9911796707
TMI Blog1997 (11) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------- Rs. 35,742 (+) Less : Depreciation on lorries @ 40% Rs. 91,871 ------------------------ Loss Rs. 56,129 (-) 2. Share from M/s Malanad Liquors (provisional) Nil ------------------------ Total loss Rs. 56,129 (-) Agricultural income Rs. 11,500 Subsequently on 23-3-1985 the assessment was rectified and the loss was redetermined at Rs. 49,229. 3. On 13-3-1989 there was a search conducted in the assessee's premises under sec. 132 of the Income-tax Act, when certain books of account and documents were seized. One of the documents seized was a profit and loss account for the year ending 31-3-1981 relating to Foreign Liquor Shop FLW 96/80 in Payyannur Range in the name of the assessee. As per that profit and loss account the total sales in the foreign liquor business came to Rs. 14,83,663 and the net profit Rs. 2,71,208. On the basis of the information available from that document the assessing officer came to believe that income liable to tax for the assessment year 1981-82 had escaped assessment and so he reopened the assessment under sec. 147(a). In response to the notice issued u/s 148 the assessee filed a return admitting the same figure as asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment u/s 147(a). On behalf of the assessee, Shri P.J. Jacob, Advocate submitted before us that the CIT (Appeals) ought to have cancelled the reassessment when he found that the income from the foreign liquor shop belonged to the firm M/s Malanad Liquors, and in that sense there was no escapement of income in the hands of the assessee. Shri Jacob explained that the only reason why the original assessment had been reopened was that the assessing officer thought that income from the foreign liquor shop was assessable in the hands of the assessee. Drawing our attention to paragraph 22 of the appellate order, the learned counsel stated that there was a clear finding by the CIT (Appeals) that the foreign liquor shop was run by the firm and he also debited the income of Rs. 2,77,473 added in the assessment. Shri Jacob contended that when the original assessment had been reopened only for the purpose of bringing to tax the income from the foreign liquor shop, which was later in appeal found to be not includible, the CIT (Appeals) ought to have cancelled the reassessment. According to the learned counsel, the appellate authority was in error in sustaining the other addition on account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer got the information regarding the deposits in Federal Bank, Taliparamba branch in the name of the assessee. It was argued that the Assessing Officer was fully justified in considering in the reassessment the bank deposits as the assessee's income from undisclosed sources and in bringing to tax the same as income under the head 'other sources'. He also submitted that when the assessment was reopened, it was the duty of the assessing officer to bring to tax all the income that had escaped assessment, even though the ground on which the assessment had been reopened was later found not to survive. 8. It is evident that the original assessment in this case had been reopened when the assessing officer came to believe on the basis of the profit and loss account of the foreign liquor business seized from the assessee's premises that income liable to tax had escaped assessment. It is a case of valid assumption of jurisdiction on the basis of the materials gathered in the search that the assessee had not made a true and full disclosure of his income liable to tax for the assessment year 1981-82. But after reopening the assessment under section 147(a) the Assessing Officer included fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 147(b) could not be brought within the reassessment initiated under section 147(a). In the case of CIT v. Standard Motor Products of India Ltd. [1983] 142 ITR 877/13 Taxman 269 the Madras High Court made the following observation: "Once an assessment is reopened, the initial order of assessment stands automatically cancelled and the order of reassessment takes the place of the original order of assessment. The initial order of assessment cannot be said to be operative even for a limited purpose or with respect to items which had been covered by the initial order of assessment. To express differently, once an assessment is reopened the ITO will not only have the jurisdiction but it will be his duty to determine the tax liability of an assessee and for that purpose he will necessarily have to take into account not only the escaped income in respect of which a notice under section 147 had been issued but also the entire income that had escaped assessment during the year." In view of the decisions stated above, we hold that in the reassessment under section 147(a), the Assessing Officer was justified in bringing to tax other items of escaped income, particularly income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(b) in so far as it related to the claim for deduction of London office management expenses was validly taken." In Family of V.A.M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314 the Madras High Court was dealing with a case where the assessment had been reopened on information on which belief was based, which later proved to be ill-founded. In that case, the Court held as under: "An Income-tax Officer may rightly commence proceedings under section 34 if he has, in consequence of particular information in his possession, reason to believe that income has escaped assessment and may, even if that particular information proves to be ill-founded at the conclusion of the enquiry, yet bring to tax such escaped income as comes to light as a result of the enquiry. The non-existence of the original ground which led the officer to believe that income had escaped assessment is not a bar to reassessment of escaped income and does not vitiate such reassessment. The statutory requirement of reasonable belief rooted in information in the possession of the officer is to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have es ..... X X X X Extracts X X X X X X X X Extracts X X X X
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