Karnataka High Court
Venkatesh Power Works vs Commissioner Of Income Tax on 1 June, 2005
Equivalent citations: (2005)196CTR(KAR)481, ILR2005KAR2758, [2005]278ITR436(KAR), [2005]278ITR436(KARN), 2005 AIR - KANT. H. C. R. 1713, (2005) 278 ITR 436, (2005) 196 CURTAXREP 481, (2005) 189 TAXATION 89, (2005) 147 TAXMAN 357, (2005) 59 KANTLJ(TRIB) 256
Author: H.L. Dattu
Bench: H.L. Dattu, H.N. Nagamohan Das
JUDGMENT H.L. Dattu, J.
1. The Income Tax Appellate Tribunal, Bangalore Bench, Bangalore, at the instance of the assessee, has stated the case and has referred the following question of law for consideration and opinion of this Court:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had not disclosed all the primary facts necessary for completing the assessment, as available with the assessee, and before completion of the original assessment and hence, the assessing officer had jurisdiction to reopen the assessment under Section 147(a) of the Act?"
2. The assessee was carrying on the business of generating and supplying electricity in the township of Bagalkot. For the assessment year 1973-74, the assessee had filed its return of income on 3-11-1975, declaring the income of Rs. 32,953/- for the accounting period 1-4-1972 to 18-11-1972, on the ground that the business of the assessee firm was taken over by the Government on 13-11-1972. Assessment of the assessee for this year was originally completed by the Assessing Officer under Section 143(3) of the Act on 11-12-1975, determining the taxable income at Rs. 45,130/-. After completion of the assessment proceedings, the Income Tax Officer had received the information, that, since the undertaking of the assessee firm had been taken over by the State Government, the assessee is entitled to get compensation amount on that account. In view of this information, the Assessing Officer was of the opinion that by reason of the aforesaid omission or failure on the part of the assessee to disclose fully and truly all material facts in the return of income filed under Section 139 of the Act for the assessment year 1973-1974, for his assessment, the income chargeable to tax has escaped assessment for that year, as envisaged under Section 147(a) of the Act. Accordingly, in order to bring to tax the escaped income, the Assessing Officer had issued and served a notice to the assessee under Section 148 of the Act, interalia directing the assessee to show cause, why the concluded assessment should not be reopened and to bring to tax the income which has escaped assessment. In response to the said notice, the assessee firm had filed the return of income under protest on 4-9-1980, declaring the business income of Rs. 32,953/- and the compensation of Rs. 6,94,912/- was shown in Part III of the return.
3. Before the Income Tax Officer, it was the contention of the assessee's representative, that there was no material on record on the basis of which, a belief has been formed that, income has escaped assessment within the meaning of Section 147(a) of the Act and in the absence of such material, the Income Tax Officer could not have initiated any reassessment proceedings. The other contention that was canvassed was, that the primary facts of taking over the business concern by the Karnataka Electricity Board had been disclosed in the return of income filed at the time of original assessment and the claim made for payment of compensation before the Karnataka Electricity Board was brought to the notice of the Assessing Officer and the same is taken note of by the Income Tax Officer at the time of completing the original assessment under Section 143(3) of the Act and therefore, the Assessing Officer has no jurisdiction to initiate any action under Section 147(a) of the Act for the assessment year 1973-1974. These facts would show that the assessee had disclosed fully and truly all material facts necessary for his assessment for the assessment year 1973-1974.
