Income Tax Appellate Tribunal - Delhi
J.K. Synthetics Ltd. vs Income-Tax Officer on 28 June, 1985
Equivalent citations: [1986]15ITD73(DELHI)
ORDER
B. Gupta, Accountant Member
1. The captioned cross-appeals by the assessee and the revenue directed against the order of the Commissioner (Appeals), New Delhi dated 31-12-1980 relating to the assessment of the assessee for the assessment year 1967-68 may be conveniently consolidated and disposed of by a common order.
2. Since the first four grounds in assessee's appeal challenge the validity of the assessment in question made under Section 147(a) of the Income-tax Act, 1961 ('the Act') "for the assessment year 1967-68 and since it is contended that the proceedings were not only invalid but also barred by limitation, we would take up the assessee's appeal first before taking up the departmental appeal.
3. Dr. R.C. Vaish, the learned counsel of the assessee, has after stating the relevant facts and after taking us through the orders of the ITO and the Commissioner (Appeals) contended that the conditions precedent to the valid assumption and exercise of jurisdiction were absent in the present case and, therefore, the Commissioner (Appeals) had no justification in holding that reassessment proceedings were valid in law. According to him, all the relevant material particulars necessary for the assessment having been disclosed fully and truly in the return of income originally filed, the conditions laid down in Section 147(a) were not satisfied. After taking us through the three reasons recorded by the ITO for reopening of the assessment which are reproduced in paragraph No. 2 at pages 3 & 4 of the order of the Commissioner (Appeals). Dr. Vaish contends that none of them was sufficient for assumption of jurisdiction under Section 147(a). In respect of the first reason recorded by the ITO which was to the effect that the assessee had claimed depreciation and development rebate in respect of plant and machinery which had not been used by the assessee-company, Dr. Vaish controverts it and says that the ITO was wholly wrong in saying that the machinery and plant had not been used by the assessee-company. According to him, certain machineries belonging to the assessee-company had no doubt been installed at the premises of J.K. Cotton Spg. & Wvg. Mills Co. Ltd., Kanpur (JKCM) but that did not mean that those machineries and plants had not been used by the assessee-company for its own business. J.K. Synthetics Ltd. were manufacturing synthetic yarn and fibre on the basis of a very highly developed and sophisticated technology and were expected to conform to an immaculate standard of quality for its production and for that purpose it had been considered necessary that certain machineries and plant be acquired in order that there is rigid quality control over the fibre production of the assessee. According to him, since the testing of the fibre produced by the assessee-company would have normally required installation of spinning and weaving machinery at its works at Kota and since the assessee-company wanted to avoid that expenditure, it had, as a prudent businessman, made arrangements with JKCM for carrying out the necessary testing of its products at its mills and it was for this reason that the assessee had installed certain machineries and plant at the premises of JKCM and not at its own works at Kota. According to Dr. Vaish, the mere fact that JKCM had been allowed the use of the machinery and plant in spare time when it was not being used for the purposes of testing of the fibre manufactured by the assessee-company, did not warrant a finding that the machinery and plant had not been wholly used for the assessee's business. Referring to the provisions of Section 32 of the Act, the learned counsel submits that depreciation is allowable on building, machinery and plant, etc., owned by the assessee provided it is used for the purposes of business of the assessee. According to the learned counsel since the machinery and plant installed at the premises of JKCM had been undoubtedly used by the assessee for its own purposes, it could not be said that any inaccurate particulars had been furnished or any relevant material particulars had been withheld when the return of income had been filed for the assessment year 1967-68. Further, referring to the provisions of Section 33 of the Act, the learned counsel submits that the expression '. . . wholly used for the purposes of business carried on by him' did not mean exclusively used for the purposes of business and, therefore, according to him, when the assessee claimed development rebate in respect of machinery and plant installed at JKCM, it once again did not withhold any relevant material particulars in the return of income filed. For contending that the words 'wholly used' did not mean 'exclusively used', reliance has been placed by the learned counsel on the decision of the Hon'ble Kerala High Court in the case of CIT v. Ouchterlony Valley Estates (1938) Ltd. [1965] 58 ITR 618. Dr. R.C. Vaish then refers to the provisions of Section 38(2) of the Act and submits that those provisions cast a duty on the ITO that where any plant, machinery or building, etc., is found to have not been exclusively used for the purposes of the assessee's business, the allowance of depreciation should be restricted to a fair proportionate part. According to Dr. Vaish, a mere ad hoc disallowance made by the ITO under Section 38(2) which was for the first time done in the assessment year 1971-72 did not entitle the department to say that the income of the assessee had escaped assessment in the assessment year 1967-68 for reasons of non-furnishing of relevant material particulars on the part of the assessee. In the end it is contended by the learned counsel with reference to the prescribed form of return of income that no material facts or relevant particulars as required to be furnished had been withheld by the assessee when it claimed depreciation and development rebate on plant and machinery installed at the premises of JKCM, and, therefore, the proceedings under Section 147(a) were void. In support of his contentions Dr. Vaish has placed reliance on the decision of the Hon'ble Allahabad High Court in the case of Modi Spg. & Wvg. Mills v. ITO [1975] 101 ITR 637. After having, thus, dealt with the first reason recorded by the ITO, the learned counsel submits that the other two reasons recorded by the ITO were wholly futile inasmuch as the ITO himself had not made any addition based on those reasons.
