Rajasthan High Court - Jaipur
Commissioner Of Income-Tax vs Sambhar Salts Ltd. on 5 August, 1994
JUDGMENT V.K. Singhal, J.
1. A prayer has been made by the Revenue that the following two questions of law arise out of the order of the Income-tax Appellate Tribunal, dated March 31, 1981, in respect of the assessment year 1972-73 which the Tribunal has refused to refer to this court under Section 256(1) of the Income-tax Act, 1961, vide its order dated March 6, 1982, and, therefore, it has been prayed that the Tribunal be directed to refer the same to this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no information was given by the audit party within the meaning of Section 147(b) of the Income-tax Act and that initiation of proceedings under that provision was wholly invalid ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the reassessment order ?"
2. The brief facts of the case are that while submitting a return a copy of the profit and loss account for the year ending on September 30, 1971, was submitted by the assessee and a sum of Rs. 69,338 was debited in the profit and loss account as follows :
"Leave salary and pension contribution (including Rs. 63,590 as pension for company's employees ;
previous year Rs. 61,166) Rs. 69,338."
3. Thereafter, the Income-tax Officer received a report from the audit party and on the basis thereof the following reasons were recorded to initiate proceedings under Section 147(b), read with Section 148 of the Act :
"The local audit party has raised an objection that the assessee-company has debited the profit and loss account by an amount of Rs. 69,338 for leave salary and pension contribution. This item has been included in the amount of Rs. 13,04,367 as per details shown in Schedule 'B' attached to the profit and loss account for the year ending September 30, 1971. The local audit party is of the opinion that it is a provision for pension contribution in respect of those employees who have since been absorbed in the company. As it is not an actual liability it should have been added in computing the total income of the assessee-company. The audit has further contended that such a provision was disallowed for the assessment year 1973-74 by the Income-tax Officer, therefore, it should also be disallowed for the assessment year 1972-73.
I am in full agreement with the view of the audit and on the basis of the above information, I have reason to believe that income of Rs. 69,338 has escaped assessment for the assessment year 1972-73. Since the information is in my possession, action under Section 147(b) is initiated to assess the escaped income of Rs. 69,338. "
4. A sum of Rs. 60,569 was disallowed being the provision for pension. On appeal, the Commissioner of Income-tax (Appeals) found that the assessee has not disclosed while making the original assessment that the amount was only a provision for pension and not the expenditure in respect of the accrued liability and, therefore, information given by the audit party with regard to the correct state of law about the allowability of the deduction of this amount amounted to an information. Against the said order, the assessee preferred an appeal to the Income-tax Appellate Tribunal, where it was submitted that the provision for pension was Rs. 3,02,870 up to September 30, 1970, and Rs. 3,80,637 up to the relevant assessment year for which the assessment was made. A sum of Rs. 60,569 was added as provision for staff. Since this figure was reflected in the balance-sheet, the Income-tax Officer acted upon a mere change of opinion and there was no valid information. The Tribunal proceeded on the basis that the Income-tax Officer would not have allowed in the original assessment, the said claim straightaway of a sum of Rs. 69,338 which was shown in the balance-sheet. Since the Income-tax Officer was aware of the said debit entry which required the necessary enquiry about the liability, it was implied that the Income-tax Officer having allowed the claim, kept in view the balance-sheet which reflected the provision and of which he was fully aware. It was held to be a case of mere change of opinion and not a valid information. Section 147 reads as under :
"147. If the Assessing Officer has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--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 no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee, but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."
5. The only thing which has to be seen is with regard to the interpretation of the word "information". This matter was considered by the apex court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 and it was held that a statement by a person or body not competent to create or define the law cannot be regarded as law. They are merely opinion or at best evidence in regard to the state of law and in themselves possess no binding effect as law. The opinion of the internal audit party of the Income-tax Department was held to be not an information within the meaning of Section 147(b) of the Act for the purpose of reopening an assessment. It was, however, observed that while the audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the Income-tax Officer to it, Law is one thing, and its communication another. If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often results in applying Section 147(b) may be avoided, It was further observed that while the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. The error which is discovered on a reconsideration of some material was held to be not giving jurisdiction to the Income-tax Officer to reopen the assessment. From the above proposition of law, it has to be seen whether the audit party was merely a communicator and has drawn the attention of the Income-tax Officer or any information has come in the possession of the Income-tax Officer, The question which has been raised, therefore, is a question of law arising out of the order of the Tribunal.
6. Consequently, we direct the Income-tax Appellate Tribunal to refer the above two questions of law. At the time of disposal of the said reference, it will be considered if the information was already in the possession of the Department and there, was failure on the part of the Income-tax Officer to levy the correct amount of tax in accordance with law, and as to whether he can be made personally responsible for the loss caused to the Revenue. The reference application is accordingly allowed.