CALCUTTA ASBESTOS AND BELTING CO. vs COMMISSIONER OF Income Tax.

AJIT K. SENGUPTA J. - In this reference u/s 256(1) of the Income Tax Act, 1961 ("the Act"), for the assessment year 1983-84, the following question of law has been referred to this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment proceedings u/s 147(a) read with section 148 of the Income Tax Act, 1961, as per recorded reasons u/s 148(2) is valid in law ?"

Briefly stated, the facts are that the original assessment in the case of the assessee was made more or less on the basis of the return filed. In the course of the assessment proceedings, the assessee filed a statement in regard to the transactions with New Age Corporation in which the credit balance was shown at Rs. 60,000 which was duly confirmed by the creditor.

When the assessment for the assessment year 1984-85 was taken up, the Assessing Officer noticed that a sum of Rs. 60,000 which was shown as payable to New Age Corporation as on December 31, 1982, was not shown in the opening balance as on January 1, 1983. The Assessing Officer verified the books of account of the assessee and found that no amount was payable by the assessee to New Age Corporation on December 31, 1982. He, therefore, reopened the assessment for the assessment year 1983-84 u/s 147(a) by the issue of notice u/s 148 of the Act dated January 3, 1986. The following reasons have been recorded for reopening the assessment for the assessment year 1983-84 :

"3-1-1986

1983-84

under section 147

In the balance-sheet as at December 31, 1982, relevant for the assessment year 1983-84, the assessee has shown loan outstanding of Rs. 60,000 to New Age Corporation. Loan confirmation filed as well as verification of books of account with reference to bank statement of New Age Corporation show that the assessee has no dues as loan payable to New Age Corporation on December 31, 1982. As such the said amount of Rs. 60,000 is the assessees cash credit for the assessment year 1983-84.

In view of the above, I have reason to believe that the assessee failed to disclose fully and truly all material facts necessary for assessments for the assessment year 1983-84 and income chargeable to tax has escaped assessment for the assessment year 1983-84.

Issue notice u/s 148.

(Sd.) M. M. Mazumdar."

Various explanations were offered by the assessee in regard to the discrepancy in the balance-sheet. The Assessing Officer, however, rejected the explanations as not acceptable and assessed the sum of Rs. 60,000 observing that the amount was rightly assessable as cash credit for the period relevant to the assessment year 1983-84.

Aggrieved by the said order of assessment, the assessee took up the matter in appeal before the Commissioner (Appeals) and raised various points challenging the validity of reopening of assessment and also the assessability for the year under consideration. The learned Commissioner (Appeals) accepted the contention and held that the reasons recorded by the Assessing Officer for reopening of the assessment were factually wrong and, hence, the reopening of the assessment was invalid. The learned Commissioner (Appeals) further held that the statement in the balance-sheet as on December 31, 1982, that an amount of Rs. 60,000 was due to New Age Corporation was not based on the entries in the books of account maintained and, therefore, it cannot be held that the income chargeable to tax escaped assessment in the absence of actual entry of credit of such amount in the assessees books of account. The learned Commissioner (Appeals) held that additional reasons cannot be imported to substantiate the issue of notice u/s 148. The learned Commissioner (Appeals) further held that the mere difference in the balance-sheet involving assets being in excess of liabilities will not automatically result in income chargeable to tax escaping assessment. Even in any case, it was his view that the amount of Rs. 60,000 cannot be assessed as income u/s 68 of the Act. He, accordingly, deleted the addition of Rs. 60,000.

The Revenue came up in appeal before the Tribunal and the Tribunal allowed the appeal and set aside the order of the Commissioner (Appeals), restored the matter to the Assessing Officer for fresh decision.

It appears from the narration of facts and from the orders of the authorities below that the assessee had shown a sum of Rs. 60,000 as liability in the balance-sheet for the assessment year 1983-84 and also obtained confirmation of the creditor in the statement of accounts submitted before the Assessing Officer at the time of assessment. In the course of subsequent assessment proceedings for the assessment year 1984-85, it was discovered by the Assessing Officer that no such amount was due and payable to the alleged creditor New Age Corporation as on January 1, 1983, which is the first day of the previous year relevant to the assessment year 1984-85. The Assessing Officer, therefore, examined the books of account of the assessee and found that there were no amounts payable to the alleged creditor even on December 31, 1982, as the accounts stood closed as on November 25, 1982. He, accordingly, initiated proceedings u/s 147(a).

In out view on the facts found in the subsequent year of assessment, that there was no loan as shown due and payable the Income Tax Officer was justified in holding the belief that by reason of omission and failure on the part of the assessee to disclose fully all necessary facts for his assessment for the assessment year 1983-84, income chargeable to tax had escaped assessment. There is a live link between the materials and the belief formed by the Income Tax Officer. In our view, therefore, the Tribunal was right in coming to the conclusion that there were materials before the Income Tax Officer for reopening the assessment. Since the Tribunal has remanded the matter for fresh disposal as regards the assessability of the sum of Rs. 60,000, any observation made in this judgment will not be taken to be our finding or conclusion on the merits of the assessment.

We, therefore, answer the question in this reference in the affirmative and in favour of the Revenue. There will be no order as to costs.

NURE ALAM CHOWDHURY J. - I agree.