4. In reply Smt. Shashi Kapila, the learned departmental representative has supported the orders passed by the ITO and the Commissioner (Appeals) and contended that the conditions did exist for invoking the provisions of Section 147(a). According to her, the fact that the assessee had claimed depreciation and development rebate on machinery and plant installed at the premises of JKCM, which had undoubtedly been used by the JKCM also for their business purposes was sufficient for assuming jurisdiction under Section 147(a). According to Smt. Kapila, the location of the machinery and usage thereof by some other person was a relevant material fact and since it had not been disclosed at the time of the original assessment or at the time of filing of the return for the assessment year 1967-68, the assumption of jurisdiction by the ITO was valid. Smt. Kapila further submits that the assessee having claimed depreciation and development rebate which was not admissible to it under the provisions of Sections 32 and 33, there did result withholding of relevant material particulars on the part of the assessee. Referring to the words 'wholly used for the purposes of business' in Section 33, the learned departmental representative submits that 'wholly' means something in contradistinction to the word 'partially' and that if any machinery or plant is only partly used by the assessee and is allowed to be partly used by somebody else, it cannot be said to have been wholly used by it. Smt. Kapila also refers to us to the provisions contained in Explanation 1 to Section 147 in order to contend that in the facts and circumstances of the case, the income of the assessee had escaped assessment at the time of the original assessment which validly permitted initiation of action under Section 147(a). After so contending the learned departmental representative refers to us to the decisions of the Hon'ble Supreme Court in the cases of Kantamani Venkata Narayana & Sons v. First Addl. ITO [1967] 63 ITR 638 and CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 in order to support the orders passed by the ITO and the Commissioner (Appeals).
5. Before considering the rival submissions, we may briefly state the facts which led to the reopening of the assessment for the assessment year 1967-68 which had been initially made on 31-12-1971. The assessee J.K. Synthetics Ltd. had been allowed depreciation of Rs. 58,50,361 and development rebate of Rs. 28,72,370 as per annexure to the assessment order. This included depreciation of Rs. 66,249 and development rebate of Rs. 1,54,581 in respect of machinery and plant which had been installed at the premises of JKCM. The fact that the assessee had installed some of its machineries at the premises of its sister concern at Kanpur came to the notice of the ITO as a result of investigations made in the course of assessment proceedings for the assessment year 1971-72. Certain disallowances out of the claim of development rebate and depreciation had, therefore, been made in that assessment year. As a result of the knowledge gathered during the assessment proceedings for the assessment year 1971-72, the ITO looked into the claim of depreciation and development rebate which had been allowed to the assessee at the time of the original assessment for the year 1967-68. It found as a result of the effort, thus, made that depreciation and development rebate to the extent mentioned above had been wrongly and excessively allowed to the assessee-company in the assessment year 1967-68 in respect of machinery and plant which had been used by JKCM also. According to the ITO the income for the assessment year 1967-68 escaped assessment on account of non-furnishing of relevant material particulars on the part of the assessee and, therefore, proceedings to reopen the assessment were initiated. The following reasons were recorded for reopening of the assessment: Firstly, according to the ITO the assessee had been granted excessive depreciation and development rebate in respect of certain machineries which were actually utilised for the purposes of business of the aforesaid sister concern, viz., JKCM and not for the purposes of the assessee-company. Secondly, the ITO noted that the assessee-company did not charge any interest on the capital invested in the machinery installed at the premises of JKCM. Thirdly, the ITO found that the trade mark of the assessee-company 'JAYKAYLON' was used by the sister concern JKCM without any consideration. After, thus, recording the reasons, a notice under Section 148 had been issued and in the consequential assessment made depreciation of Rs. 56,249 and development rebate of Rs. 1,54,581 which had been allowed in the original assessment had been withdrawn. On an appeal being preferred before the Commissioner (Appeals) the reopening of the assessment by the ITO had been upheld. The Commissioner (Appeals) held that the fact that the machinery had been utilised not only by the assessee but by another sister concern was an important material fact. He further held as follows before upholding the reopening of the assessment under Section 148 of the Act:
Unless the Income-tax Officer has the information that the plant and machinery were used by some other concern and it was not exclusively used by the assessee, he cannot apply his mind to the question as to what proportionate part of depreciation should be disallowed. The information is much more relevant on the question of development rebate because development rebate is admissible to the assessee only if the machinery or plant is wholly used for the purposes of the business carried on by the assessee. In this case the Income-tax Appellate Tribunal had disallowed development rebate on that part of machinery which was installed in the premises of JKCM and which was used by JKCM also vide para 75 of their order, which has also been quoted above. The assessee-company has not given the basic information that the machinery was not wholly used for the purposes of the business but had claimed depreciation and development even on the part of the machinery which was not wholly used by the assessee. The claim for the development rebate on the machinery which was not wholly used by the assessee, was, therefore, not correct and for non-disclosure of this, the Income-tax Officer gets jurisdiction to reopen the case under Section 147(a).
