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TMI Blog1976 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to as "the 1961 Act". The reason for reopening of the assessments was that the income was under-assessed by giving deduction for the development rebate in the original assessments, while the assessee was not entitled to such development rebate at all. In appeals preferred by the assessee to the Appellate Assistant Commissioner, he held in respect of all the four assessment years, that the reopening of the assessments under section 147(b) was not legal because it was based on nothing more than the change of opinion on the part of the Income-tax Officer. On merits, the Appellate Assistant Commissioner held that the assessee was entitled to deduction for the development rebate. In respect of all these four years, appeals were preferred by the department to the Income-tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner. When the appeal in respect of the assessment year 1960-61, namely, I.T.A. No. 18964 of 1966-67 came up for hearing before the Tribunal, the departmental representative agreed, on the authority of the decision of the Supreme Court in Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710, which we shall have o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the said orders and the Income-tax Appellate Tribunal, Madras Bench, under section 256(1) of the 1961 Act, has referred the following questions of law for the opinion of this court : " (1) Whether, on the facts and in the circumstances of the case, the initiation of proceedings under section 147(b) and the reassessment in each of the assessment years 1961-62 to 1963-64 is justified in law ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in taking notice of a reason for reopening the assessment under section 147(b) when that reason had not been referred to by the Income-tax Officer and the Appellate Assistant Commissioner ? (3) Whether, on the facts and in the circumstances of the case, there was any material to support the finding of the Tribunal that the development rebate disallowed in the supplementary assessment proceedings was in respect of 'casablanca conversion materials' ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to the development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, on the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b). " Clause (b) of section 33(1) of the 1961 Act refers to the percentage of development rebate to be allowed in respect of various years in relation to different plant and machinery. The only other statutory provision that requires attention is section 147(b) of the 1961 Act. That section 147(b) is : " If notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of infomation in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall first consider the question as to whether the Income-tax Officer had come into possession of information subsequent to the original assessment or not in the present case. The notice issued by the Income-tax Officer under section 148 of the 1961 Act for reopening the assessment has not been placed before the court. Consequently, we can find out only from the order passed by the Income-tax Officer as to what the information was which he came into possession of subsequent to the passing of the original order of assessment, which could constitute a reason for him to entertain the belief that the income had escaped assessment. For this purpose, it is absolutely necessary to refer to and extract the material portion of the order passed by the Income-tax Officer, while he reopened the assessment and passed fresh orders of assessment for all the three years. It is not disputed that though separate orders were passed, they are more or less in the same terms. Consequently, we extract the order of the Income-tax Officer dated 30th December, 1966 : Assessment order " The original assessment in this case for 1961-62 was completed on September 29, 1962, on a total income of Rs. 20,17, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his argument the representative relied on the following decisions of the High Court and the Supreme Court : (i) Aruna Mills Ltd. (Gujarat High Court) [1966] 59 ITR 507. (ii) Mir Mohammad Ali (Supreme Court) [1964] 53 ITR 165. (iii) Raju and Mannar (Supreme Court) [1966] 60 ITR 246. The assessee's representative also argued that in the alternative the value of the conversion materials or component parts may be allowed as revenue expenditure in the light of the decision of the Madras High Court in the case of Mahalakshmi Textile Mills [1965] 56 ITR 256. The alternative contention cannot be accepted, firstly, for the reason that such a claim was not made at the time of the original assessment and so cannot be admitted at this stage, and, secondly, for the reason that the department has not accepted the decision of the Madras High Court and the matter has been taken in appeal before the Supreme Court. Then, as regards the contention that conversion materials and accessories constitute machinery qualifying for development rebate, it has to be stated that they are mere accessories or replacements and not machinery as contemplated under section 33 of the Act. The facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to act under section 147(b) of the 1961 Act. That the Income-tax Officer acted solely on the basis of bestowing a second thought over the same matter is clear from his other statement, namely : " Thus the discovery of a mistake committed in the original assessment constituted sufficient information to invoke the provisions of section 147. " Therefore, from this order of the Income-tax Officer, it is indisputably