4. The assessing authority while considering the contention of the assessee's representative, in his order of reassessment dated 27-1-1988, has observed, that subsequent to the original assessment order for the assessment year 1973-1974, the assessee for the first time had brought to the notice of the Inspecting Assistant Commissioner. Belgaum Range, Belgaum, by his letter dated 18-2-1976 that the firm has to receive compensation from the Government, in lieu of the acquisition of its business undertaking and on the basis of this information, he had directed not only the assessee and also the Karnataka Electricity Board, Bangalore to furnish information regarding valuation of the assets given by the firm for the purpose of compensation, and since the assessee had failed to supply the necessary information, he had made enquiries with the Karnataka Electricity Board, and was ascertained that the assessee had claimed a compensation amount of Rs. 36 lakhs. He has also observed in his order, that from the letters dated 23-10-1972 and 18-12-1972, addressed to the Executive Engineer, Electricity Maintenance Division, Bagalkot, by the assessee firm, it is clear that the firm had filed its claim for compensation, immediately it was taken over by the Karnataka Electricity Board and the same was never disclosed in the return of income filed before the Income Tax Officer when the original assessments were completed on 11-12-1975. He has further observed, that during the original assessment proceedings, the assessee had only disclosed the fact of taking over of its business by the Karnataka Electricity Board on 13-11-1972, but did not disclose the claim of compensation made before the Karnataka Electricity Board or estimated the profits thereof from such acquisition and therefore, the assessee had failed to disclose fully and truly all material facts for the purpose of assessment and income chargeable to tax under the head 'capital gains and profits' under Section 41(2) thereof had escaped assessment and secondly, the claim of the assessee for depreciation in respect of assets sold to Karnataka Electricity Board was wrongly allowed in the year of sale in the original assessment for the assessment year 1973-1974.
5. In the appeal filed against the aforesaid reassessment order passed by the Income Tax Officer, it was contended, that, there was no omission or failure on the part of the appellant while filing the return of income for the assessment year 1973-1974 and therefore, the provisions of Section 147(a) of the Act is not attracted and the Income Tax Officer had no jurisdiction to initiate reassessment proceedings. It was also contended that in the return of income filed for the assessment year 1973-1974, the assessee had stated that the business of distribution of electricity which the assessee was doing was taken over by the Government on 13-11-1972 and hence, the income was disclosed only upto 13-11-1972 and by a letter dated 1-12-1972 it was also intimated to the Income Tax Officer that the business of the assessee was closed. It was also contended that in connection with the recovery proceedings initiated by the Income Tax Officer to recover Tax due for the assessment year, the assessee had intimated the Income Tax Assistant Commissioner by letter dated 24-3-1975, that the compensation amount that requires to be paid for taking over its business is not yet paid and therefore, a request had been made to keep the recovery proceedings in abeyance, till the compensation amount is received and a copy of the letter was also given to the Income Tax Officer and in view of these facts made known to the Income Tax Officer, it was contended that there was no omission to disclose the material facts regarding taking over of the business by the Government and therefore, the provisions of Section 147(a) of the Act are not applicable. The appellate authority while rejecting the contentions canvassed, has noticed in his order, that the Income Tax Officer had reopened the assessment under Section 147(a) of the Act, on the ground that the assessee had not disclosed anything regarding the claim of compensation made before the Karnataka Electricity Board and that depreciation was wrongly allowed in respect of assets sold to Karnataka Electricity Board and according to the appellant authority, the same is justiciable, for the reason, that the assessee though in its return of income filed for the assessment year 1973-1974 had disclosed the taking over of the assessee's business by the Government on 13-11 -1972 but had not disclosed about the claim of compensation made before the Karnataka Electricity Board or the compensation that may be paid by the Karnataka Electricity Board, In so far as the letter dated 24-3-1975 to Income Tax Assistant Commissioner in respect of recovery proceedings for the assessment year 1972-1973, it does not amount to disclosure regarding the compensation receivable and therefore, the Income Tax Officer was justified in reopening the concluded assessment for the assessment year 1973-1974 under Section 147(a) of the Act.
6. Aggrieved by the order passed by the appellate authority, the assessee had carried the matter by way of second appeal before the Income Tax Appellate Tribunal. The only ground that was taken in the memorandum of appeal and argued at the time of hearing, was with regard to jurisdiction of the Income Tax Officer to initiate reassessment proceedings under Section 147(a) of the Act. The Tribunal by its order dated 29-3-1995, while rejecting the assessee's appeal, proceeds on the assumption that the assessee did not disclose even the primary fact relating to taking over of its business undertaking by the Electricity Board. Secondly, on the materials available on record, the assessee did not disclose that it had lodged claim for compensation with regard to such taking over, though it had the knowledge of these facts before the original assessments were completed.
