9911796707
TMI Blog2006 (3) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... NKARAN. JUDGMENT The judgment of the court was delivered by K.S. Radhakrishnan J.-The Commissioner of Income-tax is aggrieved by the order of the Tribunal interfering with the reopening of the assessment under section 143(3) read with section 147 of the Income-tax Act, 1961. The questions of law raised by the Commissioner are consolidated, redrafted and stated as follows: "(a) Whether, the assessee who is following the mercantile system of accounting was justified in claiming expenditure for liability which did not relate to the previous year relevant to the assessment year on the ground that the assessee was demanding a waiver from the Government and that the amount paid being disputed? (b) Whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment justifying reopening of assessment and whether reopening of assessment was on the basis of mere change of opinion of the successor officer? (c) Whether the Assessing Officer was justified in issuing notice under section 148 after the expiry of four years from the end of the assessment year?" The assessee is a State Government undertaking. Original assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the appeal and set aside the order. Aggrieved by the same, this appeal has been preferred by the Revenue. Sri P.K. Ravindranatha Menon, senior standing counsel for the Revenue, submitted that since the assessee was maintaining its accounts on mercantile basis unless and until the liability to penal interest of Rs. 63,18,000 had crystallised during the previous year relevant to the assessment year 1984-85 the assessee would not be entitled to claim deduction. Counsel submitted that penal interest amounting to Rs. 63,18,000 was levied by the Sales Tax Department in view of the assessee's default in payment of purchase tax for the year 1978-79. Counsel submitted that the assessee was following the mercantile system of accounting wherein receipt being not the sole test of chargeability and profits and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax. The assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen. Counsel also submitted that the endeavour made by the assessee to get out of the liability by prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act. Counsel submitted, admissibility of the expenditure of Rs. 63,18,000 was already disclosed and there was no failure on the part of the assessee in disclosing truly and fully all material facts relating to the assessment for the year 1984-85. Counsel submitted, the assessment was reopened on a change of opinion of the officer concerned and hence reopening was invalid. Counsel further submitted, the liability to pay penal interest of Rs. 63,18,000 got crystallised during the previous year relating to the assessment year 1983-84 and hence the Assessing Officer had committed an error in treating the same as relating to the earlier assessment years. Counsel referred to the letter dated October 23, 1990, issued by the Deputy Commissioner of Income-tax (Assessment) to the assessee which would indicate, according to counsel, the assessee had disclosed all the relevant facts. Reference was also made to the annual report and accounts for the year 1983-84. Counsel submitted, all these materials would show that the assessee had disclosed all the relevant facts. Resultantly counsel submitted, the assessing authority was not justified in reopening the assessment and that no question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 21,373.70 was served on the assessee by the. Collector of Excise on December 9, 1954, and though the assessee objected to the demand and was seeking to get the order reversed, he debited the amount in his accounts on April 12,1955, the last day of his accounting year, and claimed the amount as a deductible allowance in computing his income for the assessment year 1955-56 on the ground that he was keeping his accounts on the mercantile basis and a legal liability to pay the amount had accrued in the accounting year 1954-55 when he received the demand. The claim was disallowed by the income-tax authorities on the ground that the assessee did not actually pay the amount and he disputed his liability to pay the amount and preferred appeals before the statutory authorities. Allowing the appeal, the Madras High Court held as follows: "The liability to pay excise duty on the part of the assessee arose out of the levy of the duty and the demand made against him for payment of such duty. Any dissatisfaction on his part regarding the quantum or propriety of the assessment and levy of the duty cannot minimise the liability or impair its effectiveness. He may raise a dispute over it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is undisputed. We are, therefore, of the view, the assessee is not entitled to get the deduction for the abovementioned amount since it had not accrued during the previous year relating to the assessment year 1984-85 benefit of which should not have been claimed by the assessee and got approved when the assessment was completed under section 143(3) on February 10, 1988. We are of the view, the assessee which is otherwise not entitled to claim deduction, claimed it and got it approved and has committed a gross illegality by projecting incorrect facts and that the assessee was not disclosing fully and truly all relevant facts. The assessee should not have claimed the benefit to which the assessee is not otherwise entitled since the assessee is following the mercantile system of accounting. The very purpose and object of section 147 and also a proviso to section 147 as amended would be defeated if such a plea is accepted. We may in this connection refer to section 147(a) which is extracted below for easy reference: "147. Income escaping assessment.- It- (a) If the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below for easy reference. "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of no relevance or consequence. The assessee, in our view, had claimed a benefit which he should not have claimed, a fact which was well within the knowledge of the assessee. The assessee who was following the mercantile system of accounting should not have claimed deduction of penal interest which had accrued not in the previous year relevant to the assessment year but in the earlier years. Non-disclosure of the fact of liability to pay penal interest under the Kerala General Sales tax Act was not in the relevant previous assessment year but in the earlier assessment years. This the assessee had not disclosed. Silence on the part of the assessee may at times lead to the impression of nondisclosure of full and true facts. We may in this connection refer to the decision of the apex court in Phool Chand Bajrang Lal's case [1993] 203 ITR 456 wherein the court held as follows: "We are not persuaded to accept the argument of Mr. Sharma that the question regarding the truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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