Bombay High Court
Commissioner Of Income-Tax vs Mulla And Mulla And Craigie, Blunt And ... on 19 September, 1990
Equivalent citations: [1991]190ITR198(BOM)
Author: Sujata V. Manohar
Bench: Sujata V. Manohar
JUDGMENT T.D. Sugla, J.
1. The Tribunal has referred to this court the following question of law under section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,29,053 collected by the assessee-firm and paid by it to the estate of the deceased partners during the year of account ended March 31, 1969, in terms of the partnership deeds dated March 20, 1968, March 17, 1969, and July 10, 1969, constituted the income of the present firm for the assessment year 1969-70 ?"
2. The reference is at the instance of the Department. The assessee is a reputed firm of solicitors. Its accounts are maintained on the cash basis. The deed of partnership involved in this reference is of September 1, 1967, which was effective from April 1, 1967. Clause 11 of the said deep provided that the partnership was not to be dissolved but to be continued in the event of the retirement, insolvency or death of any partner. Clause 16 of the deed provided that, in the event of the retirement or death of any partner, the retiring partner or the estate of the deceased partner, as the case may be, was to be entitled to the share of profits of the firm for all the work done by the firm up to the date of his retirement or death, as the case may be. It also provided for the manner of computation of the share of profit for the work done by the firm up to the date of retirement or death and for the manner of payment of such a share or shares, i.e., at a time or by instalments.
3. One of the partners, N. K. Petigara, died on December 31, 1967. A new partnership deed was thereafter drawn up on March 20, 1968, which was effective from January 1, 1968. Clauses 3 and 4 of this deed reiterated what was provided for in clause 16 of the deed of partnerships dated September 1, 1967, which was operative when late N. K. Petigara was a partner. Clause 6 of the deed dated March 20, 1968, further provided that all other terms and conditions of the partnership agreement dated September 1, 1967, would remain in full with force and effect.
4. Another partner by name S. S. Khambata died on February 5, 1969. A new deed of partnership was thereafter drawn up on March 17, 1969, which was effective from February 6, 1969. Clauses 3, 4 and 6 of this deed of partnership were similar to clauses 3, 4 and 6 of the partnership deed dated March 20, 1968.
5. In view of these three partnership deeds. The heirs of the aforesaid two deceased partners became entitled to the share in the profits of the firm for the work done by the firm up to the date of their respective deaths and the continuing partners were under a legal obligation to make payment of the share of the deceased partners in the profits of the firm for the work done by it up to the date of their deaths to their legal heirs.
6. The assessee filed its return of income for the assessment year 1969-70 declaring a total income of Rs. 10,49,186. This included the sum of Rs. 2,29,053 which was received by it on behalf of the deceased partners deceased partners. Subsequently, a claim was made that this sum should not be treated as the income of the assessee-firm as it never belonged to it. The Income-tax Officer rejected the claim and completed the assessment treating the aforesaid amount as the assessee's income for the year. The Appellate Assistant Commissioner accepted the claim and directed the Income-tax Officer to exclude the aforesaid sum of Rs. 2,29,053 from the total income.
7. The Department filed an appeal against the order of the Appellate Assistant Commissioner. By its order dated November 28, 1974, the Tribunal upheld the order of the Appellate Assistant Commissioner. The Tribunal has given categorical findings in paragraphs 8 and 9 of its order. It held that the partners of the firm constituted under the partnership deed dated September 1, 1967, doubtless earned the income arising out of the work done by them up to December 31, 1967, regardless of the question whether the payment was received before or after December 31, 1967. Similarly, the partners of the firm constituted under the partnership deed dated March 20, 1968, without doubt earned the income arising from the work done up to February 5, 1969, regardless of the question whether the actual payment was received before or after that date. This indisputable position, according to the Tribunal, was merely reaffirmed in clauses 5 and 6 of the partnership deed dated March 20, 1968, and clauses 3 and 4 of the partnership deed dated March 17, 1969. According to the Tribunal, the income earned in respect of the work done up to December 31, 1967, was the income of the partnership deed executed on September 1, 1967, and the then partners alone were entitled to share it. Similarly, the income from the work done for the period from January 1, 1968, to February 5, 1969, belonged to the firm constituted under the partnership deed dated March 20, 1968, and only the partners thereof were entitled to share the same. The successor-firms merely took upon themselves the function of collecting the outstanding fees which really belonged to the predecessor-firms merely as agents of the predecessor-firms and not in their own right. They collected the income belonging to the predecessor-firms for the sake of convenience and because a number of partners of the successor-firms were interested in the said income. The income was, thus, collected by them as agents or trustees and did not constitute their income. From these and other finding given in the aforesaid two paragraphs, the Tribunal came to the conclusion that the sum of Rs. 2,29,053 collected by the assessee-firm was not its income assessable to tax.