(emphasis is supplied by us)
7. The assessee aggrieved by the aforesaid order of the Tribunal, had requested the Tribunal to state the case, and refer the question of law, which according to it, would arise out of the order passed in ITA No. 1805/1988 dated 29-3-1995, for opinion of this Court, to which we have already made reference in the earlier part of our order.
8. Sri Parthasarathi, learned Counsel for the assessee would reiterate the contentions canvassed by the assessee's representative while contending, that, the Income Tax Officer in order to save the period of limitation prescribed under the Act, has deliberately stated, that the assessee, while filing the return of income under Section 139 of the Act for the assessment year 1973-1974 had not disclosed fully and truly all the material facts necessary for his assessment; and therefore, income chargeable to tax has escaped assessment for that year. According to the learned Counsel, even assuming for the sake of arguments that the case may fall under Section 147(b) of the Act, the limitation for issue of notice in such a case would be four years from the end of the relevant assessment year, and since the proceedings are initiated beyond the period of limitation prescribed under the Act, the same is without jurisdiction and therefore, the first appellate authority and the Income Tax Appellate Tribunal were not justified in sustaining the illegal action of the Income Tax Officer initiated under Section 147(a) of the Act. The learned Counsel, has relied on several decisions including a few decisions of this Court in aid of his submissions and reference to those decisions will be made by us while discussing the issues posed for our consideration and opinion.
9. Sri Seshachala, learned Counsel for the revenue sought to justify the findings and the conclusions reached by the authorities under the Act and that of the Income Tax Appellate Tribunal. In support of his contention, the learned Counsel has relied on the law declared by the Apex Court in the case of Central India Electric Supply Company v. CIT, 247 ITR 54 and in the case of Malegaon Electricity Co. Private Limited v. CIT, Bombay, 78 ITR 466.
10. In our view, the only issue that requires to be decided by us, is, whether the Income Tax Officer was justified in reopening the concluded assessments by invoking the provisions of Section 147(a) of the Act?
11. The question of law referred by the Tribunal for our opinion is in two parts. They are, whether the Tribunal was right in holding that the assessee had not disclosed all the primary facts necessary for completing the assessment, as available with the assessee? and secondly, whether the assessee had disclosed all the primary facts necessary for completing the assessment before completion of the original assessment?
12. The question before us in this reference proceedings is the jurisdiction of the Income Tax Officer to initiate action under Section 147(a) of the Act?
13. Before considering the issues raised and case laws cited at the time of hearing, it is necessary in the first instance to analyse the provisions of Section 147 of the Act as was in force during the relevant assessment year. It is as under:
"147. Income escaping assessment: If-
(a) The Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income Tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) 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 information 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 re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).
Explanation 1: For the purposes of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
(a) where income chargeable to tax has been under assessed; or
(b) where such income has been assessed at too low a rate; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income Tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
Explanation 2: Production before the Income Tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure within the meaning of this Section".
14. The provisions relating to reassessment are contained in Sections 147 to 153 of the Act. Section 147 of the Act is the main Section providing for reopening of assessment under Section 147(a) of the Act, if the Income Tax Officer (prior to amendment of Section in the year 1989 with effect from 1-4-1989) had reason to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139 of the Act or to disclose fully and truly all material facts necessary for his assessment and under Section 147(b) of the Act, notwithstanding such omission or failure as mentioned in Clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession, reason to believe that the income chargeable to tax has escaped assessment for any assessment year subject to the provisions of Sections 148 to 153 of the Act, assess or reassess such income or re-compute the loss or depreciation allowance for the relevant assessment year.
