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J.K. Cotton Spinning & Weaving v/s Commissioner of Income-Tax

    Income Tax Reference No. 111 of 1986

    Decided On, 17 March 2015

    At, High Court of Judicature at Allahabad


    For the Appellant: B. Agarwal, A. Kumar and A.N. Mahajan, D. Awasthi, G. Krishna, S. Chopra, Advocates. For the Respondent: V. Gulati, H.P. Agarwal, R.S. Agarwal, Advocates.

Judgment Text

Sudhir Agarwal, J.

1.This reference application has come up at the instance of assessee, vide Income Tax Application No. 4 of 1982, arising out of I. T. A. No. 386 (Alld.)/1978-79 and the following reference has been made by Tribunal :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that once the Income-tax Officer reopen the assessment under section 147(b) of the Income-tax Act, 1961, he is empowered to consider and assess all the other items afresh ?"

2. The dispute relates to assessment year 1969-70.

3. The assessee is a public limited company carrying on the business of manufacturing of cotton textile, rayon yarn and television sets, etc. The accounting period relevant to the assessment year 1969-70 ended on December 31, 1968. The original assessment under section 143(3) of Income-tax Act, 1961 (hereinafter referred to as "the Act, 1961") completed on March 30, 1972, on a total income of Rs. 30,18,194. The Assessing Officer allowed development rebate at 35 per cent in respect of electronic units. Based on the Appellate Commissioner's order for the assessment year 1970-71, the Income-tax Officer (hereinafter referred to as "the ITO") initiated proceedings under section 147(b) of the Act, 1961, by issuing a notice under section 148 on March 15, 1974. The assessee objected thereto but the said proceedings were upheld by the Tribunal with further observation that once the Income-tax Officer reopen the assessment on the basis of one item, he is empowered to consider all other items afresh. In the notice dated March 15, 1974, issued by the Assessing Officer under section 148 read with section 147(b), he said :

"On the basis of 'information' within the meaning of section 147(b), read from the Appellate Assistant Commissioner's decision in the case of the assessee for the assessment year 1970-71 regarding non-entitlement of higher development rebate to the electronic unit, proceedings are initiated under section 147(b)."

4. He further said that on the basis of the above information he has reason to believe that the assessee was allowed excess relief amounting to Rs. 57,088 (development rebate on electronic unit allowed at the rate of 35 per cent amounting to Rs. 1,33,205 instead of allowable at the rate of 20 per cent., i.e., Rs. 76,117).

5. The notice under section 148 was, accordingly, issued on July 31, 1973. Initially proceedings were dropped on March 15, 1974, but again initiated on that very date.

6. The Assessing Officer, thereafter, proceeded to make reassessment not only in regard to development rebate but other items also, which action has been confirmed by the Tribunal observing as under :

"It is by now well established law that once the Income-tax Officer reopens the assessment on the basis of one item, he is empowered to consider all the other items afresh and, therefore, we are not prepared to accede to the submissions made on behalf of the assessee that the Income-tax Officer had reopened the assessment in the instant case with some ulterior motive/purpose or that his action was mala fide."

(emphasis added)

7. The Tribunal relied on the decisions in CIT v. Kerala State Industrial Development Corporation Ltd. (1979) 116 ITR 158 (Ker) and Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) for taking the view that once assessment is reopened in respect of one item, all other aspects would also be opened for reassessment.

8. The assessee made an application under section 255(1) of the Act, 1961, before the Tribunal requesting for making reference on two questions but the said application was rejected by the Tribunal, vide order dated July 27, 1981, where after the assessee came to this court and, vide order dated March 5, 1986, this court directed the Tribunal to make reference on the question, as noted above, pursuant whereto the above reference has come.

9. This court is now confined to consider the question, "whether on reopening of a case under section 147, it is open to the Income-tax Officer to consider all other items and not to confine to the item on which reassessment notice has been given".

10. From the order dated March 13, 1975, whereby the Assessing Officer not only reopened the case but made assessment in respect to various other items, other than the quantum of development rebate, we find that he has relied on the apex court's decision in V. Jaganmohan Rao v. CIT/EPT (1970) 75 ITR 373 (SC) in order to hold that once assessment is reopened, the previous assessment is set aside and the whole assessment proceedings restart afresh. This view has also been confirmed by the Tribunal while confirming the reassessment proceedings and opening of the entire matter afresh.

11. This reference is pending since 1986 and we find that the apex court's decision in V. Jaganmohan Rao (supra) has been considered and explained subsequently in CIT v. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC). The court having gone through the judgment in V. Jaganmohan Rao (supra) held that the principle laid down therein is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of Indian Income-tax Act, 1922 (corresponding to section 148 of Act, 1961), the previous underassessment is set aside and the Income-tax Officer would have jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What set aside is, thus, only the previous underassessment and not the original assessment proceedings. The court very categorically held (page 319 of 198 ITR) :

"An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity."