8. It is submitted before us by Dr. Balasubramanian, learned counsel for the Revenue, that it is a case of a firm continuing with a change in its constitution. Section 187 defines what constitutes a change in the constitution of a firm. It being a mere change in the constitution of the firm, the assessment, according to Dr. Balasubramanian, is required to be made on the firm as constituted on the date of the completion of the assessment in respect of its entire income. Merely because the legal heirs of the deceased partners were to be paid certain amount from year to year computed on the basis of the work done by the successor-firms for the period in which they were partners, it does not follow that any income accrued to them as distinct from its accrual to the firm. A contract, he stated, cannot alter the statutory concept of accrual or receipt of income. By merely providing in the partnership deeds that the retired or deceased partners shall be entitled to a share in the income for the work done up to the date of their being partners in the firm does not mean that the amounts so received do not represent the income of the assessee-firm. Placing reliance on the provisions of section 176(4) of the Act, Dr. Balasubramanian stated that if, in the case of discontinuance of a business or profession, a person who was in receipt of income was assessable, there was all the more reason that it would be so in the case of a continuing firm.
9. Shri Pardiwala, learned counsel for the assessee, on the other hand, referred to the findings given by the Tribunal in paragraphs 8 and 9 of its order. We stated that the question involved herein was squarely covered by the Calcutta High Court's decision in the case of CIT v. G. Basu and Co. and the Madras High Court decision in the case of V. M. V. Devarajulu Chetty and Co. v. CIT (1950) 18 ITR 357. He also placed reliance on out court's judgment in the case of CIT v. Crawford Bayley and Co. (1977) 106 ITR 884. He emphasised that the amounts in question were never received by the assessee-firm as its income. In any event, they were diverted at source by an overriding title so much so that this amount could not be taxed as the assessee's income. In reply, Dr. Balasubramanian pointed out that these decisions are distinguishable inasmuch as the concept of change in the constitution of a firm was not noticed in those decisions. As regards the Madras decision, he stated that the concept of change in the constitution was not obtaining at the relevant time.
10. We have already referred to the Tribunal's findings in detail in the third paragraph of the judgment, we are in agreement with the Tribunal that in view of clauses 11 and 16 of the deed of partnership dated September 1, 1967, to which both late Shri N. K. Petigara and Shri Khambata were parties and in view of clauses 3, 4 and 6 of the two partnership deeds dated March 17, 1969, the assessee-firm was under a legal obligation to pay the share of the deceased partners in the income of the firm for the work done by the firm up to the date of the death of the aforesaid two partners to their legal heirs. As held by the Tribunal, these amounts were collected by the assessee-firm merely as agents of the predecessor-firms and not in their own right. They collected the income belonging to the predecessor-firms for the sake of convenience and as, except for these two partners, all the other partners were common. They included the amount receivable on behalf of the continuing partners in the income of the firm.