[Emphasis supplied]
6. The provisions of Section 147(c) confer jurisdiction upon the ITO to issue a notice under Section 148 if two conditions exist, viz., (1) that the ITO has reason to believe that income, profits or gains chargeable to income-tax have been underassessed, and (2) that he has also reason to believe that such underassessment has occurred by reason of either omission or failure on the part of assessee to make a return of his income or omission or failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for that year. We have to see whether these conditions which are precedent conditions for assumption and exercise of jurisdiction under Section 147(a) were present in this case or not. According to us, the language of provisions contained in Sections 32, 33 and 38(2) is unambiguous and is not capable of being understood in more than one sense. The provisions of Section 32 provide that depreciation in respect of building, machinery, plant or furniture is to be allowed provided these are owned by the assessee and used for the purposes of business or profession carried on by him. In other words, if the machinery or plant is owned by the assessee but is used both for the purposes of his business and of somebody else's business, the provisions of Section 38(2) will immediately come into play. These provisions not only cast a duty on the ITO to proportionately disallow the claim of depreciation if the machinery or plant is not exclusively used by an assessee for its own business but also cast a duty on the taxpayer to abide by these provisions while filing the return of income. Similarly, the provisions of Section 33 once again clearly provide that development rebate can be allowed in respect of a new machinery or plant which is owned by the assessee and is wholly used for the purposes of the business carried on by him. According to us, the word 'wholly' used in Section 33 had been so used in contradistinction to the word 'partially'. In other words, if a machinery or plant is only partially used by an assessee for the purposes of its business and is partially allowed to be used for the purposes of somebody else's business, the allowance of development rebate under Section 33 stands excluded. The decision of the Hon'ble Kerala High Court in Ouchterlony Valley Estates (1938) Ltd.'s case (supra) would not help the case of the assessee in asmuch as the facts were significantly distinguishable. In that case, the assets on which development rebate had been claimed had not been allowed to be used by any other person but had been used by the assessee itself for its business and cultivation activities. In these circumstances, when the assessee had allowed the' machinery installed at Kanpur to be used partly for its own business and partly for the business of JKCM, the provisions of Section 32 read with Section 38(2) came into play with the result that the whole of the depreciation claimed could not be allowed in respect thereof. Similarly, the provisions of Section 33 also came into play and the development rebate became inadmissible to the assessee as it was allowing the machinery to be used by another person. In view of the above statutory position, we would agree with the finding of the Commissioner (Appeals) that the user of the machinery by another person was an important material fact. Since that fact had not been disclosed and since whole of depreciation had been claimed on Kanpur machinery while only part was admissible and since no development rebate was admissible on that machinery while it had been claimed by the assessee and allowed to it under Section 33, the assessee was responsible for the underassessment of its income in the assessment year 1967-68 which occurred by reason of omission or failure to disclose fully and truly all material facts necessary for its assessment for that year. There is no warrant for holding that relevant material particulars or facts are only those which are required to be filled in accordance with columns prescribed in the return of income. There is no reason for restricting the words 'omission or failure on the part of an assessee ... to disclose fully and truly all material facts' in Section 147(a) in the light of the proforma of the return prescribed under the rules. Whether there is any column prescribed in the return or not, every material fact which has got a bearing on the assessment of any assessment year must be disclosed by the assessee and if that disclosure is not made and for that reason underassessment occurs, the ITO will be entitled to assumption of jurisdiction under Section 147(a). While we hold so we place reliance on the decision of the Hon' ble Andhra Pradesh High Court in the case of K.C.P. Ltd. v. ITO [1984] 146 ITR 284. We may incidentally mention here that the facts in that case were to an extent akin to the facts in the present case. K.C.P. Ltd. had failed to indicate the fact of having availed initial depreciation in respect of certain machineries. It had been contended that that information had not been given in the return of income for the assessment year 1970-71 as there was no column prescribed in the return. Their Lordships held that it was a case of non-disclos'ure of a relevant material fact and, therefore, the assumption of jurisdiction under Section 147(a) was valid. While deciding the case, their Lordships had taken into consideration the two decisions of the Hon'ble Allahabad High Court in the case of Modi Spg. & Wvg. Mills v. ITO [1966] 59 ITR 401 and Modi Spg. & Wvg. Mills v. ITO [1975] 101 ITR 637. Their Lordships of the Andhra Pradesh High Court held dissenting from the latter decision in Modi Spg. & Wvg. Mills v. ITO [1975] 101 ITR 637 (All.) that the decision given in the earlier case Modi Spg. & Wvg. Mills v. ITO [1966] 59 ITR 401 (All.) was the correct decision. For these reasons we would not be able to accept the representation made on the side of the assessee which is based on the latter decision of the Hon'ble Allahabad High Court in the case of Modi Spg. & Wvg. Mills (supra). Ground Nos. 1 and 2 in the assessee's appeal are, therefore, rejected.