Explanation I deems, escapement of income chargeable to tax, where tax has been under assessed; or income had been assessed at too low a rate; or where the income had been made subject of excessive relief under the Act; or where excessive loss or depreciation had been computed.
Explanation II lays down that production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure within the meaning of the Section.
The limitation for issue of notice in cases falling under Section 147(b) of the Act is four years from the date of assessment year and eight years in cases falling under Section 147(a) of the Act.
15. As can be seen from Section 147(a) of the Act and under Section 147(b) of the Act, under specified circumstances, the Income Tax Officer is given power to make reassessment under Section 147(a) of the Act. Proceedings under this Section can be initiated by the Assessing Officer/Income Tax Officer, if he has a reason to believe that, by reason of the omission or failure on the part of the assessee to make a return under Section 139 of the Act for any assessment year, or by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment of that year; income chargeable to tax has escaped assessment for that year.
Section 147(b) of the Act is made applicable under circumstances, namely, even though there is no omission or failure on the part of the assessee as required in Clause (a); the Assessing Officer has information in his possession, consequent to which he has reason to believe that income chargeable to tax has escaped assessment for that assessment year.
16. Section 149 of the Act provides the time limit for issue of notice under Section 148 of the Act, for opening or reopening the assessment or the reassessment in respect of assessments made either under Section 143(3) of the Act or Section 147 of the Act or otherwise. This Section before its substitution by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989 provided for limitation for issue of a notice under Section 148 of the Act. In cases falling under Section 147(a) of the Act, the time limit for issuing a notice under Section 148 of the Act was eight years from the end of the relevant assessment year, in cases where income that escaped assessment was expected to be Rs. 50,000 or more. In cases falling under Section 147(a) of the Act, the time limit was four years from the end of the relevant assessment year.
17. Sri Seshachala, learned Counsel for the Department on our request, has produced before us the relevant assessment records and in particular, the reasons recorded by the Income Tax Officer before he issued notice under Section 148 of the Act for reopening the concluded assessments. The relevant information we could gather from this document is, at the first instance, he had addressed letters to the firm to ascertain the liability to capital gains arising out of the capital gains receivable by the assessee firm. Since the assessee has not supplied the information, he has made local enquiries and ascertained that the assessee firm has put in a claim of about Rs. 36,00,000/- for payment of compensation to the Karnataka Electricity Board. If the above amount is taken as estimated compensation receivable by the assessee firm, the estimated capital gains works out to Rs. 26,92,000/- and therefore, he has reason to believe that income chargeable to tax has escaped assessment for that year.
18. The primary reason for the Assessing Officer for issuing notice under Section 148 of the Act is that, he has reason to believe that by reason of the omission or failure on the part of the assessee firm while filing a return of income under Section 139 of the Act for the assessment year 1973-1974, has failed to disclose fully and truly all material facts necessary for his assessment for the assessment year 1973-1974, and thereby the income chargeable to tax has escaped assessment for that year. If this circumstance stated by the Assessing Officer is accepted by this Court, then the pre-condition required under Section 147(a) of the Act would be satisfied and the Assessing Officer would be justified in issuing the notice under Section 148 of the Act, since the time limit provided for initiation of proceedings under this Section would be eight years from the end of the relevant assessment year. If for any reason, this Court comes to the conclusion, that the notice so issued is pursuant to the information gathered or collected, has reason to believe that the income chargeable to tax has escaped assessment, then the time limit for issuing notice under Section 148 of the Act would be four years from the end of the relevant assessment year.