11. We have no difficulty in holding that in the facts of the case, the Calcutta High Court decision in CIT v. G. Basu and Co. is squarely applicable. In the Calcutta case, two firms were carrying on practice as chartered accountants, they were facing certain troubles on account of disputes and differences among the partners. The dispute was referred to an arbitrator for settlement. Pursuant to the award of the arbitrator and in consequence of the deed of retirement, three partners of one of the firms retired in December, 1969. As per the terms of the deed of retirement, certain specific items of outstanding fees were directly assigned to the retiring partners. The question arose whether those outstanding fees which were directly assigned to the retiring partners represented the income of the firm. Observing that there was a legal obligation in terms of the deed of retirement to pay in a particular manner the erstwhile partners in respect of realisation of fees after their retirement, it was held to be an instance of the source of income being subject to an obligation. The outstanding fees paid to the retiring partners as per the terms of the deed of retirement were held not assessable as the income of the firm. Incidentally, the Calcutta High Court had, in this regard, referred to and relied upon the Supreme Court decision in the case of CIT v. Sitaldas Tirathdas and the Madras High Court decision in the case of Devarajulu Chetty (V. N. V.) and Co. v. CIT (1950) 18 ITR 357.
12. September 20, 1990 : In the present case, the assessee-firm was under a legal obligation in terms of the deed of partnership dated September 1, 1967, and the clauses in the two subsequent partnership deeds to pay outstanding fees for the work done up to and during the period when the deceased partners were partners. This was also an instance of the source of income being subject to an obligation. We are in agreement with the Calcutta decision and hold that the amounts so paid by the assessee-firm to the heirs of the deceased partners cannot be assessed as the income of the firm.
13. In Devarajulu Chetty (V. N. V.) and Co. v. CIT (1950) 18 ITR 357 (Mad). The facts were slightly different though the principle involved was the same. A firm of five partners started a wholesale business in piece-goods in September 1940. In October 1942, two of the five partners retired from the firm whereafter the three surviving partners continued the business under the same name and style. Each of the two outgoing partners was paid a certain amount for his share of the assets and profit of the old al to reopen its assessment under section eopen its assessment under section
14. We may first refer to the decision in Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati); (1988) 2 GLR 75. In this case, referring to the provisions of section 147(a), it was held (p. 427) :
"The principle in such cases is culled from the words in clause (a) of section 147 of the Income-tax Act. The words are whether the assessee disclosed 'fully and truly all material facts necessary for assessment'. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee. Once the assessment order is finalised or issues in the inquiry are settled. The same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth that the conclusion arrived at earlier was discovered to be wrong or that the assessee got away with false representation. The Income-tax Officer can reopen only if he records that true facts were not disclosed..."
15. The same principle was reiterated by this court in Gulabrai Hanumanbux v. WTO/ITO (1989) 178 ITR 519 (Gauhati); (1989) 2 GLR 418.
16. From the aforesaid decisions, it is abundantly clear that the conditions set out above are conditions precedent to the exercise of power of reopening a completed assessment under section 147(a) of the Act for the purpose of reassessment. If these conditions or any of the conditions precedent do not exist, a completed assessment cannot be reopened. This is because the policy of the law is that once the assessee has disclosed the material facts and the assessment is finalised, later, for a different conclusion on the same facts, the assessment cannot be reopened. This is so, because of the well-accepted policy of law, as observed by the Supreme Court in Parashuram Pottery Works Co., Ltd. v. ITO that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
17. This is also what was observed by Raghuveer J. (as his Lordship then was in Sirpur Paper Mills Ltd. v. ITO . We may gainfully refer to the following passage (p. 407) :
"The Income-tax Department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, 'except when legal ingenuity is exhausted'. To do so, is '... to divide one argument into two and to multiply the litigation'."
18. This view was approved and followed by this court in Rajendra Singh v. Superintendent of Taxes (1990) 79 STC 10 (Gauhati); (1990) 1 GLR 449 and Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati). This aspect of the matter pertaining to finality of decisions arrived at by the authorities was also discussed by the Privy Council in Hoystead v. Commissioner of Taxation reported in (1926) AC 155, 165, wherein it was observed :
"... it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle...."
19. It is thus clear that, in order to initiate proceedings for reassessment under clause (a) of section 147 of the Act, it is necessary for the Income-tax Officer to be satisfied that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The contention of the assessee in this case is that he had disclosed all material facts fully and truly and, as such, section 147(a) has no application to the facts of the present case. This contention found favour both with the Appellate Assistant Commissioner and the Tribunal. The Revenue is not satisfied with the findings of the appellate authorities and challenges the same.
