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TMI Blog1996 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ld should be considered to be an asset of the business of the assessee in its entirety even though only one-third portion of the building was used for purposes of the business?" The original assessment in this case was completed on December 22, 1971. It has been held by the Income-tax Officer that it was noticed that the terminal allowance worked out and claimed by the assessee in respect of property sold by it in Pudukottai to another concern, Southern Roadways Private Ltd., was not correct. He, therefore, reopened the assessment under section 147 of the Act, and in response to the notice, the assessee filed a revised return declaring the same income as was originally furnished. It was also stated before the Income-tax Officer that the assessee had furnished all the material particulars in respect of the property sold, including the depreciation allowed, the sale proceeds realised and the terminal depreciation claimed by it under section 32(1)(iii) and, therefore, the reopening of the assessment under section 147 was not valid. According to the Income-tax Officer, in the assessment order the assessment has been reopened on March 20, 1975, under section 147(b) of the Act, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the Appellate Assistant Commissioner, challenging the validity of reopening under section 147 read with section 143(3) of the Act and also contesting the order passed by the Income-tax Officer on the merits. The Appellate Assistant Commissioner has observed that on the facts that were before the Income-tax Officer at the time of original assessment, the Income-tax Officer had allowed a loss of Rs. 17,022 which was actually the terminal allowance that was allowed by the Income-tax Officer under section 32(1)(iii) of the Act. He further pointed out that the action of the Income-tax Officer in revising his opinion on the same facts and in determining profit under section 41(2) at Rs. 47,576 merely amounts to a change of opinion on the same facts. He, therefore, held that the Income-tax Officer had no jurisdiction to reopen the assessment under section 147 of the Act. The Appellate Assistant Commissioner further pointed out that even on the merits the loss of Rs. 17,022 is admissible as originally allowed in view of the decision in Allied Publishers (P.) Ltd. v. CIT [1968] 68 ITR 546 (Bom). According to the Appellate Assistant Commissioner, the Income-tax Officer has not as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been done in accordance with law, that the note of the head clerk to the Income-tax Officer constitutes an information under section 147(b) and, therefore, the reopening has been validly made under section 147 of the Act. The assessee, on the other hand, contended that the reopening is without jurisdiction, when the entire material regarding the original cost, the depreciation allowed and the value for which the property has been sold were before the Income-tax Officer at the time of original assessment. The assessee relied upon the decision in Allied Publishers P. Ltd. v. CIT [1968] 68 ITR 546 (Bom), and the decision in CIT v. Chiranji Lal [1969] 74 ITR 480 (Delhi). In effect, it was argued that in the place of Rs. 17,022 allowed as the terminal allowance, a fair proposition say, one-third of that only can be considered to be allowable under section 32(1)(iii). It was argued that there can be no question of profit to be considered as arising under section 41(2). According to the assessee, the Income-tax Officer has not reopened the assessment, keeping in view the provisions of section 38(2). On the other hand, he had reopened the assessment on an entirely different basis on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts a business asset of the assessee. The assessee has used the part of it that is necessary for its business and let out the balance, that was not used for its business. Nevertheless the asset should be considered to be an asset of the business of the assessee in its entirety. If this is the correct position, then the determination of the W. D. V. will have to be made in accordance with the provisions of section 43 of the Act. Thus, ultimately, the Tribunal dismissed the appeal filed by the Department. Before us learned standing counsel appearing for the Department submitted that the Appellate Assistant Commissioner erred in holding that the Income-tax Officer has not validly reopened the assessment. According to learned standing counsel, the reopening should have been sustained by the Appellate Assistant Commissioner and the Tribunal on the basis of the principles enunciated by the Supreme Court in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287. It was argued that the Income-tax Officer while making the original assessment had ignored the admitted position that only one-third of the property was used for the business and the provisions of sections 38(2) and 41(2). It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 147(b) of the Act. It was also urged that the Income-tax Officer cannot be considered to have originally formed an opinion on the issue of actual cost as defined under section 43(1), since only a portion of the building was utilised for the purpose of the business. Hence, it was submitted that the reopening under section 147(b) of the Act was valid and the Tribunal was not correct in stating that the reopening under section 147(b) of the Income-tax Act, 1961, is bad. It is the contention of learned standing counsel that in the present case the sale value is more than the W. D. V. Therefore, there is no question of allowing terminal allowance under section 32(1)(iii), but only the profit has got to be assessed under section 41(2) of the Income-tax Act, 1961. On the other hand, learned counsel appearing for the assessee while supporting the order passed by the Tribunal, submitted that the reopening is without jurisdiction. The entire materials regarding the original cost, depreciation allowable and the value for which the property had been sold were placed before the Income-tax Officer at the time of original