19. The learned Counsel for the assessee Sri Parthasarathi, would contend, that the assessee had furnished in its return of income filed under Section 139 of the Act for the assessment year 1973-1974 (accounting period 1-4-1972 to 18-11-1972), the primary fact of taking over its business of distribution of electricity in Bagalkot District by the State Government and infact the same is taken note of by the Assessing Officer while completing the assessments under Section 143(3) of the Act by its order dated 11-12-1975 and therefore, could not have issued notice dated 24-9-1979 under Section 148 of the Act to reopen the assessment on the ground, that there is omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1973-1974 and therefore, the notice so issued alleging omissions envisaged under Section 147(a) of the Act, is beyond the time limit prescribed under Section 149 of the Act. Alternatively, it is also contended that before completion of the assessment by the Assessing Officer by his order dated 11-12-1975, the assessee by its letter dated 1-12-1972, had informed the Assessing Officer about the fact of taking over of its business of distribution of electricity by the Mysore State Electricity Board with effect from 1.4-11-1972 and the closure of its business and dissolution of the firm with effect from 14-11-1972 and further by a letter dated 24-3-1975, i.e. much earlier to the completion of the assessment proceedings, to Income Tax Assistant Commissioner and a copy furnished to the Income Tax Officer pursuant to notice issued for recovery proceedings initiated to recover tax dues of the assessment year 1972-1973, that the assessee has not received compensation payable by the Karnataka Electricity Board for acquiring its business of distribution of electricity and therefore, there was no omission or failure to disclose the material facts to the Assessing Officer before completion of the assessment for the assessment year 1973-1974 and therefore, the provision of Section 147(a) of the Act are not applicable and therefore, the view taken by the Tribunal is contrary to the view expressed by the Apex Court and also this Court.
20. Now let us refer to the decisions on which reliance is placed by learned Counsel for the assessee firm in support of his contentions.
The first decision on which reliance was placed by the learned Counsel for the assessee is that of CIT v. Bhanjilavji, 79 ITR 582. In the said case, the Court has observed, that it is not for the assessee to satisfy the Income Tax Officer that there was no concealment with regard to any question; it is for the Income Tax Officer, if that issue is raised to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. The Court has observed that when primary facts necessary for assessment are fully and truly disclosed at the stage of the original assessment proceedings; he is not entitled, on a change of opinion to commence proceedings under Section 147(a) of the Act and the said provision cannot be invoked to remedy an error resulting from the oversight of Income Tax Officer.
21. The Commissioner Of Income Tax v. Dunlop Dealers Limited, 79 ITR 609 was a case, where for the assessment year 1949-1950, the Income Tax Officer included in the income of the assessee a sum of nearly Rs. 88 lakhs as half share of the profits of a joint venture, the other half having been paid to the other party, who had financed the joint venture. But for the next year 1950-1951, the Income Tax Officer came to the conclusion that the joint venture was a fake affair and accordingly taxed the entire profit in the hands of the assessee. On the basis of these facts, the Income Tax Officer reopened the assessment for the year 1949-1950 under Section 147(a) of the Act, in order to bring to tax the entire profit of the joint venture. In the fact situation of that nature, the Supreme Court has observed, that the action was invalid as the assessee had disclosed all the primary facts and it was for the Income Tax Officer to draw the correct inference about the true nature of the transactions.
22. The Supreme Court in the case of Gemini Leather Stores v. Income Tax Officer 100 ITR 1 has observed, that:
"In proceedings for the original assessment of the appellant firm, though the appellant did not disclose certain transactions evidenced by certain drafts, the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant. Subsequently, the Income Tax Officer issued a notice under Section 147(a) of the Income Tax Act, 1961, with a view to assess the amounts as the appellant's income from undisclosed sources. On a writ petition filed by the appellant, the High Court held that the Income Tax Officer did not apply his mind to the question whether the amounts could be treated as part of the total income of the appellant and as the appellant did not disclose the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction under Section 147(a) were present. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, that after discovery of the primary facts relating to the transactions evidenced by the drafts it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This the officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts. He could not, thereafter, take recourse to Section 147(a) to remedy the error resulting from his own oversight".
23. The Karnataka High Court in the case of T.M. Kousali v. Sixth Income Tax Officer, 155 ITR 739 has stated:
"The Act nowhere provides that the assessee should disclose the fact that legal proceedings had been initiated and were pending before the Civil Court or High Court when he files his returns or assessment is completed. Hence, the failure to disclose that the assessee's claim for higher compensation under the Land Acquisition Act in the Civil Court was pending when returns were filed, would not amount to failure to disclose material facts necessary for assessment and would not justify action under Section 147(a)".