clear that there was no external information whatever which came into his possession subsequent to the original order of assessment. The only other question is, whether he had any internal information in the form of an information or a ground or a fact which he found out or discovered from the records themselves. It is only in this context that a reference to the decision of this court in Salem Provident Fund Society Ltd. v. Commissioner of Income-tax [1961] 42 ITR 547 (Mad) becomes necessary. The very provision of section 34(1)(b) of the 1922 Act corresponding to section 147(b) of the 1961 Act itself does not say whether the information should be external or internal. In that context, this court held in the said decision that the information may be obtained by the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointed out-See [1961] 42 ITR 547, 562 (Mad) : " Section 35 permits rectification where the mistake is apparent on the face of the record of assessment. The learned counsel for the department could not challenge the correctness of the plea of the assessee, that the original assessments completed in 1949 for both the assessment years under consideration, now could have been rectified under section 35. The mistakes were apparent on the face of the assessment orders themselves. What should have been subtracted was added to ascertain the deficiency disclosed by the actuarial reports. It should be remembered that the Income-tax Officer first contemplated recourse to section 35 but dropped it as the assessee did not agree. " It is thereafter that this court proceeded to state : " We should like to emphasise even at the outset that we are not dealing with a case of change of opinion on the part of the assessing authority, but with an error in computation obvious on the face of the order of assessment itself. That the real deficiency or surplus in each of the relevant years was to be ascertained by subtraction and not addition of the deficiency for each of the two years could never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147(b) of the 1961 Act. Therefore, that decision can be said to be an authority only for the proposition that the information need not necessarily be extraneous in all cases and that in cases where obvious mistakes are apparent on the face of the record of assessment, that record itself can be a source of information. As a matter of fact, it is this aspect of the judgment of this court which was referred to by the Supreme Court in Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, Sales Tax Officer [1968] 21 STC 326. However, as far as the facts of the present case are concerned, it cannot be said that the allowing of development rebate in the original order constituted an obvious mistake apparent on the face of the record. In fact, the development rebate is to be allowed on certain conditions being satisfied. Therefore, the very fact that the development rebate was allowed in the original order would clearly lead to the inference that the Income-tax Officer had applied his mind as to the eligibility for the development rebate under the provisions of section 10(2)(vib) of the 1922 Act in respect of the assessment year 1961-62 and section 33 of the 1961 Act in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law . The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. " That mere change of opinion is not sufficient to confer jurisdiction on the Income-tax Offier to reopen an assessment is so well settled that the Supreme Court in Commissioner of Income-tax v. Dinesh Chandra H. Shah [1971] 82 ITR 367, 371 stated : " It is well settled by now, and Mr. Desai quite rightly does not dispute the proposition, that mere change of opinion could not be a valid ground for reopening the assessment under section 34(1)(b) of the Act. " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(b) of the 1961 Act, still the way in which the Tribunal has referred to the submissions made on behalf of the revenue would appear to indicate that it had accepted that contention. However, we are unable to hold that any such information constituted the motivation for issuing the notice under section 148 of the 1961 Act. In the first place, neither the audit note nor the reasons recorded by the Income-tax Officers on the respective dates referred to already were placed before the court and, therefore, this court has no opportunity to test the validity of the argument with reference to the contents of the note as well as the reasons recorded by the Income-tax Officers. Secondly, if the department or the Tribunal relied upon this audit note, it was totally unnecessary to rely upon the decision of this court in Salem Provident Fund Society Ltd. v. Commissioner of Income-tax [1961] 42 ITR 547 (Mad) in support of the action taken by the Income-tax Officer. Thirdly, even the said audit objection could not have constituted a ground to make the Income-tax Officer entertain a belief that the income had escaped assessment. We shall now explain our reasons for taking this view. We have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision can ever have to the case of withdrawal of development rebate already granted passes one's comprehension. If that decision can have any relevance at all, it can be only in the form of justification of the grant of development rebate already allowed. As a matter of fact, the Supreme Court in a subsequent decision in Commissioner of Income-tax v. Raju and Mannar [1966] 60 ITR 246 simply followed the deci- sion in Commissioner of Income-tax v. Mir Mohammad Ali [1964] 53 ITR 165 (SC) in relation to the claim for development rebate allowed under section 10(2)(vib) of the 1922 Act. Therefore, we