a) was unjustified, as the primary facts were disclosed, and the AO should have drawn any inferences. The ITAT found the CIT(A)'s legal findings contradictory and quashed the reassessment, allowing the assessee's appeal.

Issue 2: Addition of Rs. 65,000 under section 41(1):
The AO added Rs. 65,000 as remission of liability under section 41(1) in the reassessment. The CIT(A) upheld this addition, stating that the liabilities payable to agriculturists were not genuine and the provisions of section 41(1) applied as deductions had been allowed to the assessee in earlier years. However, the ITAT found the CIT(A)'s legal findings contradictory, as the application of section 41(1) presupposed the genuineness of the expenditure allowed in previous years. The ITAT reasoned that if the liabilities were not genuine, section 41(1) could not be invoked, and any income escapement would relate to the year in which the deductions were wrongly allowed. Consequently, the ITAT quashed the CIT(A)'s order and allowed the assessee's appeal.

In conclusion, the ITAT ruled in favor of the assessee, quashing the reassessment under section 147(a) and disallowing the addition of Rs. 65,000 under section 41(1) based on the disclosure of primary facts during the original assessment proceedings.