Calcutta High Court
Commissioner Of Income-Tax vs Keshoram Industries Ltd. on 7 April, 2004
Equivalent citations: (2005)193CTR(CAL)116, [2004]271ITR353(CAL)
Author: Soumitra Pal
Bench: Soumitra Pal
JUDGMENT M.H.S. Ansari, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal (the "ITAT"), as directed has drawn up a statement of case and referred the following questions of law arising out of its order in I. T. A. No, 537 (Cal) of 1989 pertaining to the assessment year 1974-75 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment under section 143(3)/147 was not regular assessment and interest under section 139(8) was not chargeable on the delay in filing the return of income ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief under section 80G on the donation of Rs. 1,57,500 when the same was not claimed in the original return and was not allowed accordingly ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in affirming the Commissioner of Income-tax (Appeals) direction to carry forward the correct amount of deficiency under section 80J(3) of the Income-tax Act, 1961, when the Assessing Officer had already allowed in the original assessment order of the assessee such deficiency to be carried forward ?"
2. With respect to question No. 3 the admitted position is that the same does not require to be answered by this court as it merely pertains to the correct working out of the carry forward of deficiency under section 80J.
3. With regard to question No. 1 the facts relevant are that the assessee filed its original return of income on February 19, 1974, and there was a delay in filing of the same by four months. The assessee filed another return on March 31, 1987, under the amnesty scheme and the assessment was completed. Notice under section 148 was issued and in response thereto it was stated that the return filed on March 31, 1987, is to be treated as compliance with the notice under section 148. Interest under section 139(8) of the Income-tax Act was found chargeable as the return was filed on February 19, 1974, with the delay of four months. It is the admitted case of learned counsel for both, the Revenue and the assessee, that this question is to be answered in favour of the assessee in the light of the judgment of the Supreme Court in K. Govindan and Sons v. CIT [2001] 247 ITR 192.
4. Therefore, the only question now to be determined by this court is question No. 2 above. The same relates to the grant of relief under section 80G on the donation of Rs. 1,57,500. The facts relevant to the said question are that :
The assessee in its original return did not make any claim under section 80G on the donation amount of Rs. 1,57,500. The assessee, however, in its return filed under the amnesty scheme claimed deduction under section 80G on the said donation which was disallowed by the Assessing Officer on the ground that the same was not claimed in the original return. In appeal, the Commissioner of Income-tax (Appeals), however, accepted the contention of the assessee that when taxable income has arisen, the deduction as claimed by the assessee has got to be allowed and directed the Assessing Officer to allow the relevant deduction subject to fulfilment of other conditions. The Income- tax Appellate Tribunal upheld the order of the Commissioner of Income-tax (Appeals). It also agreed with the assessee's counsel that once a reassessment is being made, the entire matter is open and the assessee can make and claim all such deductions and reliefs as are available to it under law.
5. It is the contention of Mr. P. K. Mallick, learned senior counsel for the Revenue, that the question is covered by the judgment of the Supreme Court in CIT v. Sun Engineering Works P. Ltd. wherein it was held that where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined only to such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which have been decided in the original assessment proceedings. It was further submitted by Mr. Mallick that the judgment relied upon by the assessee's counsel before the Income-tax Appellate Tribunal in CIT v. Indian Rare Earth Ltd. [1990] 181 ITR 22 (Bom)[FB] and the judgment of various High Courts which have taken the view that in the proceedings under section 147 of the Act the entire assessment is reopened, the original assessment is "wiped out" and the assessee can put forward all pleas were considered by the Supreme Court in Sun Engineering Works P. Ltd, , and it was observed that the same support their conclusions relying upon the judgment of the Supreme Court in v. Jaga mohan Rao v. CIT and EPT , the Supreme Court, it was submitted by Mr. Mallick, examined the judgment in v. Jaganmohan Rao's case and explained the same in the following terms (page 319) :
"The principle laid down by this court in v. Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act), the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of 'under assessment' based on clauses (a) to (d) of Explanation 1 to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in v. Jaganmohan Rao's case , therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek re opening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in v. Jaganmohan Rao's case , as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'underassessment' but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case....."
6. It was thereupon submitted by Mr. Mallick that question No. 2 in the light of the aforesaid judgment need to be answered in favour of the Revenue and against the assessee.
7. On the other hand, Mr. Khaitan, learned counsel for the assessee, submitted that the judgment in CIT v. Sun Engineering Works P. Ltd. is a two-judge Bench judgment whereas the judgment in v. Jaganmohan Rao's case , is a three-judge Bench judgment. The same was followed by another two-judge Bench of the Supreme Court in ITO v. Mewalal Dwarka Prasad and more recently by a three-judge Bench in ITO v. K. L. Srihari (HUF) .
