Income Tax Appellate Tribunal - Cochin
Chacko Mathew vs Assistant Commissioner Of Income-Tax on 28 November, 1997
Equivalent citations: [1998]67ITD48(COCH)
ORDER
M.M. Cherian, Accountant Member
1. This is an appeal by the assessee, Shri Chacko Mathew, Taliparamba, against the order passed by the CIT (Appeals), Calicut in the income-tax assessment for the assessment year 1981-82.
2. During the previous year ending on 31-3-1981 the assessee was deriving income from proprietary business by name Kottayam Motor Transport and also getting share income from M/s Malanad Liquors. He filed the return for the assessment year 1981-82 on 26-11-1981 showing a loss of Rs. 29,920 under the head "business" including share income from M/s Malanad Liquors. A sum of Rs. 11,500 was returned as agricultural income. The assessment was completed under sec. 143(3) of the Income-tax Act on 22-3-1984 on a loss of Rs. 56,129 as under :
1. Transport Business :
Net loss as per statement Rs. 33,160 (-)
Less : Depreciation on lorries KRE 2919 &
KLN-5488 considered separately. Rs. 68,902
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Rs. 35,742 (+)
Less : Depreciation on lorries @ 40%
Rs. 91,871
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Loss Rs. 56,129 (-)
2. Share from M/s Malanad Liquors (provisional) Nil
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Total loss Rs. 56,129 (-)
Agricultural income Rs. 11,500
Subsequently on 23-3-1985 the assessment was rectified and the loss was redetermined at Rs. 49,229.
3. On 13-3-1989 there was search conducted in the assessee's premises under sec. 132 of the Income-tax Act, when certain books of account and documents were seized. One of the documents seized was profit and loss account for the year ending 31-3-1981 relating to Foreign Liquor Shop FLW 96/80 in Payyannur Range in the name of the assessee. As per that profit and loss account the total sales in the foreign liquor business came to Rs. 14,83,663 and the net profit Rs. 2,71,208. On the basis of the information available from that document the assessing officer came to believe that income liable to tax for the assessment year 1981-82 had escaped assessment and so he reopened the assessment under sec. 147(a). In response to the notice issued u/s 148 the assessee filed a return admitting the same figure as assessed originally, i.e., business loss of Rs. 56,130 and agricultural income of Rs. 11,500. The assessing officer completed the assessment on a total income of Rs. 2,96,795 as under :
Net loss as declared by the assessee .... Rs. 56,130(-)
Income from business of foreign liquor run by the
assessee as per the profit and loss account seized Rs. 2,77,473
Income from unexplained sources Rs. 68,552
Loss of motor transport business claimed by the
assessee in the return filed Rs. 56,130
Less : Court loss as per the original assessment
order Rs. 49,230
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Rs. 6,900
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Rs. 3,52,925
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Total income Rs. 2,96,795
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4. In the assessment, apart from the sum of Rs. 2,77,473 added as income from the foreign liquor shop, the assessing officer made further addition of Rs. 68,552 as income under the head "other sources". This was on the basis of the deposits in the Savings Bank A/c No. 1699 in the name of the assessee in the Federal bank, Taliparamba. There was also another deposit of Rs. 14,000 in S.B. A/c No. 1312. Though the assessee claimed that the deposits represented the sale proceeds of the firm, M/s Malanad Liquors, the assessing officer did not accept that claim and treated the peak credit of Rs. 3,69,000 as the assessee's unexplained income. He also proceeded to estimate the personal expenses of the assessee at Rs. 18,000. Against the total sum of Rs. 3,87,000 the assessing officer adjusted a sum of Rs. 3,18,448 representing income from liquor business, transport business and agriculture. The difference of Rs. 68,552 was assessed as income under the head 'other sources'.
5. The assessee took up the matter in appeal.
The CIT (Appeals) deleted the sum of Rs. 2,77,473 added as income from the Foreign Liquor Shop, but the appellate authority found that the assessee had to explain the source of a total sum of Rs. 3,87,000 including the bank deposits and the household expenses estimated at Rs. 18,000 and as the disclosed income available with the assessee was only Rs. 90,817, he sustained the addition to the extent of Rs. 2,96,187. Aggrieved with the order of the CIT (Appeals) the assessee has filed this appeal before the Tribunal.
