Income Tax OFFICER vs CENTURY SPG. and MFG. CO. LTD.

Per Shri R. N. Singhal, Accountant Member - In this appeal, in department object to the finding of the Commissioner (Appeals) that reopening of the case u/s 147(b) is not legally correct.

In this case, original assessment was completed on 31-8-1977. The assessee had taken foreign exchange loans for acquiring plant and machinery abroad. The instalments of those loans were payable by the assessee in foreign exchange. Consequent upon the fluctuation in the foreign exchange rates, the assessee incurred a bigger liability to the extent of Rs. 17,87,993. In the original assessment in view of the assessees past record this amount was allowed as a deduction on revenue account. After the completion of the original assessment, the Madras High Court decision in Commissioner of Income Tax Vs. South India Viscose Ltd., came to the Income Tax Officers notice. In that case the Madras High Court held that further liability arising on account of payment of instalments towards the cost of plant and machinery was on capital account and fit for deduction on revenue account. The Income Tax Officer treated it as fresh information and respond the case under the section 147(b). He ultimately completed the reassessment by adding the said amount of Rs. 17,87,993 and in the process made some other adjustment additions also. The Commissioner of Income Tax (Appeals) unheld the assessees objections to the reopening u/s 147(b) and canceled the reopening and consequently the re-assessment. He did not consider the others grounds of appeal challenging the correctness of additions/disallowance made because he was canceling the reopening of the assessment itself. The department is in appeal before us against the decision of the Commissioner (Appeals) that the reopening of the assessment was bad in law.

On behalf of the department, Mr. Subramanian has emphasized that the decision of the Madras High Court in South India Viscose Ltd.s case (supra) constituted fresh information on the correct position of law and the Income Tax Officer was justified informing a belief of escarpment of income on the basis of that the information. He relied on Karnataka High Court in Mysore Cements Limited Vs. Income Tax Officer, and pointed out that in the cited decision even a sufficient of the information for the purpose of section 147(b). He relied on the observation of the Supreme Court in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, to say that when a notice is issued within four years, what is really required is that there is some information received after completion of the assessment and a reasonable person can form a belief of the escarpment of income on the basis of that information. He submitted that what was required was just a nexus between the inforamtion and the belief to be formed. He cited also the Supreme Court decision in A.N. Lakshmana Shenoy Vs. The Income Tax Officer, Ernakulam and Another, and ultimately relied on the observation of the Calcutta High Court decision in Bharati Pvt. Ltd. Vs. Income Tax Officer and Others, . He ultimately submitted that the sufficiency of the reasons is not justifiable and what is required is that the view taken by the Income Tax Officer in regard to the escapement of the income should be one of the possible reasonable views. On merits, he submitted that the Special Bench decision of the Tribunal, in Poysha Industrial Co. Ltd. v. ITO [1983] 4 ITD 41 was in favour of the department and against the assessee.

On behalf of the assessee, Shri S. P. Mehta, Advocate, submitted that the information should have direct nexus with belief. On the facts of the case, h e emphasized that in this case the Tribunal had held in earlier years that the amount was deductible on revenue account. He further submitted that in the intervening years, the Income Tax Officer had himself allowed corresponding amounts as deduction by following the Tribunals decisions in the assessees own case. On this basis, the submitted that the reopening of the assessment was bad. He further supported the order of the Commissioner (Appeals). Without prejudice to his main contention, he submitted that alternatively the assessee should be allowed depreciation on the amount which is being capitalised as part of the cost of the assets in question. On our query he stated that this point was raised at the time of original assessment but it was not raised before the Commissioner (Appeals) in the appeal against the re- assessment order.

We have very carefully considered the rival submissions. It is true that in assessees own case right from assessment year 1971-72 the Tribunal and the department had taken a view that the corresponding amounts were deductible on revenue account. This itself in our opinion, does not clinch the issue against the department. The point is that the Madras High Court decision in South India Viscose Ltd.s case (supra) laid down that the additional liability due to fluctation in the foreign exchange rates would be on captial account if the instalment are payable in foreign exchange in respect of acquistion of plant and machinery. The Commisioner of Income Tax (appeals) has distinguished that case by holding that in the assessees case plant and machinery was not acquired on instalment basis but loan was taken in foreign exchange from other sources and the instalment were payable towards re-payment of that loan. May be, the C ommissioner (Appeals) was right in pointing out that distinction but the issue before us is whether in spite of that distinction, the Income Tax Officer was justified in holding a belef that in assessees case also the additional liability on account of fluctuation in the foreign exchange rates should be treated as on capital account. In our opinion, the Income Tax Officer wasw justified in thinking that even the instalment of loans taken would be on captial account in the light of the Madras High Court decision in South India Viscose Ltd.s case (supra). So he was justified in regarding the said decision of the Madras High Court as fresh information on the point of law. It is very important that while re-opening the case u/s 147(b), he was not expected to examine the niceties of distinction brought out by the learned Commissioner (Appeals) between the fact of the Madras case and the assessees case. Short point for the decision is that the informations provided by the Madras High Court decision could have certainly led a reasonable person to the belief that even in assessees case it would be on captial account. There would have been a difference of opinion possibly, but the view taken by the Income Tax Officer was certainly one of the possible views of a reasonable persons. In other words, the Income Tax Officer was justified in forming the belief of escapement of income on the basis of information available from the Madras High Court decision on the point of law. On the basis, we hope that the re-opening of the assessment under se ction 147(b) was justfied inspite of the fact taht in assessees own case, the Tribunal had taken a view and the department had accepted that position in earlier years that the deduction was avai lable on revenue account. The pooint is that once the Madras High C ourt decision is available which constitues information, it is not necessary that information shuld be absolutely foolproof or absolut ely perfect. What we have to decide is whether it was information and whether it could have led to the existence of belief of the esc apement of income. Our reply is in affirmative on this point and we reverse the order of the Commissioner (Appeals). We hold that the r e-opening u/s 147(b) was valid and justified.

In para 9 of the order of the commissioner (appleas) has recorded as follows :

"9. It may be noted that since the assessment is being cencelled for t he resons stated above, I am not dealing whit the other grounds of appealraised by the assessee ohallenging the correctness of the add itions/disallowances made." We have reversed his decision on the point of re opening. Since the commissioner of Income Tax (Appeals) has not decided on merits the other issues involved, we restore the matter to the file of the comm issioner (Appleas) with direction taht by treating the re-opening of the assessment as legal and correct, he shuld whit the other grou nds of the appeal and contentions raised by the assessee before him. In view of the above mentioned direction, the alternative ground tak en by Shri S. P. Mehta does not survive because taht also has to be f irst considered by the commissioner of Income Tax (Appeals).

For statisteal purposes, the departmental appeal is allowed.