7. In ground Nos. 3 and 4, it is contended that the provisions of Section 144B of the Act which was brought on the statute book by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976 did not apply to the proceedings reopened under Section 147 for the assessment year 1967-68. It is further contended that the assessment having been completed under the extended period was barred by limitation. It is also contended that the provisions of Section 144B which are not procedural provisions but substantive provisions could not be resorted to while framing the assessment relating to the assessment year 1967-68. Such a problem is no more res Integra. It has been very graciously brought to our notice by Dr. R.C. Vaish, the learned authorised counsel of the assessee, that on similar questions, the decisions of the Special Bench of the Tribunal in the case of Beta Singh Pabla v. ITO [1982] 1 ITD 370 (Delhi) goes against the contentions raised by the assessee. We further find from the decisions of the Hon'ble High Court of Madhya Pradesh in H.H. Maharaja Raja Power Dewasv. CIT [1982] 138 ITR 518 and Kimtee v. CIT [1985] 151 ITR 73 that the provisions of Section 144B are procedural in nature and apply to all pending assessments for the reassessment proceedings. In accordance with the decision of the Special Bench of the Tribunal and the law laid down by the Hon'ble Madhya Pradesh High Court, we would reject ground Nos. 3 and 4.
8. In ground Nos. 5 and 6 objection is taken to the order of the Commissioner (Appeals) holding that depreciation on plant and machinery installed in the premises of JKCM, was admissible only to the extent of 50 per cent and that no development rebate was admissible on that machinery. As has been stated in an earlier portion of this order, this controversy arose for the first time in the assessment year 1971-72 which had preceded the reassessment proceedings for the assessment year 1967-68. The question of allowability of depreciation and development rebate on the machinery installed in the premises of JKCM, had been considered by the Tribunal in IT Appeal No. 461 of 1978-79 relating to the assessment of the assessee-company for the assessment year 1971-72. The Tribunal had, after taking notice of the provisions of Sections 32, 33 and 38(2) upheld the disallowance of depreciation on machinery installed at Kanpur to the extent of 50 per cent and the disallowance of development rebate altogether in that assessment year. Respectfully following the findings contained in paragraph Nos. 72 to 75 of the aforementioned order of the Tribunal which stand partly reproduced in the order of the Commissioner (Appeals) also, we would uphold the moiety disallowance of depreciation and total disallowance of development rebate in respect of machinery installed in the premises of JKCM. The order of the Commissioner (Appeals) on the point is upheld and ground Nos. 5 and 6 are rejected.
9. In ground No. 7, objection is taken to the finding of the Commissioner (Appeals) granting a conditional deletion of Rs. 2,15,000 which had been added on estimate by the ITO as closing stock in the account of purchases for machinery repairs. In paragraph No. 62 of his order the Commissioner (Appeals) observed that there was no conclusive evidence to show that the assessee had closing stock of spare parts to the extent of Rs. 2,15,000 in the account of purchases for machinery repairs but at the same time the Commissioner (Appeals) had given a conditional finding as contained in paragraph No. 64 of his order which is reproduced as below:
At this stage, the ITO pointed out that the assessee had already filed a reference application to the order of the Income-tax Appellate Tribunal for the assessment year 1971-72 and it is likely that they may succeed in reference petition to the High Court and benefit may be given for the opening stock. Keeping this in view, I delete the addition of Rs. 2,15,000 with a direction that in case credit is given to the assessee for the opening stock in the assessment year 1971-72, the ITO would be entitled to add this amount.
It is contended by Dr. R.C. Vaish, the learned counsel of the assessee that the addition of Rs. 2,15,000 ought to have been deleted by the Commissioner (Appeals) without fastening any conditions. According to him, all the spare parts issued from out of 'repairs to machinery account' had been consumed and that even if some insignificant portion of the raw material issued had not been consumed till the end of the accounting year, there was no justification for making any addition as the claim made by the assessee was strictly in accordance with its regular method of accounting which had been adopted in the past years and which had always been accepted by the departmental authorities in the past. In reply Smt. Kapila has submitted that the estimate of disallowance at one-sixth of the total expenditure under the head 'Repairs to machinery account' was a reasonable estimate as all the raw material issued had not been consumed and as some of it must have been left in the closing stock.