24. In the case of CIT v. Kalappa, 167 ITR 22 the Karnataka High Court has observed:
"The duty of the assessee is to disclose primary facts necessary for assessment. If the assessee has disclosed primary facts relating to transactions, it was for the Income Tax Officer to make the necessary enquiries and draw proper inferences as to whether the income returned is correct or not. It would be the plain duty of the Income Tax Officer to make an enquiry and if he did not make an enquiry, it is a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. Reassessment under the provisions of Section 147(a) of the Income Tax Act, 1961, would not be valid in such a case".
25. The Karnataka High Court in the case of Canara Sales Corporation v. CIT 176 ITR 340, has explained the meaning of the expression "disclose truly and fully the material facts" that finds a place in Section 147(a) of the Act. In the said decision, the Court has observed:
"The implication of the word "disclose" is that one is expected to disclose a thing or is said to have failed to disclose the facts only if it is a matter which one knows. Further, this view gets reinforced by looking at Clause (b) of Section 147. Clause (b) deals with a situation where there is no omission or failure as mentioned in Clause (a). Therefore, in cases where there is no such omission or failure, then the obligation to disclose fully and truly does not arise and in such a case, there is no omission or failure. Even in the absence of such omission or failure, Clause (b) would be attracted. However, Sri Srinivasan, learned Counsel for the Revenue, contended that since the expressions "omission", "failure" and "disclose" are used in the provision, each of them will have to be given a separate meaning and hence omission or failure have to be linked up with a disclosure to be made, and failure on the part of an assessee arises only when there is a pre-existing obligation and omission arises when there is no such pre-existing obligation to disclose. He relied upon the decision in K.P. Arthanariswamy Chettiar v. First I.T.O (1972) 84 ITR 51 (Mad), wherein the expression "true" and "full" have been explained and it was contended that what is contemplated under Section 147(a) is a true and full disclosure, that is, the disclosure must be fully true. If, factually, the information furnished by the assessee is not true, even for an inadvertent reason, that section is attracted inasmuch as, the material particulars furnished by the assessee are found to be either false or incomplete. This argument, in our view, is fallacious and has to fail. As explained earlier, the duty on the part of the assessee is to disclose fully and truly all material facts. Omission or failure to discharge this duty alone will attract the Section and not otherwise. If, factually, the information is untrue not for a reason or on account of the omission or failure to disclose fully and truly, this would attract Section 147(b) and not Section 147(a). Hence, we reject, this contention. However, Sri Srinivasan contended that we should not place an interpretation on the provision which may result in public mischief, inasmuch as, in each case, the assessee will have to be attributed with the knowledge of the information furnished by him in the return in order to invoke Section 147(a) of the Act. We are afraid this contention is misconceived. The requirement of the Section is that there is a duty cast upon the assessee to disclose fully and truly all material facts. That duty can be said not to have been discharged only when he does not place all the material facts necessary for the assessment or falsely states the facts in the returns. Therefore, if the facts stated are false, then there is no question of attributing any knowledge to the assessee because when stating that the matter is false that by itself will indicate that the assessee had knowledge of the same. So far as incomplete particulars being furnished is concerned, inasmuch as the assessee had no knowledge of the same, he could not have furnished them, as in the case on hand. Hence, we have no hesitation in rejecting this contention".
26. The Supreme Court in the case of Associated Stone Industries (Kotah) Limited v. CIT, 224 ITR 560 has observed:
"The duty of the assessee is only to disclose fully and truly all material facts necessary for his assessment for the relevant year. The expression "material facts" in Section 34(1)(a) of the Indian Income Tax Act, 1922, refers only to primary facts and the duty of the assessee is to disclose such primary facts. There is no duty cast on the assessee to indicate or draw the attention of the Income Tax Officer to what factual or legal, or other inferences can be drawn from the primary facts disclosed".
