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TMI Blog1983 (2) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... d shares of the value of Rs. 3,07,350 of Bharat Steel Tubes by taking initial loans from Union Bank ofIndia and Raunaq Co. (P). Ltd. These loans were repaid from year to year. During this year, the assessee took a fresh loan of Rs. 4,00,000 from First National City Bank and repaid the loans to the Union Bank ofIndia and Raunaq Co. (P.) Ltd. The ITO did not allow interest paid to the First National City Bank because the income from dividends from the shares of Bharat Steel Tubes was exempt under section 80K. The claim of interest paid to First National City Bank was also not considered to be admissible against income from other sources. According to the ITO, similar was the position of interest paid by the assessee to the Life Insurance Corporation. The ITO thus brought to tax the interest income of Rs. 17,032 and rejected the assessee's claim for allowance of interest of Rs. 31,327. 2. Against this assessment, the assessee filed an appeal to the AAC. The AAC disposed of the appeal by his order dated7-7-1975in Appeal No. 611 of 1974-75. According to the AAC, the correct approach of the ITO would have been to first reduce the dividend of Rs. 49,066 on the shares of Bharat Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that escaped assessment but also the entire assessment for the year. In support of the submission that claim for deduction of interest which was disallowed in the original assessment, could still be claimed in the reassessment, reliance was also placed on the judgment in CST v. H.M. Esufali H. M. Abdulali [1973] 90 ITR 271 (SC). Reference was also made to the judgment in Sun Engineering Works (P.) Ltd. v. CIT [1978] 111 ITR 166 (Cal.). It was also pointed out that similar claim of interest had been allowed in the assessment year 1970-71 and also in the assessment years 1972-73 to 1974-75 and this was the only assessment in which the claim was not allowed. The Commissioner (Appeals) did not accept the assessee's submissions. He observed that the judgments in V. Jaganmohan Rao and Sun Engineering were authorities for the proposition that once proceedings under section 147 were validly initiated to assess some items of income which had escaped assessment, then other items of income which may have also escaped assessment could also be brought to tax in the revised assessment. According to the Commissioner (Appeals), these judgments did not support the assessee's claim regarding allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed in the original assessment. He referred to the judgment in V. Jaganmohan Rao wherein it has been held as under : " .... Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. " He first submitted that on the basis of the aforesaid judgment it should be held that the previous assessment was set aside and the whole assessment proceedings started afresh by issue of a notice under section 148. He then submitted that when proceedings were validly initiated under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a proper construction of the various provisions of the Act, a reassessment is nothing but a fresh assessment and that when a reassessment is made the entire matter is completely opened up and redone. It is pointed out that, in response to a notice under section 148 of the 1961 Act an assessee is required to furnish a return of income. Thereafter, the ITO notice under sections 142(1) and 143(2) and (3) and ask may issue a evidence to be led. Thereafter, when the reassessment is completed, the total income and sum payable thereon have to be ascertained under section 147 read with section 153 of the Act. A reassessment order thus passed results in nullifying the original assessment order. In support of this contention, learned counsel invited our attention to Dy. CCT v. H.R. Sri Ramulu [1977] 39 STC 177 (SC). In that case, the Supreme Court while dealing with a similar question as to the starting point of computing the period of limitation for exercise of the revisional powers by the Dy. Commr. under section 21 of the Mysore Sales Tax Act, 1957, when a reassessment under section 12A had taken place, observed : 'The short question which arises for determination in these appeals is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the judgment in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal.), wherein also it has been held that once an assessment is reopened the previous assessment is set aside and the whole assessment proceedings start afresh and in such a case the ITO has not only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment. He particularly relied on the following observations : " ......It appears to us that in view of the scheme of Income-tax Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessee is entitled to any deduction which was not granted in the original assessment, the assessee would be so granted the deduction. This view was also reiterated by the Calcutta High Court in the case of Sun Engineering Works (P.) Ltd. v. CIT [1978] 111 ITR 166. The Supreme Court in a sales tax case, in the case of Commissioner of Sales Tax v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271 at p. 280, expressed the same view as also in the case of State of Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee which relief was specifically disallowed in the original proceedings. He submitted that it was only in the event of some income escaping assessment that the notice under section 148 was issued. The issue of a notice under section 148, the filing of return thereafter and the further issuance of a notice under section 143(2) or the provisions of section 144B would not entitle the assessee to claim the relief which was specifically examined and disallowed in the original proceedings. He referred to the judgments in CIT v. A.D. Shroff [1957] 31 ITR 284 (Bom.), Kevaldas Ranchhoddas v. CIT [1968] 68 ITR 842 (Bom.) and Sir Shadi Lal Sons v. CIT [1973] 92 ITR 453 (All.) for the submission that in the revised proceedings, the deduction in respect of interest which was specifically disallowed in the original proceedings could not be allowed. He then referred to the judgments in CIT v. Rao Thakur Narayan Singh [1965] 56 ITR 234 (SC), CIT v. Hemchandra Kar [1970] 77 ITR 1 (SC) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), for the submission that the finality of the original assessment order could not be disturbed. According to him, the judgments relied on behalf of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment is made under section 19, the former assessment is completely reopened and in its place fresh assessment is made. In Ramulu which is a judgment under the Mysore Sales Tax Act, 1957, also it has been held that once an assessment is reopened, the initial order of assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for assessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. In Subakaran Gangabhishan, the Full Bench of the Andhra Pradesh High Court has held that a reassessment proceeding under section 17(1) of the Wealth-tax Act wipes out the original assessment and the reassessment can be in respect of not only the it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax has escaped assessment. One of the items mentioned therein is (a) where income chargeable to tax has been under-assessed. The income chargeable to tax is the total income of the previous year which is mentioned in section 4 of the Act. Once an original assessment has been set aside and reassessment is substituted, then the correct total income has to be determined and when such correct total income is determined, whatever deductions which are admissible have to be allowed while making the assessment under section 147. The judgment in A.D. Shroff and Kevaldas, relied on by the learned departmental representative are before the judgment of the Supreme Court in V. Jaganmohan Rao, and, therefore, these judgments cannot be relied upon. The ratio of the judgment in Sir Shadi Lal with great respect, appears to be against the ratio of the judgment in V. Jaganmohan Rao. The judgments in Rao Thakur, Hemchandra Kar and Lakhmani Mewal Das do no touch upon the issue involved in this case. Thus, we would hold that in a reassessment when a fresh assessment is to be made, the correct total income is to be determined and such correct total income may be more or less as compared to the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80K. The judgment in Cloth Traders is the authority for the proposition that the entire sum of Rs. 49,066 included in the income of the assessee by way of dividend from Bharat Steel Tubes Ltd. is required to be exempted under section 80K. The order of the AAC dated 7-7-1975 has to be read in the light of the Supreme Court judgment in Cloth Traders and it would be patent that in the light of the Supreme Court judgment the sum of Rs. 49,066 has to be exempted under section 80K and in the light of the AAC's own order the sum of Rs. 31,327 has to be allowed. The judgment in Rajendra Prasad supports the order of the AAC for allowing the deduction of Rs. 31,327. As already stated, similar deduction has been allowed in earlier and later years and we see no reason why the assessee's claim which is similar to other years, should be denied only on the ground that these proceedings are reassessment proceedings under section 147(a). 15. We may state that regarding the quantum of Rs. 31,327 no arguments were advanced on behalf of the revenue. 16. For the aforesaid reasons, we direct that the sum of Rs. 31,327 should be allowed as a deduction under section 57 of the Act. 17. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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