10. In paragraph No. 13 of his order relating to the assessment year 1967-68, the ITO had determined the closing stock of Rs. 2,15,000 by merely stating as follows:
In the assessment year 1967-68, a sum of Rs. 12,93,000 has been debited for purchase of machinery repairs. One-sixth of this amount is estimated to be the closing stock of assessment year 1967-68. This comes to Rs. 2.15 lakhs. This will be carried forward as opening stock of assessment year 1968-69.
According to us, the above finding of the ITO is hardly based on any justifiable material for making an addition of Rs. 2,15,000 as estimated closing stock of spare parts in the account styled as 'Repairs to machinery account'. In accordance with its regular method of accounting the assessee had been showing the issue from this account as consumption and unless there was some specific material available with the ITO to show that part of the issues of raw material had actually been left in the closing stock, no addition was warranted. * Even if some insignificant amount of raw material had in fact remained unused, no addition ought to have been made in accordance with the method of accounting regularly adopted by the assessee. This being a case of a company which suffers tax on its income on a more or less uniform rate, no useful purpose can be said to be served when a certain amount of closing stock is enhanced in one year and the value of the opening stock of the following year is also correspondingly increased. It may be that in the assessment year 1971-72, the ITO had made out a case for some addition which had been partially upheld by the Tribunal in that year but that, according to us, would not justify the upholding of any addition made by the ITO in this assessment year without giving any reasons whatsoever. We would, therefore, uphold the deletion of Rs. 2,15,000 as made by the Commissioner (Appeals) and delete the conditions laid down by him in paragraph No. 64 of his order.
11. In ground No. 8, objection is raised against the order of the Commissioner (Appeals) holding that the additional ground of appeal relating to the levy of interest under Sections 139 and 217 of the Act was not maintainable. It is contended by Dr. Vaish that the draft assessment order which was sent for the IAC's approval in accordance with the provisions of Section 144B did not mention the levy of interest under the abovementioned two Sections and, therefore, the levy was bad in law. On the other hand, Smt. Kapila, the learned departmental representative, submits that if there was any omission in respect of charging of interest in the order proposed in Section 144B, it was at the best, a procedural irregularity which should be set right by restoring the matter to the file of the ITO but for which reasons the levy of interest under Sections 139 and 217 cannot be vacated.
12. On consideration of the rival submissions and after going through the Full Bench decision of the Hon'ble Allahabad High Court in the case of CIT v. Geeta Ram Kali Ram [1980] 121 ITR 708, we would agree with the finding of the Commissioner (Appeals) that the ground regarding the levy of interest under the abovementioned two Sections was not maintainable. It has been held by their Lordships of the Hon'ble Allahabad High Court that the right of appeal is a creature of statute and that an assessee can appeal only if there is a statutory provision for it. Besides, according to us, the levies under Sections 139 and 217 are consequences of assessment and not a part of the assessment order and, therefore, if any mention is of these levies in the draft order prepared under Section 144B proposing variation of more than Rs. 1 lakh in the income or loss returned, it cannot be said that the levies were bad in law. In these circumstances, according to us, there is no merit in ground No. 8. For the reasons given a above, we would also hold that the decision of the Tribunal Chandigarh Bench in IT Appeal No. 59 of 1978-79 dated 16-6-1980 would not be of any help to the assessee.
13. In ground No. 9, objection is taken to the levy of excess dividend tax of Rs. 23,438 on the same basis as has been taken while arguing ground No. 8 above. We find that in the original assessment, a tax of Rs. 60,781 had been determined as excess dividend, tax but in the revised computation made in supplementary reassessment proceedings, the levy was reduced to Rs. 23,438 only. The chargeable excess dividend tax was shown not in the assessment order but in a separate tax computation sheet. We are of the view that just because it had not been mentioned in the draft order submitted under Section 144B, the impost could not be assailed as bad in law. The assessee had not been able to show that the calculation of excess dividend tax of Rs. 23,438 was not in accordance with the provisions of law and, therefore, we would reject ground No. 9 also.
14. Ground Nos. 10 and 11 which are general in nature have not been pressed by the learned counsel of the assessee.
15. In conclusion, the appeal riled by the assessee is allowed in part inasmuch as the assessee gets partial relief in respect of ground No. 7 as per our discussion above.