20. We have carefully considered the facts of the case and the order of the Tribunal. It appears that the Tribunal, on consideration of the facts of the case, arrived at a finding that for the assessment year 1958-59 wherein the assessee had borrowed certain amounts from different parties, he filed confirmatory letters. Copies of accounts, interest paid to the parties, copy of profit and loss account and balance-sheet. All the parties had also admitted that they had advanced loans to the assessee. The Tribunal observed that that is what was expected of the assessee. The assessee had filed all the requisite details. Under such circumstances, the Tribunal held that it cannot be said that the assessee had not disclosed the true and material facts in regard to the loans in question. So far as the investment in the construction of the house at Delhi in the assessment year 1959-60 is concerned, the Tribunal observed that there was a discussion in the original assessment itself regarding the construction of the house by the assessee at Ansari Road, Daryaganj, Delhi. The investment made therein had also been discussed by the Income-tax Officer at length. On a consideration of all these facts and circumstances, the Tribunal arrived at a finding that the assessee had disclosed all true and material facts at the time of the original assessment. The Tribunal came to the conclusion that the assessee had disclosed all facts at the time of the original assessment. To draw an inference was the duty of the Assessing Officer. If the Assessing Officer was satisfied with the genuineness of the transaction at the time of the original assessment, it did not lie in the power of the subsequent Income-tax Officer to initiate action under section 147 of the Act.
21. We have carefully considered the order of the Tribunal in the light of the provisions of section 147(a) and the principles enunciated by the Supreme Court and this court and, on a consideration of the same, we are of the clear opinion that, in the instant case, the assessee had disclosed fully and truly all material facts necessary for the purpose of assessment for the two assessment years at the time of the original assessment and, as such, the Income-tax Officer had no jurisdiction to initiate proceedings under section 147(a) of the Act for reassessment. The Tribunal was, therefore, justified in holding that the reassessment proceedings initiated by the Income-tax Officer in the instant case were not valid in law.
22. In view of the aforesaid discussion, we answer the question referred to us in the affirmative and in favour of the assessee.
23. Under the facts and circumstances of the case. We make no order as to costs.
H.K. Sema, J.
24. I agree. the penal provisions of section 271(1)(c). In any event, this was not the addition on the basis of which the Income-tax Officer had recorded his satisfaction as required under section 271(1)(c). Shri Jeltey, learned counsel for the Department, on the other hand, strongly relied on the order of the Appellate Tribunal. He reiterated that the addition of Rs. 4,00,000 maintained by the Appellate Assistant Commissioner was a part of the addition of Rs. 5,00,000 made by the Income-tax Officer in respect of which the Income-tax Officer had recorded his satisfaction under section 271(1).
