COMMISSIONER OF INCOME TAX Vs. SUNDARAM INDUSTRIES LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following two questions, for the opinion of this Court, under s. 256(1) of the IT Act, 1961 :

(2.) THE original assessment in this case was completed on 22nd December, 1971. It has been held by the ITO that it was noticed that the terminal allowance worked out and claimed by the assessee in respect of property sold by it in Pudukotai to another concern M/s. Southern Roadways (P) Ltd., was not correct. He, therefore, reopened the assessment under s. 147 of the Act, and in response to the notice, the assessee filed a revised return declaring the same income as was originally furnished. It was also stated before the ITO that the assessee had furnished all the material particulars in respect of the property sold, including the depreciation allowed, the sale proceeds realised and the terminal depreciation claimed by it under s. 32(1)(iii) and therefore the reopening of the assessment under s. 147 was not valid. According to the ITO in the assessment order that the assessment has been reopened on 20th March, 1975 under s. 147(b) of the Act, and therefore it was reopened within the time limit prescribed for such action. THE ITO has narrated the facts relating to the property and has given in the assessment the terminal depreciation what was worked out by the assessee and the terminal profits that is actually assessable according to the ITO. This is reproduced hereunder : <FRM>JUDGEMENT_761_ITR231_1998Html1.htm</FRM>

(3.) ACCORDING to the Tribunal it is necessary for the ITO before initiating action under s. 147 of that Act to entertain a bona fide belief that income had escaped assessment by virtue of the circumstances narrated either under s. 147(a) or under s. 147(b). It is true that the ITO had passed entry in the order-sheet for this assessment year stating that income had escaped assessment. But the income that he considered to have escaped assessment is only a profit under s. 41(2), which, in fact, has not escaped assessment. ACCORDING to the Tribunal what was escaped in the assessment is only an excess allowance under s. 32(1)(iii). That has not been adverted to either in the note given by the head clerk to the ITO or by the ITO himself in the order passed by him for the issue of notice under s. 147. Therefore, according to the Tribunal, it cannot be said that the reopening has been validly made by the ITO since entertaining an honest belief contemplated under s. 147 of the Act is absent in this case. ACCORDING to the Tribunal, if the ITO entertained a belief about the escapement of an item of income, which had not in fact escaped assessment, then he cannot validly reopen the assessment and make a reassessment of an amount which has actually escaped assessment. Therefore, the Tribunal held that the argument advanced on behalf of the assessee that the ITO cannot reopen the assessment even for considering the correctness or otherwise of the allowance granted under s. 32(1)(iii) of the Act, in the circumstances of the case, is unacceptable. Further, the Tribunal pointed out that if the head clerk in the instant case has pointed out that the ITO has lost sight of the provision of s. 38(2), that would, in the opinion of the Tribunal, have constituted valid information under s. 147(b) of the Act. Unfortunately that was not the case here according to the Tribunal. Hence it was held that the reopening of the assessment under s. 147 of the Act is not valid.