assessment. The Income-tax Officer, according to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of the one-third of the sale consideration. All along the assessee was claiming depreciation on the value of one-third of the property, which was actually used for the purpose of the business. It was, therefore submitted that even section 41(2) profit should be ascertained on the basis of the one-third value of the property, which was actually used for the business. According to learned standing counsel, the asset is capable of division, and therefore, only one-third of the property, which was utilised for business purpose for which depreciation was allowed in the earlier orders alone would be considered for assessing profit under section 41(2) of the Act. On the other hand, learned counsel appearing for the assessee submitted that terminal allowance was granted by the Income-tax Officer in the original assessment on the basis of the calculation submitted by the assessee. In fact, the assessee was using only one-third of the property in question for business purpose and two-thirds of the property was let out. In the earlier orders also depreciation was claimed on the value of one-third of the property. In order to ascertain the profit under section 41(2), the asset cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance is given to the assessee so as to compensate for the actual cost incurred by the assessee. Under section 38(2) when the asset has been partly used for the purpose of business and partly for personal purposes, terminal allowance will have to be restricted to a fair proportion of the total terminal allowance, if the property had been used entirely for business purpose. In the present case, the total terminal allowance is Rs. 17,022. Under section 38(2) of the Act, the Income-tax Officer should have allowed only a proportion of it. The Income-tax Officer himself held in the earlier assessments regarding the grant of depreciation on this property, the allowance under section 32(1)(iii) of the Act after this building was sold should be only one-third of this amount of Rs. 17,022. If the assessment in the original assessment had been made properly, then the terminal allowance should have been restricted only to one-third of Rs. 17,022. To that extent there has been an excess allowance of depreciation. The Income-tax Officer reopened the assessment on the basis of the note submitted by his head clerk. The note put up by the head clerk pointed out the fact that in giving the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration all these facts, the Income-tax Officer would have granted terminal allowance in the original assessment. It may be wrong, but whether this wrong can be set right by reopening the assessment under section 147(b) of the Act. If the Income-tax Officer had not considered the materials available on record and came to a conclusion in the original assessment, and if later on he found that such assessment was wrong, then it is open to him to reopen the assessment to correct the mistake. But if the materials on record were already considered by him while making the assessment, if he found that such an order was not correct, at a later stage, he cannot reopen the assessment by reassessing the same materials, which were already considered by him in the original assessment. In Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287, the Supreme Court while considering the provisions of section 34(1)(b) of the Indian Income-tax Act, 1922, held that on a combined review of the decisions of this court, the following tests and principles would apply to determine the applicability of section 34(1)(b) to the following category of cases : "(1) where the information is as to the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, in doing so, he had obviously missed to take note of the law laid down in the case of G. R. Ramachari and Co. [1961] 41 ITR 142 (Mad) and there was nothing to show that the case had been brought to his notice. When he, subsequently, became aware of the decision, he initiated proceedings under section 147(b). The material which constituted information and on the basis of which the assessment was reopened was the decision in G. R. Ramachari and Co. [1961] 41 ITR 142 (Mad). This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the Income-tax Officer could have known of it had he been diligent, the obvious fact was that he was not aware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings for assessment." It was further held that "even making allowance for this limitation placed on the observations in Kalyanji Mavji's case [1976] 102 ITR 287 (SC), the position as summarised by the High Court in A. L. A. Firm v. CIT [1976] 102 ITR 622 in the following words represents, in our view, the correct position of law : 'The result of these decisions is that the statute does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact remains that the Income-tax Officer is aware of the fact that in the earlier assessment years, depreciation was allowed on the one-third value of the property, since only that portion was used for the purpose of business by the assessee. In the original assessment for the assessment year 1971-72, the Income-tax Officer granted the terminal allowance as calculated by the assessee. The assessee calculated the terminal allowance by taking into consideration the entire value of the property. According to the Income-tax Officer, the assessee is entitled to terminal allowance under section 32(1)(iii) only with regard to the one-third of the sale consideration, because the assessee was using only one-third of the building for the purpose of business. In the reassessment, the Income-tax Officer not only withdrew the terminal allowance already granted in the original assessment, but also brought to tax the profit under section 41(2) of the Act. On those facts, the point for consideration is, whether it can be said that the Income-tax Officer has considered in the original assessment the material relating to terminal allowance under section 32(1)(iii) of the Act. In fact all the informa ..... 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