Commissioner of Income Tax vs Mazda Theatres Pvt. Ltd.

Bharucha, J.—The common question that arises in these references at the instance of the Revenue reads thus :

"Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the reassessment proceedings were concluded with the finalisation of the settlement petition on June 5, 1968, is in law justified ?"

The assessment years concerned are 1957-58 and 1958-59. The assessments for these years were originally made on June 25, 1958, and August 16, 1961, respectively. On December 29, 1965, the Income Tax Officer issued to the assessee a notice u/s 147(a) read with section 148 of the Income Tax Act, 1961. The reasons noted by the Income Tax Officer for thus initiating reassessment proceedings were stated thus :

"It is found that hundi borrowings of the assessee-company aggregating to Rs. 5,000 are from parties who are mere name-lenders. I have, therefore, reason to believe that the said amount represents the assessee''s own concealed income chargeable to tax which has escaped assessment."

On September 23, 1967, the assessee addressed a petition to the Commissioner of Income Tax, Bombay, for settlement of its assessments for the assessment years 1957-58 to 1964-65. The assessee stated that it had been borrowing loans on hundis for a long time for the purpose of its business. A statement of such hundi loans was annexed to the petition. The peak thereof was Rs. 2,25,000, whereof an aggregate amount of Rs. 2,32,000 had been borrowed from the directors of the assessee and their relations and had been disclosed by the directors and relations under the Voluntary Disclosure Scheme. The balance amount of Rs. 18,000 was offered by the assessee for assessment to be taxed in the assessment year 1962-63.

On June 5, 1968, a letter was addressed by the Income Tax Officer, Hundi Circle, Bombay, to the assessee with regard to the settlement petition. The letter stated that the "petition has been finalized" on the basis of the terms therein stated. The escaped income of the assessee was determined at Rs. 60,000 and it would be treated as business income. The Appellate Assistant Commissioner would be requested to give effect to the terms of the settlement in respect of pending appeals in which additions of hundi loans and interest had been made. On the escaped income of Rs. 60,000, the assessee would pay tax in four quarterly installments beginning from June, 1968, and ending on March 25, 1969. On August 19, 1969, one M. P. Lentin made a statement to the Income Tax Officer that the assessee had claimed depreciation on its cinema building at the time of the original assessment on the incorrect basis that it was a new building.

Some time thereafter, the Income Tax Officer made an order of reassessment u/s 143(3) read with section 148 of the Income Tax Act, 1961. He stated therein that the assessee''s income had escaped assessment because in the original assessment, depreciation on the cinema building had been allowed as if it were a new building.

The assessee appealed to the Appellate Assistant Commissioner who upheld the order of the Income Tax Officer. The assessee went up in second appeal to the Income Tax Appellate Tribunal. The Tribunal found that the reassessment proceedings had been concluded with the finalisation of the settlement petition on June 5, 1968. As the Income Tax Officer had come to know about the excessive depreciation having been allowed to the assessee after the finalisation of the settlement petition, he could not have brought to charge this item which had escaped assessment before the finalisation of the settlement. In the circumstances, it was only open to the Income Tax Officer to issue a fresh notice u/s 147(a) read with section 148 of the Income Tax Act, 1961, to bring this item to charge.

The question, then, is : Were the reassessment proceedings concluded when the settlement petition was finalized.

The only reason for initiating the reassessment proceedings was the hundi borrowings of the assessee. The assessee then proposed a settlement in regard to the borrowings. By the letter dated June 5, 1968, the assessee was informed that the settlement petition had been finalized. The issue in regard to the borrowings was settled by the letter dated June 5, 1968. The reassessment proceedings, being only in respect of the borrowings, must, therefore, be held to have been concluded on that day by that letter. On August 19, 1969, when the statement about the cinema building was made to the Income Tax Officer, the reassessment proceedings had already been concluded. It was, therefore, not open to the Income Tax Officer to pass the reassessment order.

In the result, we find that the Tribunal was right. The question put to us is answered in the affirmative and in favour of the assessee.

No order as to costs.