27. Per contra, Sri Seshachala, learned Counsel for the revenue would contend, that, the assessee in the returns filed under Section 139 of the Act for the assessment year 1973-1974 was obliged, not only to bring to the notice of the Assessing Officer, the fact of acquisition of its business by the Karnataka Electricity Board and also the amount of compensation claimed before the Karnataka Electricity Board. It is not sufficient compliance of the mandatory requirement while filing the return of income to have brought to the notice of the Assessing Officer only about the acquisition of its business and the assessee was also obliged to have brought to the notice of the Assessing Officer about the compensation claimed, and since that is not done, the Assessing Officer was justified in issuing notice under Section 148 of the Act to reopen the concluded assessment, on the ground that the assessee has failed to disclose fully and truly necessary material facts for assessment, within eight years from the end of relevant assessment years. In aid of his submissions, firstly, the learned Counsel relies on the law declared by the Apex Court in the case of Malegaon Electricity Co. Private Limited, v. CIT, Bombay (Supra) wherein the Court has held that the assessee's failure to disclose the profit under Section 10(2)(vii) of the Act notwithstanding the disclosure of faction of sale, attracted the provisions of Section 34(1)(a) of the Act and the reassessment was valid.
28. The other decision on which reliance was placed by the learned Counsel for the revenue is that of the Supreme Court in the case of Central India Electric Supply Co., v. CIT (Supra) wherein the Apex Court has confirmed the findings and conclusions reached by the Madhya Pradesh High Court in the reference proceedings brought before the High Court at the instance of the assessee.
The question before the Supreme Court in Central India Electric Companies Case (Supra), was, whether the market price of the plant and machinery of the assessee taken over by the Board under the Indian Electricity Act, had become payable and due in the financial year 1969-1970 relevant to the assessment year 1970-1971.
The Apex Court in this decision has observed that on acquisition of the plant and machinery of the assessee, its price under Section 7A of the Electricity Act had become payable on the date of acquisition and it was quantified when the umpire resolved the dispute between the parties and made the award, but it becomes due only when the decree in terms of the award came to be passed by the Civil Court under Section 17 of the Arbitration Act.
The Court has further observed, that, in the instant case, the umpire by his award resolved the dispute of difference of price and quantified the price, but it did not become due for payment soon after passing of the award. The award was filed in the Court and the price became due for payment only when the decree in terms of the award came to be passed. Therefore, the Tribunal was not justified in holding that no income accrued to the assessee under Section 41(2) of the Act for the assessment year 1970-1971. Therefore, the High Court was justified in coming to the conclusion that the income had accrued to the assessee under Section 41(2) of the Act and therefore, the High Court was justified in coming to the conclusion that the parameters of Section 147(a) of the Act were justified for the purposes of reopening the assessment for the assessment year 1970-1971.
29. We have carefully considered the rival submissions made by the learned Counsels for the parties to the lis and also the case laws on which reliance was placed. In the instant case, the assessee firm while filing its return of income for the assessment year 1973-1974, had brought to the notice of the Assessing Officer, that its business of distribution of electricity was taken over by the Mysore Electricity Board during the accounting year i.e. on 13-11-1972 and the firm has returned the income only upto the period 13-11-1972 and it was also brought to the notice of the Assessing Officer that the firm is dissolved with effect from 18-11-1972. This information is taken note of by the Assessing Officer, while concluding the assessment under Section 143(3) of the Act for the assessment year in question. Under Section 143(3) of the Act, the Assessing Officer has to pass an order computing the total income or loss determining the tax payable under the Act from such computation of income. While passing the order, the Assessing Officer has to look into the evidence that the assessee may produce along with its returns and also at the time of hearing the assessee, as well as evidence which the Assessing Officer required him to produce. The Assessing Officer having come to know, since it was made known in the return of income that its business of distribution of electricity is taken over by the Karnataka Electricity Board, under Indian Electricity Act, there was an obligation on the part of the Assessing Officer to have enquired with the assessee whether he has made any claim for payment of compensation, since he was passing an order under Section 143(3) of the Act. As observed by the Apex Court in Gemini Leather Stores Case (Supra), it was for the Assessing Officer to have made necessary enquiries and draw proper inference and since the Officer has not done so, it was plainly a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee firm to disclose fully and truly all material facts. To arrive at this conclusion, we draw support from the view expressed by this Court in Kalappa's Case (Supra), wherein this Court has observed that "the duty of the assessee is to disclose primary facts necessary for assessment. If the assessee has disclosed primary facts, it was for the Income Tax Officer to make the necessary enquiries and draw proper inferences as to whether the income returned is correct or not. It would be the plain duty of the Income Tax Officer to make an enquiry and if he did not make an enquiry, it is a case of oversight and it, could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts".