are unable to hold that the reference in the audit note to the decision of the Supreme Court in Commissioner of Income-tax v. Mir. Mohammad Ali [1964] 53 ITR 165 could ever have constituted " information " as contemplated by section 147(b)) of the 1961 Act. Lastly, if that was the information on which the Income-tax Officer acted, nothing prevented him from referring to the same in his assessment order for rejecting the contention of the assessee that there was no new information or ground and that there was only a change of opinion. As a matter of fact, even before the Appellate Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority ; (3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment. (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law. If these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment. It is obvious that where the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application. " (U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the development rebate was allowable or not. For this purpose, reliance was placed on a decision of this court in Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. [1965] 56 ITR 256 (Mad) as affirmed by the Supreme Court in Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. In that case, in respect of certain machinery purchased for the purpose of installing what is called casablanca conversion system, the assessee was claiming before the Income-tax Officer as well as the Appellate Assistant Commissioner that it was entitled to development rebate. But when that claim was rejected and when the matter was before the Tribunal, the assessee in the alternative claimed that the entire expenses constituted revenue expenditure and that, therefore, the whole of it would have to be allowed. The Tribunal found as a fact that the expenditure was only revenue in nature and, therefore, the whole of it had to be allowed. When the matter was taken up on reference to this court, this court held that there were materials before the Tribunal for coming to the conclusion that the expenditure was only revenue in nature. When the matter was taken up further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny enduring advantage or a new asset had been brought into existence. The need for going in for these casablanca parts arose, for the old parts were no longer available. That statement was accepted by the Tribunal and was not contradicted by the department. The result was that only the original asset was held to have been preserved and maintained. As we said, on a question of fact, the Tribunal found that the fitting of these minor parts bad no effect upon the machinery as a whole. In a reference under section 66 of the Act, we are bound by this decision on a question of fact. " Thus, it, is clear that neither this co-art nor the Supreme Court had occasion to pronounce any opinion on the nature of the machinery involved in that case. All that they pointed out was that the Tribunal as a fact found that no enduring asset was brought into existence and that what actually happened was that the old asset was maintained and preserved by the replacement of certain minor parts. We are of the opinion that that decision itself cannot be said to be an authority for holding that the machinery involved in the present case did not come within the scope of section 10(2)(vib) of the 1922 Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the members of the Tribunal as to the working of the mills as well as the reports obtained with regard to the nature, character and function of the machinery in question. No such enquiry whatever has been made in the present case. In addition, in Mahalakshmi Textile Mills' case [1967] 66 ITR 710 the judgment of the Supreme Court itself refers to the actual materials involved therein and the Supreme Court pointed out in Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd.--See [1967] 66 ITR 710, 711. " Substantially, this (casablanca conversion system) involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring-frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechanism. " In this case, the Income-tax Officer has given particulars of the machinery relevant to the three assessment years in question in his orders dated December 30, 1966, and December 31, 1966, annexed as annexures A-1 to A-3 to the statement of the case before this court. It is admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the Tribunal had no material to find that the development rebate disallowed in supplementary assessment proceedings was in respect of casablanca conversion materials covered by the decision in the Mahalakshmi Textile Mills' case [1967] 66 ITR 710 (SC), referred to already. Under these circumstances, we answer the first question, namely, " whether, on the facts and in the circumstances of the case, the initiation of proceedings under section 147(b) and the assessments in each of the assessment years 1961-62 to 1963-64 is justified in law ? " in the negative and in favour of the assessee. We answer the second question, namely, " whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in taking notice of a reason for reopening the assessment under section 147(b) when that reason had not been referred to by the Income-tax Officer and the Appellate Assistant Commissioner ? " again in the negative and in favour of the assessee. As regards the third question, namely, " whether, on the facts and in the circumstances of the case, there was any material to support the finding of the Tribunal that the development rebate disallowed in the supplem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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