25. The condition precedent for applying the provisions of section 271(1)(c) is, admittedly, the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner, as the case may be, in the course of any proceedings under the Income-tax Act that the assessee concealed the particulars of his income or furnished inaccurate particulars thereof. The assessment for the year 1962-63 was completed on March 30, 1967, i.e., long before the settlement between the assessee and the Department. The total addition to the income disclosed was of a sum of Rs. 7,96,276 which included an addition of Rs. 5,00,000 as suppressed profits in the goods transport business. This addition was on the basis of material on record including tentative profit and loss statement found in the assessee's business premises at the time of search in October, 1966. Income from the transport business was, according to that statement, Rs. 8,46,107 as against the returned income of Rs. 4,00,487. The Income-tax Officer had recorded his satisfaction under section 271(1)(c) in the following words :
"Ireement. We have also pointed out that in another meeting held on the company had directed that the pany had directed that the construction of the ing it so the account of the constructed building was contributed as EIB the company by the firm constituted with Sadiram Ganga Prasad. The capital company by the firm constituted with Sadiram Ganga Prasad. The capital of Sadiram Ganga Prasad was the cost of the plot itself which dly ple was Hotel belonging to ble for n. It would have been a the action of the assessee. ion of the assessee. e, therefore, ent in the building fore the company was incorporated or te of commencement of the e, the addition of Rs. 1,33,941 and Rs. 2,10,935 will addition of Rs. 1,33,941 and Rs. 2,10,935 will he assessment for the assessment years 1976-77 and respectively." ively." it may be g ection 147/148 of f ted March 15, 1988, hy his assessment nt should not be e petitioner replied d full particulars in his certain amount for his share of the assets and profit of the old al to reopen its assessment under section eopen its assessment under section
26. We may first refer to the decision in Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati); (1988) 2 GLR 75. In this case, referring to the provisions of section 147(a), it was held (p. 427) :
"The principle in such cases is culled from the words in clause (a) of section 147 of the Income-tax Act. The words are whether the assessee disclosed 'fully and truly all material facts necessary for assessment'. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee. Once the assessment order is finalised or issues in the inquiry are settled. The same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth that the conclusion arrived at earlier was discovered to be wrong or that the assessee got away with false representation. The Income-tax Officer can reopen only if he records that true facts were not disclosed..."
27. The same principle was reiterated by this court in Gulabrai Hanumanbux v. WTO/ITO (1989) 178 ITR 519 (Gauhati); (1989) 2 GLR 418.
28. From the aforesaid decisions, it is abundantly clear that the conditions set out above are conditions precedent to the exercise of power of reopening a completed assessment under section 147(a) of the Act for the purpose of reassessment. If these conditions or any of the conditions precedent do not exist, a completed assessment cannot be reopened. This is because the policy of the law is that once the assessee has disclosed the material facts and the assessment is finalised, later, for a different conclusion on the same facts, the assessment cannot be reopened. This is so, because of the well-accepted policy of law, as observed by the Supreme Court in Parashuram Pottery Works Co., Ltd. v. ITO that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
29. This is also what was observed by Raghuveer J. (as his Lordship then was in Sirpur Paper Mills Ltd. v. ITO . We may gainfully refer to the following passage (p. 407) :
"The Income-tax Department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, 'except when legal ingenuity is exhausted'. To do so, is '... to divide one argument into two and to multiply the litigation'."
30. This view was approved and followed by this court in Rajendra Singh v. Superintendent of Taxes (1990) 79 STC 10 (Gauhati); (1990) 1 GLR 449 and Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati). This aspect of the matter pertaining to finality of decisions arrived at by the authorities was also discussed by the Privy Council in Hoystead v. Commissioner of Taxation reported in (1926) AC 155, 165, wherein it was observed :
"... it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle...."
31. It is thus clear that, in order to initiate proceedings for reassessment under clause (a) of section 147 of the Act, it is necessary for the Income-tax Officer to be satisfied that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The contention of the assessee in this case is that he had disclosed all material facts fully and truly and, as such, section 147(a) has no application to the facts of the present case. This contention found favour both with the Appellate Assistant Commissioner and the Tribunal. The Revenue is not satisfied with the findings of the appellate authorities and challenges the same.
32. We have carefully considered the facts of the case and the order of the Tribunal. It appears that the Tribunal, on consideration of the facts of the case, arrived at a finding that for the assessment year 1958-59 wherein the assessee had borrowed certain amounts from different parties, he filed confirmatory letters. Copies of accounts, interest paid to the parties, copy of profit and loss account and balance-sheet. All the parties had also admitted that they had advanced loans to the assessee. The Tribunal observed that that is what was expected of the assessee. The assessee had filed all the requisite details. Under such circumstances, the Tribunal held that it cannot be said that the assessee had not disclosed the true and material facts in regard to the loans in question. So far as the investment in the construction of the house at Delhi in the assessment year 1959-60 is concerned, the Tribunal observed that there was a discussion in the original assessment itself regarding the construction of the house by the assessee at Ansari Road, Daryaganj, Delhi. The investment made therein had also been discussed by the Income-tax Officer at length. On a consideration of all these facts and circumstances, the Tribunal arrived at a finding that the assessee had disclosed all true and material facts at the time of the original assessment. The Tribunal came to the conclusion that the assessee had disclosed all facts at the time of the original assessment. To draw an inference was the duty of the Assessing Officer. If the Assessing Officer was satisfied with the genuineness of the transaction at the time of the original assessment, it did not lie in the power of the subsequent Income-tax Officer to initiate action under section 147 of the Act.