30. In the present case, the Tribunal, in our opinion, has committed error of fact, when it observes in its order, that the assessee firm had not even disclosed the primary fact relating to taking over of its business undertaking by the Mysore Electricity Board. This erroneous assumption of the Tribunal which is contrary to the fact situation, might have made them to conclude that the assessee has not disclosed truly and fully ail material facts including primary facts for the purpose of assessment. In the instant case, facts would demonstrate that there was no failure on the part of the assessee firm in furnishing the primary fact of acquisition of its business by a statutory authority during the accounting year while filing its return of income for the relevant assessment year under Section 139 of the Act. It was for the Assessing Officer to have drawn proper inferences after making proper enquiries. Thus, therefore, there was no failure on the part of the assessee firm to disclose fully and truly all material facts necessary for the assessment and as such, the conditions required to initiate proceedings under Section 147(a) of the Act is not available to the Assessing Officer. Therefore, the reassessment under the provisions of Section 147(a) of the Act is not valid in the facts and the circumstances of the present case.
31. Yet another factor which requires to be noticed in the present case, is that, the assessee firm much earlier to the completion of the assessment proceedings for the assessment year 1973-74, had brought to the notice of the Assessing Officer that the firm has to receive compensation from the Karnataka Electricity Board and the same is not yet received, pursuant to the demand notice issued for recovery of tax dues for the assessment year 1972-1973 by his letter dated 24-3-1975, while requesting the Inspecting Assistant Commissioner of Income, Belgaum, to keep in abeyance the said demand. This would also show that the assessee firm had not suppressed any material facts before the Assessing Officer to attract provisions of Section 147(a) of the Act. Thus, therefore, the notice issued by the Assessing Officer under Section 148 of the Act to reopen the concluded assessment for the assessment year 1973-74 is not valid in law.
32. Lastly, in the note sheet produced by the learned Counsel for the revenue wherein the reasons are recorded for initiating proceedings to reopen the concluded assessments, it is stated therein by the Income Tax Officer that after making local enquiries, he has collected information about the claim for compensation made by the assessee firm with the Karnataka Electricity Board and if that amount is taken as estimated compensation receivable by the assessee firm, the essential capital gains works out to Rs. 26,92,000/- and therefore, he has reason to believe that income chargeable to tax has escaped assessment for that year. This noting would clearly indicate that before issuing notice under Section 148 of the Act, the Income Tax Officer had information in his possession, consequent to which he had reason to believe that income chargeable to tax has escaped assessment. Therefore, the present case may attract the provisions of Section 147(b) of the Act, but the period of limitation within which proceedings could be taken if the ingredients under this sub-section are satisfied, is only four years from the end of the relevant assessment year. But in the instant case, the notice issued under Section 148 of the Act is dated 24-9-1979, much beyond the period of limitation prescribed under Section 149 of the Act. In our view, even on this ground also, the assessee firm has to succeed.
33. In view of the above discussions, the question of law referred for our opinion is answered in the negative i.e. in favour of the assessee and against the revenue. Reference proceedings is accordingly disposed off. Ordered accordingly.