12. The court further said that it is only in cases of "under-assessment" based on clauses (a) to (d) of Explanation 1 to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. In Sun Engineering Works (supra) explaining the decision in V. Jaganmohan Rao (supra), the court very categorically said (page 319 of 198 ITR) :

"The judgment in Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recompilation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'under assessment' but to the entire assessment for the year and start the assessment proceeding de novo giving right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings."

(emphasis added)

13. The court further said that section 147 is part of a taxing statute. It imposes no charge on the subject but deals merely with the machinery of assessment. While interpreting such a provision, construction which makes the machinery workable, should be preferred. It was held that section 147 is for the benefit of the Revenue and not an assessee. It aims at garnering the escaped income of the assessee. The aforesaid provision cannot be allowed to be converted as revisional or review proceedings so as to make machinery unworkable. Having said so the court in Sun Engineering Works (supra) held (page 320 of 198 ITR) :

"As a result of the aforesaid discussion, we find that in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147."

(emphasis added)

14. It is further said that the words "such income" in section 147 clearly referred to the income which is chargeable to tax but has escaped assessment and the Income-tax Officer's jurisdiction under the section is confined only to "such income" which has escaped assessment. It does not extend to consider generally the concluded earlier assessment. A matter not agitated in the concluded original assessment proceedings, cannot be permitted to be agitated in reassessment proceedings unless relatable to the item sought to be taxed as "escaped income". Several decisions of various High Courts taking a different view were overruled by the apex court which included Deputy CCT v. Indian Refrigeration Industries P. Ltd. (1980) 46 STC 264 (Mad) ; CIT v. Ramsevak Paul (1977) 110 ITR 527 (Cal) ; CIT v. Assam Oil Co. Ltd. (1982) 133 ITR 204 (Cal) ; CIT v. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad) ; CIT v. Rangnath Bangur (1984) 149 ITR 487 (Raj) ; State Bank of Hyderabad v. CIT (1988) 171 ITR 232 (AP) and CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom) [FB].

15. Sri Shambhu Chopra, learned counsel appearing for the Revenue, attempted to contend that the aforesaid judgment must be read to impose such a restriction at the instance of the assessee and not for the Revenue. He contended that the court in Sun Engineering Works (supra) has observed that section 147 is for the benefit of the Revenue and, therefore, whatever restrictive interpretation the court has given therein, should be applied only when in the matter of reassessment an objection is raised by the assessee and attempt is made to reopen the entire case but so far as the Revenue is concerned, it is free to treat the assessment completely reopened once proceeding under section 147 has been issued and there should be no restriction at all.

16. The submission, in our view, is thoroughly misconceived.

17. Before the apex court, the assessee was attempting to argue that once assessment proceedings recommenced, the entire assessment would be reopened as if the earlier assessment has gone which argument was rejected by the court. That is how the reference with respect to assessment has come but it cannot be said that the natural consequences of a provision would be different for the assessee and the Revenue. Both the parties will have to follow the same consequences unless a different intention appears from the statute which has not been shown at all.

18. A judgment must be read as a whole and the observations from the judgment should be considered in the light of the questions which were before the court. The decision of the court takes it colour from the questions involved in the case in which it has rendered. While applying the decision to a later case, the court must carefully try to ascertain the true principle laid down in the decision and not to pick out words from the decision, divorce from the context of question under consideration by the court. If the assessee cannot be allowed to convert the proceedings initiated under section 147 as revisional or review, the same would also be not available to the Revenue.

19. A Division Bench of this court in CIT v. Omrao Industrial Corporation P. Ltd. (2000) 246 ITR 346 (All) ; (2001) UPTC 897 has also taken similar view following Sun Engineering Works (supra) and observed (page 347) :

"We find that the scope of the powers of the Income-tax Officer and making a reassessment under section 147(a) has been settled by the Supreme Court in CIT v. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) where the Supreme Court held that though the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which have led to the issuance of the notice under section 148, the Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the su

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bject matter of proceedings under section 147 and a matter not agitated in the concluded original assessment proceedings cannot be permitted to be agitated in such reassessment proceedings unless relatable to the item sought to be taxed as escaped income. In our view, therefore, for the reasons that have been recorded by the Tribunal, the Income-tax Officer could not add/disallow other items which were allowed by him in the original assessment merely by taking a different view." (emphasis added) 20. On behalf of the Revenue, Sri Shambhu Chopra, learned counsel placed reliance on a decision of the Madras High Court in Satyamangalam Agricultural Producer's Co-operative Marketing Society Ltd. v. ITO (2013) 357 ITR 347 (Mad) but therein we do not find anything which may help the Revenue and to persuade this court to take a different view than what it has expressed above. He also placed reliance on a subsequent decision in ITO v. K.L. Srihari (HUF) (2001) 250 ITR 193 (SC) but therein we find that the court did not consider the question, whether the judgment in Sun Engineering Works (supra) should be referred to a larger Bench or not but dismissed the appeal on the facts of that particular case. It is difficult to suggest that the aforesaid judgment lay down any law on the subject in view of the decision given in the facts of that case. 21. The reference is, accordingly, answered in the negative, i.e., against the Revenue and in favour of assessee.