16. Now we shall take up IT Appeal No. 896 filed by the revenue.
17. Ground Nos. 1, 2 and 3 are directed against the findings given by the Commissioner (Appeals) in paragraph Nos. 30 to 51 of its order deleting the addition of Rs. 22,34,900 which had been made to the total income as withdrawal of benefit under Section 84 of the Act. On dissecting the various objections contained in the abovementioned three grounds and in the arguments addressed by Smt. Shashi Kapila, we find that these are four in number. Firstly, it is contended that the Commissioner (Appeals) had no justification in holding that the assessee-company was entitled to relief under Section 84 for the assessment year 1967-68. The second objection of the revenue is that there was omission or failure on the part of the assessee to disclose fully and truly all material facts relating to relief under Section 84 and that, therefore, the Commissioner (Appeals) was not justified in disapproving the addition made by the ITO in supplementary assessment proceedings. Thirdly, the decision of the Commissioner (Appeals) as summed up in paragraph No. 39 of his order, which may be reproduced, is objected to:
I have carefully gone through these judgments and I am of the view that when an assessment had been reopened under Section 147(a) the ITO can during the course of reassessment proceedings deal with all the items falling under Section 147(a) though they might not have been dealt with in the notice of the reassessment. However, in the reassessment under Section 147(a), the ITO cannot bring to tax those items which were already barred by the time limit prescribed under Section 147(6).
Fourthly, it is the contention of the learned departmental representative, that separate accounts having not been maintained for the newly set up industrial unit, the claim under Section 84 was hit by the law laid down by the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. v. CIT [1977J 107 ITR 195 and for that reason also, the Commissioner (Appeals) had no justification in granting the relief of Rs. 22,34,900. Mrs. Kapila, has highlighted these four points and submitted that the order of the Commissioner (Appeals) being erroneous in law should be reversed. On the other hand, Dr. Vaish has supported all the findings given by the Commissioner (Appeals) and has, in particular, addressed us at length on the proposition that when proceedings are reopened under Section 147(a), there could be no inclusion of those items which stand barred by the time limit prescribed under Section 147(6). According to him, even if the reassessment proceedings initiated by the ITO under the provisions of Section 147(a) were held to be valid, he could not add back in computing the total income of the assessee-company, the relief which had been granted under Section 84 at the time of the original assessment as the action for so doing was governed by limitations laid down in Clause (6) of Section 147. According to him, a vested right had accrued to the assessee-company in respect of those items which could have been covered only if there was reopening of the assessment under the provisions of Section 147(6). Since, according to him, no reopening of the assessment had been done under Section 147(6) within the four years time limit, the vested right could not be destroyed by back door initiation of proceedings under Section 147(a). According to him, when an assessment is reopened under Section 147(fl), the entire assessment is not set aside and in order to canvass that the learned counsel has distinguished the decision of the Hon' ble Supreme Court in the case of V. Jaganmohan Rao v. CIT [1970] 75 ITR 373. According to him, the Commissioner (Appeals) was wholly justified in talcing the view that he pronounced in paragraph No. 39 of his order and that since that view was in accordance with the law laid down by the Hon'ble Madras High Court in AL. VR. ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116 and by the Hon'ble Bombay High Court in New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. v. CIT [1911] 107 ITR 760, it should be upheld. On merits, Dr. Vaish has contended that the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra) does not in any way go against the claim of the assessee. According to him, it was not a case of reconstruction of an existing business but was a case where the assessee had established a new unit by installing new plant and machinery and by investing substantial funds. According to him, it was a case of a new industrially recognisable unit having been set up by the assessee-company which could not be confused to be a case of reconstruction. Referring to the observations of the Hon'ble Supreme Court contained in the last but one paragraph of their judgment, Dr. Vaish submits that the difficulties contemplated by the Hon'ble Supreme Court about the absence of separate books of account were not present in the assessee's case and that the ITO had duly satisfied himself in the course of original assessment proceedings that the bifurcation of accounts in respect of old and new units had been properly made. In these circumstances, according to Dr. Vaish, the ITO acting on the instructions of the IAC under the provisions of Section 144B was not justified in holding that there was failure on the part of the assessee to disclose the relevant facts that the relief under Section 84 had been claimed on estimated basis without disclosing the basis of apportionment. Dr. Vaish has further assailed the addition of Rs. 22,34,900 by taking two other points. Firstly, according to him, the provisions of Section 84 as were applicable in the assessment year 1967-68 had been misunderstood by the ITO while making the reassessment. Referring to the law that prevailed in that assessment year, the learned counsel submits that the scheme of outright deduction of exempted profits as was subsequently provided in Section 80J with effect from the assessment year 1968-69 was not there in the assessment year 1967-68 when only a certain rebate was granted in the levy of taxes in accordance with the provisions contained in Section 84 read with Section 110 of the Act. Secondly, it is contended that the question of relief under Section 84 allowable to the assessee in the assessment year 1967-68 having already been a subject-matter of appeal before the AAC and the Tribunal and the relief granted by the ITO in the original assessment having ultimately got merged with the orders of the Tribunal, there was no question of making any variation in respect thereof while making the reassessment. According to him, the action of the ITO actually tantamounted to sitting on judgment over the decision of the AAC and the Tribunal which was not warranted in law.
