Patna High Court
Commissioner Of Income-Tax vs Soh Kisan Cold Storage on 8 April, 1993
Author: Aftab Alam
Bench: Aftab Alam
JUDGMENT G.C. Bharuka, J.
1. In these three taxation cases relating to the assessment years 1973-74, 1974-75 and 1975-76, a statement of case was called for by this court under Section 256(2) of the Income-tax Act, 1961 (hereinafter in short, "the Act" only), on the following common question of law:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the proceedings under Section 147(b) were not validly initiated ?"
2. The relevant facts which transpire from the statement of case are that the assessee during the three assessment years in question had taken loans, which were partly used for the purpose of business' and partly for the payment of income-tax liabilities. The assessee claimed payment of interest to the extent of Rs. 41,601, Rs. 45,924 and Rs. 66,196, respectively, for the three years. During the original assessment proceedings, the assessee disclosed the aforesaid facts before the Income-tax Officer, which were duly maintained in the books of account as well. The said amounts of interest, on due verification, were allowed as revenue expenditure in the original assessments as claimed by the assessee, which were completed on February 28, 1974, October 30, 1974, and September 20, 1975. Subsequently, during the assessment proceedings for the year 1976-77, the Income-tax Officer felt that the said amounts of interest has been wrongly allowed as admissible deductions in the earlier years in view of Section 80V of the Act as inserted in the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. Accordingly, he initiated reassessment proceedings under Section 147(b) of the Act and issued notices under Section 148 of the Act for each of the three years.
3. The assessee filed its returns declaring the same income as was declared originally. But the Income-tax Officer reassessed the income by disallowing the said amounts of interest as admissible deductions. The assessee having failed before the Appellate Assistant Commissioner, went in second appeal before the Tribunal. The Tribunal annulled the assessment orders on the ground that since the facts regarding the loans and the payment of interest were before the Income-tax Officer while making the original assessment and on the basis of those facts he has drawn a legal inference by allowing the interest, he cannot subsequently in a proceeding under Section 147(b) of the Act, just by changing his mind, resort to reassessment proceedings.
4. Mr. S.K. Sharan, learned counsel appearing for the Department, by placing reliance on two Supreme Court judgments, in the case of Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 and in the case of A. L. A. Firm v. CIT [1991] 189 ITR 285, has submitted that in the present case, the Income-tax Officer has acted within his jurisdiction in initiating the reassessment proceedings because in view of a Bench decision of this court in the case of Maharajadhiraj Sir Kameshwar Singh v. CIT [1961] 42 ITR 774, the interest paid on loans for discharging the income-tax liabilities cannot be allowed as business expenditure. According to him, this decision was not taken note of or possibly it was not within the knowledge of the Income-tax Officer while completing the original assessment and, as held in the case of A. L. A. Firm [1991] 189 ITR 285 (SC), if information either with regard to pre-existing fact or a judicial pronouncement comes to the knowledge of the Income-tax Officer on further verification subsequent to the making of the original assessments then under Section 147(b) of the Act, the Income-tax Officer will be competent to initiate reassessment proceedings and such discovery will be an "information" for conferring jurisdiction on him.
5. Mr. Rastogi, learned counsel appearing on behalf of the assessee, by relying on the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 has submitted that, as is borne out from the record, in this case the Income-tax Officer has not initiated the proceedings under Section 147(b) of the Act on discovery of any judicial pronouncement as sought to be referred to by Mr. Saran but he has done so by taking a view of his own based on introduction of Section 80V of the Act. Therefore, the validity of the act of initiation has to be judged only with reference to the reasons which actually persuaded the Income-tax Officer to initiate the reassessment proceedings and not what subsequently transpired for subscribing to the validity of his actions. Mr. Rastogi emphatically submitted that the reasons recorded by the Income-tax Officer for initiating the impugned proceeding do not show that on any investigation or research by him, the Income-tax Officer has been able to lay his hand on the Bench decision of this court in the case of Maharajadhiraj Sir Kameshwar Singh [1961] 42 ITR 774, and, therefore, he thought it proper to initiate these proceedings. He has submitted that even if the argument of Mr. Saran be accepted that the interest in question was not an admissible deduction, still it will be a case of sheer mistake committed by the Income-tax Officer in making the original assessment, which had occurred either because of ignorance of law or inadvertence. According to him, even the pronouncement of the Supreme Court in the case of ALA Firm [1991] 189 ITR 285 does not approve the initiation of proceedings like the present one merely on the ground that a certain mistake has been committed in the original assessment proceeding.
6. On the facts as found by the Tribunal, it is quite clear that the borrowings pertaining to the amount of interest allowed in the original assessment as admissible deduction have been partly used for discharging the tax liabilities. The Income-tax Officer after fully applying himself to the facts had allowed the deduction. It cannot also be denied that even if the deduction had been wrongly allowed, it is at best a case of mistake committed by the Income-tax Officer at the stage of making the original assessment. Therefore, the only question which needs to be considered is as to whether realisation of such a mistake could amount to "information" under Section 147(b) of the Act on the basis whereof the Income-tax Officer could have reason to believe to confer on himself the jurisdiction to initiate a reassessment proceeding. In the case of Kalyanji Mavji and Co. [1976] 102 ITR 287 (SC), one of the four categories under which such a case was held to be permissible was "where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer". But on a reconsideration, the Supreme Court subsequently in the case of Indian and Eastern Newspaper Society [1979] 119 ITR 996, held the said proposition to be stated "too widely and travels farther than the statute warrants". Their Lordships in no certain terms stated : "In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power". It was also held that "any observations in Kalyanji Mavji and Co.'s case [1976] 102 ITR 287 (SC) suggesting the contrary do not lay down the correct law."
7. The said two cases have again been considered in the case of A. L. A. Firm [1991] 189 ITR 285 (SC) and after reviving the law on the subject, the apex court has quoted with approval the views taken by the High Court (A. L. A. Firm v. CIT [1976] 102 ITR 622 (Mad)) at page 298, which is to the following effect :
"The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of Section 147(b) of the Act."
8. The same view has been taken by a Full Bench of this court in the case of Bhimraj Madanlal v. State of Bihar [1984] 56 STC 273, arising under the Bihar Sales Tax Act, 1959, wherein it has been held that "information" under the said Act for the purpose of reassessment need not necessarily spring from a source external or extraneous to the original record, but having second thoughts or a mere change of opinion by the prescribed authority on the same set of facts and materials on the record would not constitute "information" for the purpose of reassessment.
9. Respectfully following the ratio laid down in the aforesaid binding precedents, in my opinion, since, in the present case, the Income-tax Officer has initiated the reassessment proceedings on the same set of facts, which he had already taken note of while making the original assessment, it was not permissible on the part of his successor to initiate a reassessment proceeding as has been done in the present case.
10. In the above view of the matter, the question referred to this court is answered in the affirmative, i.e., in favour of the assessee. However, there shall be no order as to costs.
Aftab Alam, J.
11. I agree.