6. The first ground raised by the assessee in this appeal is that the CIT (Appeals) erred in upholding the validity of the reassessment us 147(a). On behalf of the assessee, Shri P. J. Jocob, Advocate submitted before us that the CIT (Appeals) ought to have cancelled the reassessment when he found that the income from the foreign liquor shop belonged to the firm M/s Malanad Liquors, and in that sense there was no escapement of income in the hands of the assessee. Shri Jacob explained that the only reason why the original assessment had been reported was that the assessing officer thought that income from the foreign liquor shop was assessable in the hands of the assessee. Drawing our attention to paragraph 22 of the appellate order, the learned counsel stated that there was a clear finding by the CIT (Appeals) that the foreign liquor shop was run by the firm and he also debited the income of Rs. 2,77,473 added in the assessment. Shri Jacob contended that when the original assessment had been reopened only for the purpose of bringing to tax the income from the foreign liquor shop, which was later in appeal found to be not includible, the CIT (Appeals) ought to have cancelled the reassessment. According to the learned counsel, the appellate authority was in sustaining the other addition on account of the deposits in the bank accounts in the name of the assessee. It was strongly contended that the assessing officer was not correct in adding the other incomes, particularly the income under the head 'other sources' when the original assessment had been reopened on the wrong presumption that the income from the foreign liquor shop had escaped assessment. Shri Jacob made a strong plea for cancelling the reassessment for the reason that the very foundation for the reassessment did not survive after the CIT(A) deleted the addition of Rs. 2,77,473.
7. On behalf of the Revenue, Shri Kuruvilla M. George, the Departmental Representative supported the order of the CIT (Appeals) and submitted that though the assessee had shown in the return of income share of loss from M/s Malanad Liquors, in the assessment the share was provisionally taken as Nil and that it was from the materials gathered in the course of the search conducted in the assessee's premises that the assessing officer came to believe that the foreign liquor shop belonged to the assessee and that in the original assessment income from that shop had escaped assessment. It was pointed out that the profit and loss account seized from the assessee's premises on 13-3-1989 showed that shop FLW-96/80 in Payyannur Range was in the name of the assessee and that in the year ending 31-3-1981 there was a profit of Rs. 2,71,208 in that business. According to the learned Departmental Representative, the assessing officer had thus reason to believe that income liable to tax for the assessment year 1981-82 had escaped assessment and so he issued notice for reopening the assessment under sec. 147(a). Shri Kuruvilla submitted that when the assessing officer assumed the jurisdiction on the basis of the information gathered during the search, it was a case of valid assumption of jurisdiction.
He submitted that once the assessment was reopened assessing officer had the jurisdiction to bring to tax all escaped income. He further stated that at the time of the original assessment the assessee's books of account had not been verified and so the assessing officer had no occasion to go through his bank account and further the assessee had also not filed the balance-sheet or audited accounts at the original assessment stage. Shri Kuruvilla stated that it was only in the course of the reassessment proceeding the assessing officer got the information regarding the deposits in Federal Bank, Taliparamba branch in the name of the assessee. It was argued that the Assessing Officer was fully justified in considering in the reassessment the bank deposits as the assessee's income from undisclosed source and in bringing to tax the same as income under the head 'other sources'. He also submitted that when the assessment was reopened, it was the duty of the assessing officer to bring to tax all the income that had escaped assessment, even though the ground on which the assessment had been reopened was later found not to survive.
8. It is evident that the original assessment in this case had been reopened when the assessing officer came to believe on the basis of the profit and loss account of the foreign liquor business seized from the assessee's premises that income liable to tax had escaped assessment. It is a case of valid assumption of jurisdiction on the basis of the materials gathered in the search that the assessee had not made a true and full disclosure of his income liable to tax for the assessment year 1981-82. But after reopening the assessment under section 147(a) the Assessing Officer included further amounts as undisclosed income on account of the bank deposits. The contention of the learned counsel for the assessee is that when the assessment was reopened to tax a particular item of income, namely the profit from the foreign liquor shop, apart from that in come no other amount could have been added in the reassessment. He further contended that later the CIT (Appeals) found that the foreign liquor shop did not belong to the assessee and in that sense the very basis for reopening the assessment was found to be lacking. His contention is that the other additions could not then survive because the original assessment itself was reopened for invalid reasons. Regarding the question as to whether in a reassessment other escaped income could be included it would be pertinent to refer to the decision of the Supreme Court in the case of V. Jaganmohan Raov. CIT [1970] 75 ITR 373. In that case the Apex Court held as under :
"Once proceedings under section 34 are validly initiated the jurisdiction of the Income-tax Officer is not restricted to the portion of the income that escapes assessment. Section 34 in terms says that once the Income-tax Officer decides to re-open the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or grains. Therefore, once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. Once valid proceeding are started under section 34(1)(b) the Income-tax Officer not only had the jurisdiction but it was his duty to levy on the entire that had escaped assessment during that year."
In the case of AL.VR.ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116 the Madras High Court held that when reassessment proceedings were validly initiated by the Income-tax Officer in respect of a case falling under section 34(1)(a) or under section 34(1)(b) of the Indian Income-tax Act, 1922 his jurisdiction extends to all items of income which had escaped assessment, subject to the limitation that items in respect of which reassessment proceedings could be initiated only within a period of four years under section 147(b) could not be brought within the reassessment initiated under section 147(a). In the case of CIT v. Standard Motor Products of Indian Ltd. [1983] 142 ITR 877/13 Taxman 269 the Madras High Court made the following observation :
"Once an assessment is reopened, the initial order of assessment stands automatically cancelled and the order of reassessment takes the place of the original order of assessment. The initial order of assessment cannot be said to be operative even for a limited purpose or with respect to items which had been covered by the initial order of assessment. To express differently, once as assessment is reopened the ITO will not only have the jurisdiction but it will be his duty to determine the tax liability of an assessee and for that purpose he will necessarily have to take into account not only the escaped income in respect of which a notice under section 147 had been issued but also the entire income that had escaped assessment during the year."