8. True as contended by Mr. Khaitan in K. L Srihari (HUF) , a three-judge Bench considered the following judgments :
(1) CIT v. Sun Engineering Works P. Ltd. ;
(2) ITO v. Mewalal Dwarka Prasad ; and (3) v. Jaganmohan Rao v. CIT and EPT .
but observed that (page 194) :
"In these circumstances we do not consider it necessary to go into the question that is raised and the same is left open ..."
9. It has been noticed in the said judgment that the special leave petitions had been directed to be placed before the three-judge Bench because it was felt that (page 194) "dissonant views have been expressed by different Benches of this court on the scope and effect of reopening of an assessment under section 147 of the Income-tax Act, 1961. It has been pointed out before us that the matter has earlier been considered by a Bench of three judges in v. Jaganmohan Rao v. CIT and EPT and the observations in the said case came up for consideration before two judges' Bench of this court in ITO v. Mewalal Dwarka Prasad and in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 and that there is a difference in the views expressed in said later judgments".
10. Mr. J. P. Khaitan laid emphasis upon the statements in the Supreme Court judgment K. L. Srihari (HUF) , which are to the following effect (page 194) :
". . . we are satisfied that the said assessment order makes a fresh assessment of the entire income of the respondent-assessee and the High Court was, in our opinion, right in proceeding on the basis that the earlier assessment order had been effaced by the subsequent order . . "
11. It was, therefore, the submission of Mr. Khaitan that the earlier assessment stands effaced by the subsequent assessment order. Mr. Khaitan, learned counsel for the assessee, further raised the contention which found favour in the appeal before the learned Commissioner of Income-tax (Appeals), viz., that when taxable income is determined the deduction claimed by the assessee has got to be allowed. It was elaborated by submitting that when there was no taxable income there was neither the question of claiming any deduction or allowing of such deduction under section 80G. Relying upon the judgment of the Supreme Court in Divisional Controller, KSRTC v. Mahadeva Shetty , it was submitted by Mr. Khaitan that a precedent is to be applied with caution. It is the ratio that is binding precedent and relied upon the following observations (page 206) :
"The decision ordinarily is a decision on the case before the court, while the principle underlying the decision would be binding as a precedent in a case which comes up for decision subsequently. Therefore, while applying the decision to a later case, the court dealing with it should carefully try to ascertain the principle laid down by the previous decision. A decision often takes its colour from the question involved in the case in which it is rendered. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation. The only thing binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and are not authoritative. The task of finding the principle is fraught with difficulty, as without an investigation into the facts, it cannot be assumed whether a similar direction must or ought to be made as a measure of social justice. Precedents sub silentio and without argument are of no moment. Mere casual expression carry no weight at all, nor every passing expression of a judge, however eminent, can be treated as an ex cathedra statement having the weight of authority."
12. Having heard learned counsel for the respective parties, we are respectfully of the view that in K. L. Srihari (HUF) [2001] 250 ITR 193, the Supreme Court did not consider it necessary to go into the views expressed by different Benches of the Supreme Court on the scope and effect of reopening of an assessment under section 147 of the Income-tax Act. We, respectfully, are, therefore, of the view that the judgment of the Supreme Court in Sun Engineering Works P. Ltd. has neither been dissented from nor overruled.
13. No doubt as contended by Mr. Khaitan, the judgment in Sun Engineering Works P. Ltd. , is a two-judge Bench judgment. By the said judgment, the three-judge Bench judgment in v. Jaganmohan Rao's case , has not been and could not have been overruled. As noticed supra, the Supreme Court in Sun Engineering Works P. Ltd. has explained the principle laid down in v. Jaganmohan Rao's case . The ratio of the judgment in Sun Engineering Works P. Ltd. is to be found in the following passage from the said judgment (page 320) :
"As a result of the aforesaid discussion, we find that, in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of the notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words 'such income' in section 147 clearly refer to the income which is chargeable to tax but has 'escaped assessment' and the Income-tax Officer's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 of the Act which are for the benefit of the Revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed." (emphasis Here printed in italics. supplied)
14. In such view of the matter, we accept the contention of Mr. Mallick, learned senior counsel for the Revenue that question No. 2 is covered by the judgment of the Supreme Court in Sun Engineering Works P. Ltd. . The contentions of Mr. J. P. Khaitan, learned counsel for the assessee, have accordingly to be rejected.
15. In the result, question No. 1 is answered in the affirmative and in favour of the assessee.
16. Question No. 2 is answered in the negative and in favour of the Revenue and against the assessee.
17. Question No. 3 does not require to be answered.
18. Reference is accordingly disposed of.
Soumitra Pal, J.
19. I agree.