18. We have considered the rival submissions. Before coming to the merits of the addition of Rs. 22,34,900 we would like to deal with the findings of the Commissioner (Appeals) as contained in paragraph No. 39 of his order which we have reproduced above. According to us, when an assessment is validly reopened, the initial order of assessment stands replaced and the order of reassessment takes the place of the original assessment order. In other words, once an assessment is reopened by the ITO, the latter will not only have the jurisdiction but it would be his duty to determine the tax liability of an assessee in respect of all his incomes and for that purpose he will have to necessarily take into account not only the escaped income in respect of which a notice under Section 147(a) had been issued but also the entire income that had escaped assessment during the year. The provisions of Section 147(a) do not in any manner fetter the power of the ITO to bring to charge items falling under Section 147(b) provided the reassessment proceedings are validly initiated by the issue of a notice under Sections 147(a) and 148. According to us, no distinction can be made between the items failing under Clause (a) or Clause (6) in a case where the assessing authority has validly assumed jurisdiction under the provisions of Section 147(a). Even though colourable exercise of power is not to be countenanced and we will be the last persons to uphold the reopening of assessment under Section 147(a) where it is done merely to rope in certain items which fall within the time limit prescribed under Section 147(6) but that is not the case in the present case. Here the proceedings under Section 147(a) have been validly reopened by the ITO. We have already dealt at length with that aspect of the matter while deciding the assessee's appeal. Having been satisfied that the assumption of jurisdiction by the ITO under Section 147(a) was valid, we are not prepared to accept that certain items which would fall within the time limit prescribed under Section 147(6) could not be included in the total income. According to us, we have an overwhelming support of case law on the subject. Not only the observations made in the decisions of the Hon'ble Supreme Court in the cases of V. Jaganmohan Rao (supra), CST v. EM. Esufali H.M. Abdulali [1973] 90 ITR 271 and Dy. CCTv. E.R. Shri Ramulu [1977] 39 STC 177 support our viewpoint but we are also supported by the various Hon'ble High Courts' decisions which are CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 (AP) (FB), CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal.), CIT v. B. Nagi Reddi [1983] 144 ITR 62 (Mad.) and CIT v. Rangnath Bangur [1984] 149 ITR 487 (Raj.). We have also the support of the Hon'ble Delhi High Court as per their decision in Sharda Trading Co. v. CIT [1984] 149 ITR 19. Though the facts in that case were different, it has been very clearly held by their Lordships of the Hon'ble Delhi High Court that on reassessment the entire original assessment is set aside and ceased to exist with the result, that the total income of an assessee is to be recomputed in the reassessment proceedings. In the above view of the matter, we do not approve of the finding given by the Commissioner (Appeals) as contained in paragraph No. 39 of his order. We hold that in reassessment proceedings validly initiated by the ITO under Section 147(a), the ITO had jurisdiction to include any items of income which fell within the time limit prescribed under the provisions of Section 147(6). In view of the preponderance of judicial opinion as expressed in the abovementioned cases which has dissented from the decisions in AL. VR. ST. Veerappa Chettiar's case (supra) and New Kaiser-I-Hind Spg. & Wvg. Co. Ltd.'s case (supra) and for our own views expressed as above, we would not be able to accept the views of Dr. Vaish on the point.
19. Even though we hold so, we will not be able to uphold the addition of Rs. 22,34,900 made by the ITO as it suffers from various infirmities. First of all, we have looked into the provisions of Sections 84 and 110 as these were applicable in the assessment year 1967-68. We find therefrom that the scheme was that where there was included in the total income of an assessee, any income on which no income-tax was payable under the provisions of Section 84 or any other provisions, the assessee shall be entitled to a deduction from the amount of income-tax with which he was chargeable on his total income of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax was payable. It was in accordance with these provisions of law that the ITO had while making the original assessment dated 31-12-1971 directed that the assessee will be allowed rebate under Section 84 on Rs. 22,42,305. We do not understand as to how in the reassessment proceedings there arose a total misunderstanding and confusion about the provisions of Section 84. Neither the ITO nor the IAC who guided the ITO under Section 144B noticed that in the assessment year 1967-68, the provisions of law were entirely different from the provisions of Section 80J as prevailed with effect from the assessment year 1968-69. In these circumstances, there was no question of making any addition as withdrawal of relief under Section 84'. There is another reason why we would not be able to sustain the addition of Rs. 22,34,900 and that is that the order passed by the Income-tax officer on 31-12-1971 in the original assessment proceedings had been a subject-matter of appeal before the AAC vide his order dated 14-12-1972 and the order of the Tribunal vide its order dated 20-12-1975. In both these appellate orders the question of computation/quantum of relief under Section 84 had been a subject-matter of appellate proceedings and, therefore, the order of the ITO to that extent had merged with the order of the higher appellate authorities. The ITO had, therefore, while remaking the assessment, no jurisdiction to sit over the judgment on an issue which stood concluded by the order of the Tribunal. Even on merits, we find that the ITO and the IAC acting under Section 144B did not mate out any reasonable case for holding that relief under Section 84 was not due to the assessee. After going through the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra), we are satisfied that all the conditions laid down in Section 84 stood duly satisfied and that the order passed by the Commissioner (Appeals) in that regard, i.e., on the merits of the allowability was entirely justified. We may also mention here that the Commissioner (Appeals) had in paragraph No. 51 of his order validly relied on the decision of the Hon'ble Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980J 123 ITR 669 in order to hold that the relief due to the assessee under Section 84 could not be withdrawn unless the order passed in the initial year had been amended.