33. We have carefully considered the order of the Tribunal in the light of the provisions of section 147(a) and the principles enunciated by the Supreme Court and this court and, on a consideration of the same, we are of the clear opinion that, in the instant case, the assessee had disclosed fully and truly all material facts necessary for the purpose of assessment for the two assessment years at the time of the original assessment and, as such, the Income-tax Officer had no jurisdiction to initiate proceedings under section 147(a) of the Act for reassessment. The Tribunal was, therefore, justified in holding that the reassessment proceedings initiated by the Income-tax Officer in the instant case were not valid in law.
34. In view of the aforesaid discussion, we answer the question referred to us in the affirmative and in favour of the assessee.
35. Under the facts and circumstances of the case. We make no order as to costs.
H.K. Sema, J.
36. I agree. the penal provisions of section 271(1)(c). In any event, this was not the addition on the basis of which the Income-tax Officer had recorded his satisfaction as required under section 271(1)(c). Shri Jeltey, learned counsel for the Department, on the other hand, strongly relied on the order of the Appellate Tribunal. He reiterated that the addition of Rs. 4,00,000 maintained by the Appellate Assistant Commissioner was a part of the addition of Rs. 5,00,000 made by the Income-tax Officer in respect of which the Income-tax Officer had recorded his satisfaction under section 271(1).
37. The condition precedent for applying the provisions of section 271(1)(c) is, admittedly, the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner, as the case may be, in the course of any proceedings under the Income-tax Act that the assessee concealed the particulars of his income or furnished inaccurate particulars thereof. The assessment for the year 1962-63 was completed on March 30, 1967, i.e., long before the settlement between the assessee and the Department. The total addition to the income disclosed was of a sum of Rs. 7,96,276 which included an addition of Rs. 5,00,000 as suppressed profits in the goods transport business. This addition was on the basis of material on record including tentative profit and loss statement found in the assessee's business premises at the time of search in October, 1966. Income from the transport business was, according to that statement, Rs. 8,46,107 as against the returned income of Rs. 4,00,487. The Income-tax Officer had recorded his satisfaction under section 271(1)(c) in the following words :
"Ireement. We have also pointed out that in another meeting held on the company had directed that the pany had directed that the construction of the ing it so the account of the constructed building was contributed as EIB the company by the firm constituted with Sadiram Ganga Prasad. The capital company by the firm constituted with Sadiram Ganga Prasad. The capital of Sadiram Ganga Prasad was the cost of the plot itself which dly ple was Hotel belonging to ble for n. It would have been a the action of the assessee. ion of the assessee. e, therefore, ent in the building fore the company was incorporated or te of commencement of the e, the addition of Rs. 1,33,941 and Rs. 2,10,935 will addition of Rs. 1,33,941 and Rs. 2,10,935 will he assessment for the assessment years 1976-77 and respectively." ively." it may be g ection 147/148 of f ted March 15, 1988, hy his assessment nt should not be e petitioner replied d full particulars in his certain amount for his share of the assets and profit of the old al to reopen its assessment under section eopen its assessment under section
38. We may first refer to the decision in Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati); (1988) 2 GLR 75. In this case, referring to the provisions of section 147(a), it was held (p. 427) :
"The principle in such cases is culled from the words in clause (a) of section 147 of the Income-tax Act. The words are whether the assessee disclosed 'fully and truly all material facts necessary for assessment'. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee. Once the assessment order is finalised or issues in the inquiry are settled. The same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth that the conclusion arrived at earlier was discovered to be wrong or that the assessee got away with false representation. The Income-tax Officer can reopen only if he records that true facts were not disclosed..."
