ASSAM ROLLER FLOUR MILLS vs Commissioner of Income Tax

BY THE COURT

By this application u/s 256(2) of the Income Tax Act, 1961, assessee prayed that Tribunal be directed to refer the following questions for the opinion of this court :

(i) Whether, in the facts and circumstances of the case, the reassessment proceedings u/s 147(a) of the Income Tax Act, 1961 by the learned Income Tax Officer and confirmed by the learned Tribunal are valid, wrong, illegal, and without jurisdiction and being violative on law of land as declared in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, are violative of article 141 of the Constitution of India ?

(ii) Whether, in facts and in the circumstances of the case, addition of the amount of the remission of customs penalty to the income of the firm Assam Roller Flour Mills by the learned Income Tax Officer u/s 148 and confirmed by the learned Tribunal is arbitrary, perverse, wrong illegal incompetent and being in contravention of sections 41(1) and 170(1)(b) of the Income Tax Act and section 40 of Partnership Act is violative of article 265 of the Constitution of India ?

The assessment year is 1982-83. The assessee firm continues to derive income from the manufacture and sale of various types of flours. Books of accounts maintained by the assessee were produced by the assessing officer during the course of assessment. The original assessment was made u/s 143(3) on 27-3-1985. Thereafter, a notice u/s 148 was issued, for reopening of the assessment u/s 147(a) of the Income Tax Act.

In the show-cause notice issued u/s 148, it was stated that as why the amount of Rs. 6,50,000 being the amount of remission of penalty, which was received by the assessee during the accounting year should not be taxed u/s 41(1) of the Act, 1961.

In the order u/s 143(3) read with section 147, the assessing officer has not only taxed the amount of Rs. 6,50,000 which was received from the custom authorities but also disallowed the depreciation of amount of Rs. 85,957 on the building, machinery and plant which were not destroyed in the fire.

He also disallowed the investment allowance u/s 32A(5), earlier allowed in the original assessment order on the ground that the machinery and plant were transferred to a newly incorporated company. In the appeal, the Commissioner (Appeals) has directed to allow Rs. 85,957 on account of depreciation which was earlier allowed but he confirmed the order of the disallowance of investment allowance u/s 32(A)(5) of the Act, i.e., disallowance of Rs. 2,15,400 on account of investment allowance which was earlier wrongly allowed.

In appeal before the Tribunal, the Tribunal has considered the validity of reopening of assessment u/s 148 and found that the reopening was valid, considering the fact that the assessee failed to disclose fully and truly all material facts for the assessment. For taxing the amount of Rs. 6,50,000, the Tribunal has again sustained the view taken by the assessing officer holding that the amount of Rs. 6,50,000 was received by the assessee in the accounting year relevant to assessment year that should be taxed in the year under consideration.

Learned counsel for the assessee, Mr. Bhojwani submits that the reopening of the assessment is bad is law as far as he submits that all the relevant material facts necessary for the assessment, assessee has disclosed all material facts fully and truly.

Whether the amount of Rs. 6,50,000 is taxable in the hands of the assessee or not, the Tribunal has discussed this aspect in para 10 as under :

"10. Coming to the objection of the assessee regarding the taxability of this amount, we find that in the first instance the evidence on record shows that as per assessee''s own commitment on the return of income that its previous year ended on 31-3-1982, that it still the rent a bank account in which it had received and deposited the cheque received from the custom authorities on 27-3-1982, and that it had entered into an agreement with the limited company on 8-4-1982, it cannot be said that the firm had dissolved on 31-1-1982, or had ceased to exist on 31-1-1982 and there was no firm existing on 29-2-1982, when the order of the Government of India remitting the customs penalty was passed on or 27-3-1982, when the cheque of Rs. 10,60,000 was actually received by the firm and deposited in its account. Other facts and circumstances, such as, not giving intimation as required u/s 176(3) of the Income Tax Act regarding the discontinuance of business only further strengthens our view that the firm was in existence as on 31-3-1982, and hence it was the firm which had actually received the remissions in respect of the customs penalty amounting to Rs. 6,50,000 which had been earlier allowed as a deduction from its taxable income for the assessment year 1979-80 and hence the position is absolutely clear that notwithstanding any agreement which is purported to have been entered into between the assessee-firm and a limited company by the partners of the assessee-firm, this remission of Rs. 6,50,000 is assessable as the income of the assessee u/s 41(1) of the Income Tax Act for the assessment year 1982-83. Since we have taken this view, it may not be necessary to further deal with the situations argued by both the sides, yet we may mention that even if for the sake of argument it is accepted that the firm had dissolved or had ceased to exist after 31-1-1982, in view of the specific provisions of section 41(1), read with section 176(3A) and the case law cited by the learned Departmental Representative this remission of the liability which had been allowed earlier would still be taxed in the hands of the assessee-firm. Accordingly, we hold that Income Tax authorities were justified in reopening the assessment and bringing into tax the amount of Rs. 6,50,000 in the hands of the assessee for this assessment year."

Mr. Bhojwani also submits that as the business has been transferred to company, with all assets and liabilities, therefore, assessee is not liable for tax an amount of Rs. 6,50,000.

The fact brought on record reveals that cheque has been received by the assessee-firm on 27-3-1982, and the agreement by the partners of the firm with company is on 8-4-1982, i.e., subsequent to the receipt of the amount of Rs. 10,60,000. Therefore, what would be the effect of succession or agreement between the partners of the firm and the company, in noway affects the liability of the assessee-firm as the firm has received the amount in the accounting year relevant to the assessment year, for that question does not arise to tax that amount in the hands of the company.

It is also pertinent to note that even company has not paid the tax on this amount. In view of these facts no case is made out for direction to the Tribunal for referring the questions, the application u/s 256(2) of the Income Tax Act is rejected.

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