20. In conclusion, we would hold that even though we would not approve the decision of the Commissioner (Appeals) as contained in paragraph No. 39 of his order, we would entirely agree with him that on merits the ITO had no justification whatsoever to make the addition of Rs. 22,34,900 which was wholly against the provisions of law. The deleting of that amount by the Commissioner (Appeals) is, therefore, upheld and ground Nos. 1 to 3 in the departmental appeal fail in terms of quantum.
21. In ground No. 4, objection is taken to the order of the Commissioner (Appeals) allowing depreciation to the extent of 50 per cent on the machinery installed at the premises of JKCM. We have already considered this issue while deciding ground No. 5 in the assessee's appeal. For the same reasons as given therein and respectfully following the findings as contained in paragraph Nos. 72 to 75 of the order of the Tribunal in the assessee's own case in IT Appeal No. 461 of 1978-79 relating to the assessment year 1971-72, we would hold that the disallowance of 100 per cent of depreciation on machinery installed at the premises of JKCM had been appropriately restricted to 50 per cent by the Commissioner (Appeals). Ground No. 4 is, therefore, rejected.
22. Ground Nos. 5, 6, 7 and 8 are directed against the order of the Commissioner (Appeals) deleting the addition of Rs. 4,12,000 made by the ITO as 'trading receipts in cops deposits account'. These four grounds are verbatim common to the four grounds which had been taken in the departmental appeal filed before the Tribunal in relation to the assessment of J.K. Synthetics Ltd. for the assessment year 1975-76. The decision in that appeal dated 19-4-1984 in IT Appeal No. 4548 (Delhi) of 1980 has been made available to us. We find therefrom that the addition of Rs. 25,18,000 made in that assessment year having been deleted by the Commissioner (Appeal)'s objections had been raised in absolutely similar terms as are taken in ground Nos. 5 to 8 of this appeal. After considering in detail the facts, the Tribunal had held as follows in the end of paragraph No. 11 of this order.
The very facts that the cops had been shown under a separate head after the total sales indicate the intention of the assessee. The subsequent treatment of the security in the books of account fortifies the conduct of the assessee to the effect that it does not treat these receipts as its trading receipts. Otherwise there was no occasion to keep them under a separate head under which the refunds are given. It may be useful to mention at this stage that the assessee had maintained a separate establishment and a separate godown for cops. If that was a trading receipt then there was no occasion for maintaining a separate godown or separate establishment for the cops. It may be fruitful to mention here that in respect of cops, on which the yarn is also sold, there is no separate account maintained which only shows that the cops are not a part of the sales. We, therefore, hold that the cops were never intended to be a part of the sale proceeds and this is fully established by the conduct of the assessee in the shape of the entries in the books of account. The voucher, the entries in this books of account and the fact that all refunds are being given out of the said account of security deposit clearly shows the conduct of the assessee. We, therefore, see no hesitation in confirming the order of the Commissioner (Appeals) on this issue. We have purposely refrained from adverting to the case law placed before us because on facts we have found that cops do not form a part of the trading receipts.
It has been conceded by the departmental representative that the facts and circumstances under which the addition had been made in the assessment year under appeal are absolutely similar to the facts and circumstances which prevailed in the assessment year 1975-76. Inasmuch as we are wholly in agreement with the above finding given by the Tribunal in IT Appeal No. 4548, we would reject ground Nos. 5 to 8 in the departmental appeal.
23. Ground No. 9 is interconnected with ground No. 7 which has been rejected as above. For the same reasons as given by the Commissioner (Appeals) in paragraph No. 60 of his order and in view of the fact that a similar finding given by the Commissioner (Appeals) in the assessment year 1975-76 as contained in paragraph No. 35 of his order, for that year had been accepted by the department, we would reject ground No. 9 also.
24. In ground Nos. 10 and 11, objection is taken to the finding of the Commissioner (Appeals) deleting the addition of Rs. 2,15,000 made by the ITO on account of closing stock in 'Repairs to machinery account'. For the same reasons as given by us while deciding ground No. 7 in the asses-see's appeal, we would reject this ground.
25. In the net result, while the appeal filed by the assessee is allowed in part inasmuch as it gets partial relief in respect of its ground No. 7, the appeal filed by the department, though failing in terms of quantum, shall be treated to have been partly allowed inasmuch as we have reversed the finding of the Commissioner (Appeals) as contained in paragraph No. 39 of his order.