39. The same principle was reiterated by this court in Gulabrai Hanumanbux v. WTO/ITO (1989) 178 ITR 519 (Gauhati); (1989) 2 GLR 418.
40. From the aforesaid decisions, it is abundantly clear that the conditions set out above are conditions precedent to the exercise of power of reopening a completed assessment under section 147(a) of the Act for the purpose of reassessment. If these conditions or any of the conditions precedent do not exist, a completed assessment cannot be reopened. This is because the policy of the law is that once the assessee has disclosed the material facts and the assessment is finalised, later, for a different conclusion on the same facts, the assessment cannot be reopened. This is so, because of the well-accepted policy of law, as observed by the Supreme Court in Parashuram Pottery Works Co., Ltd. v. ITO that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
41. This is also what was observed by Raghuveer J. (as his Lordship then was in Sirpur Paper Mills Ltd. v. ITO . We may gainfully refer to the following passage (p. 407) :
"The Income-tax Department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, 'except when legal ingenuity is exhausted'. To do so, is '... to divide one argument into two and to multiply the litigation'."
42. This view was approved and followed by this court in Rajendra Singh v. Superintendent of Taxes (1990) 79 STC 10 (Gauhati); (1990) 1 GLR 449 and Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati). This aspect of the matter pertaining to finality of decisions arrived at by the authorities was also discussed by the Privy Council in Hoystead v. Commissioner of Taxation reported in (1926) AC 155, 165, wherein it was observed :
"... it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle...."
43. It is thus clear that, in order to initiate proceedings for reassessment under clause (a) of section 147 of the Act, it is necessary for the Income-tax Officer to be satisfied that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The contention of the assessee in this case is that he had disclosed all material facts fully and truly and, as such, section 147(a) has no application to the facts of the present case. This contention found favour both with the Appellate Assistant Commissioner and the Tribunal. The Revenue is not satisfied with the findings of the appellate authorities and challenges the same.
44. We have carefully considered the facts of the case and the order of the Tribunal. It appears that the Tribunal, on consideration of the facts of the case, arrived at a finding that for the assessment year 1958-59 wherein the assessee had borrowed certain amounts from different parties, he filed confirmatory letters. Copies of accounts, interest paid to the parties, copy of profit and loss account and balance-sheet. All the parties had also admitted that they had advanced loans to the assessee. The Tribunal observed that that is what was expected of the assessee. The assessee had filed all the requisite details. Under such circumstances, the Tribunal held that it cannot be said that the assessee had not disclosed the true and material facts in regard to the loans in question. So far as the investment in the construction of the house at Delhi in the assessment year 1959-60 is concerned, the Tribunal observed that there was a discussion in the original assessment itself regarding the construction of the house by the assessee at Ansari Road, Daryaganj, Delhi. The investment made therein had also been discussed by the Income-tax Officer at length. On a consideration of all these facts and circumstances, the Tribunal arrived at a finding that the assessee had disclosed all true and material facts at the time of the original assessment. The Tribunal came to the conclusion that the assessee had disclosed all facts at the time of the original assessment. To draw an inference was the duty of the Assessing Officer. If the Assessing Officer was satisfied with the genuineness of the transaction at the time of the original assessment, it did not lie in the power of the subsequent Income-tax Officer to initiate action under section 147 of the Act.
45. We have carefully considered the order of the Tribunal in the light of the provisions of section 147(a) and the principles enunciated by the Supreme Court and this court and, on a consideration of the same, we are of the clear opinion that, in the instant case, the assessee had disclosed fully and truly all material facts necessary for the purpose of assessment for the two assessment years at the time of the original assessment and, as such, the Income-tax Officer had no jurisdiction to initiate proceedings under section 147(a) of the Act for reassessment. The Tribunal was, therefore, justified in holding that the reassessment proceedings initiated by the Income-tax Officer in the instant case were not valid in law.
46. In view of the aforesaid discussion, we answer the question referred to us in the affirmative and in favour of the assessee.
47. Under the facts and circumstances of the case. We make no order as to costs.