In view of the decisions stated above, we hold that in the reassessment under section 147(a), the Assessing Officer was justified in bringing to tax other items of escaped income, particularly income by way of unexplained investments in Bank accounts.
9. Now, turning to the other contention of the learned counsel for the assessee that the additions on account of other items of income could not survive after the very foundation for the reopening of the assessment was found to be not correct, it is true that the Assessing Officer had reopened the original assessment to bring to tax the income from Foreign Liquor Shop. The addition on that basis was subsequently deleted by the CIT (Appeals). It was the contention on behalf of the assessee that once the basis for reopening the assessment had been removed, the entire reassessment became a nullity in the eye of law and so the other additions effected in the reassessment could not survive. We are not inclined to agree with the learned counsel that when the addition on account of the income from the foreign liquor shop was deleted by the CIT (Appeals), he should have cancelled the reassessment or atleast deleted the other items of income added for the first time in the reassessment. In the case of CIT v. Asssam Oil Co. Ltd. [1982] 133 ITR 204/[1981] 6 Taxman 251 the Calcutta High Court held that a decision of the High Court that a particular kind of expenditure was not deducible would constitute 'information' for reopening the assessment under section 147(b) and reassessment proceeding taken in consequence of such information would be valid and that a subsequent reversal of the decision of the High Court Supreme Court would not render the reassessment proceeding void ab initio. In that case the original assessment was reopened under section 147(b) for disallowing a payment of royalties by the assessee for obtaining mining rights on the basis of a decision of the Rajasthan High Court in CIT v. Gotan Lime Syndicate [1964] 51 ITR 533. In the reassessment the Income-tax Officer made further disallowance of the London office management expenses. The decision of the Rajasthan High Court was later reversed by the Supreme Court. On the above facts, the Calcutta High Court held as under :
"The decision of the Rajasthan High Court in the case of Gotan Lime Syndicate (51 ITR 533) constituted 'information' on the basis of which reassessment proceeding under section 147(b) were validly taken. The pronouncement of the Supreme Court subsequently did not render the proceedings void an initio. The action under section 147(b) in so far as it related to the claim for deduction of London office management expenses was validly taken."
In family of V. A. M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314 the Madras High Court was dealing with a case where the assessment had been reopened on information on which belief was based, which later proved to be ill-founded. In that case, the Court held as under :
"An Income-tax Officer may rightly commence proceeding under section 34 if he has, in consequence of particular information in his possession, reason to believe that income has escaped assessment and may, even if that particular information proves to be ill-founded at the conclusion of the enquiry, yet bring to tax such escaped income as comes to light as result of the enquiry. The non-existence of the original ground which led the officer to believe that income had escaped assessment is not a bar to reassessment of escaped income and does not vitiate such reassessment. The statutory requirement of reasonable belief rooted in information in the possession of the officer is to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have escaped assessment."
In the case of CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24 decided by the Gujarat High Court, at the time when the Income-tax Officer issued notice under section 147 his action was valid in view of the legal position as it was then existing that development rebate could not be allowed on parts of machinery. The decision of the Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165, which held that development rebate was admissible on parts of machinery was pronounced within a month after the Income-tax Officer issued the notice. In dealing with the jurisdiction of the Assessing Officer to bring to tax other items of escaped income, the Gujarat High Court held as under :
"Though it turned out that development rebate was rightly allowed in the original assessment, there was no question of the basis or the foundation of reassessment proceeding disappearing because of the subsequent Supreme Court decision. Under these circumstances, the proceeding in reassessment having been validly initiated, the proceeding in reassessment having been validly initiated, the Income-tax Officer had not only the jurisdiction to bring the other two items regarding corporation tax rebate and the profit under section 10(2)(vii) of the Indian Income-tax Act, 1922, in the reassessment proceedings but it was also his duty to bring in these two items if he found that they had escaped assessment."
In the light of above decisions, we do not agree with the assessee's counsel that the basis or the foundation for the reassessment proceedings disappeared because of the subsequent finding of the CIT (Appeals) that the foreign liquor shop was not run by the assessee. As the proceedings in the reassessment had been validly initiated, we hold that the Assessing Officer was fully justified in bringing to tax other items of escaped income. We thus find no infirmity in the order of the CIT (Appeals) in upholding the validity of the reassessment proceedings.
10 to 13. [These paras are not reproduced here as they involved minor issues.]