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Judgment
A.K. Sengupta, J.—In this application under article 226 of the Constitution, the petitioner has challenged two notices, one dated March 8, 1976, and the other dated March 29, 1986 (76?) issued u/s 148 of the Income Tax Act, 1961, for the aseessment year 1971-72. The original assessment for the assessment year was completed on March 20, 1971, u/s 143(3) of the said Act.
The petitioner also preferred an appeal against the said assessment. The Appellate Assistant Commissioner heard the appeal for the assessment year 1971-72 along with the appeals for other two years and granted certain reliefs to the petitioner. The petitioner thereafter went to the Income Tax Appellate Tribunal and the Income Tax Appellate Tribunal disposed of the appeal and a question of law was referred at the instance of the petitioner by the Tribunal u/s 256(1) of the Act relating to the assessability of import entitlement.
Thereafter, the Income Tax Officer issued notice u/s 148 on March 8, 1976, for the assessment year 1971-72. He also issued another notice for the said assessment year on March 29, 1976, which was handed over to the petitioner''s representative presumably by way of abundant caution to avoid limitation. The Revenue authorities have not filed any affidavit-in-opposition. The records were directed to be produced and the reasons recorded for initiation of the proceeding u/s 148 of the Act have been produced. The reasons as recorded for reopening the said assessment for the assessment year 1971-72 are as follows: "It is seen that the assessse''s income has escaped assessment, inter alia, because of the following reasons:
(1) In consequence of information received from Revenue audit, it is seen that the deductions under Sections 80K, 80L, 80M have been wrongly allowed in the original assessment. For this year, there is no gross total income within the meaning of Section 80B(5), the net result after allowing depreciation being a negative figure. Section 80(2) lays down that the aggregated amount of deduction under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee. In the instant case, since there is no gross total income within the meaning of Section 80B(5), the net result being a minus figure, no deductions under sections 80K, 80L and 80M can be allowed in view of the restriction imposed u/s 80A(2). In the circumstances, excess loss to the extent of Rs. 4,29,027 has been carried forward due to the following incorrect deductions :
Rs.
Under section 80K
98,233
Under section 80L
3,000
Under section 80M
3,27,794
Total 4,29,027
(2) The cement unit of the assessee-company started manufacture from January, 1969. For this assessment year, being the third year of allowance, unabsorbed deficiency u/s 80J to the tune of Rs. 26,60,874 as per computation filed by the assessee was accepted and carried forward in the original assessment. In the computation of capital employed worked out under Rule 19A, Income Tax Rules, 1962, no deduction as provided in Rule 19A(3)(b) for medium term loan obtained from the State Bank of India, H.O., Calcutta, for rupees two crores was made. It transpires that as per terms of repayment, the loan was repayable during a period of less than seven years and it was utilised in setting up of the cement factory and as such the loan should have been deducted in the computation of capital. The assessee neither deducted the amount of loan in capital computation under Rule 19A nor disclosed the material facts regarding the utilisation and terms of the loan during the course of the original assessment. Thus 6% of 2 crores, i.e., Rs. 12 lakhs have been allowed in excess in computation of relief u/s 80J, Besides an amount of Rs. 10,76,283 has been included in the written down values of fixed assets which is the value of incomplete jobs. As the assets worth Rs. 10,76,283 were not used in the business of the assessee during the computation period, no consideration of the amount should, therefore, have been made in the computation of capital employed. This having been done, 6% of Rs. 10,76,283, i.e., Rs. 64,577 has been allowed in excess in computation of relief u/s 80J.
(3) Travelling allowance disallowable u/s 37(3) read with rule 6D has not been disclosed in the return. The same has neither been considered and disallowed in the assessment. It is seen during the course of subsequent years'' assessments that substantial amount is disallowable on this score. The amount that has escaped assessment on this score is estimated at Rs. 40,000,
(4) The assessee paid compensation on account of short production of controlled cloth. Such payment was in the nature of penalty and should have been disallowed. Information received, vide CBDT''s Instruction No. 910 (Circular F.No. 228/51/75-ITA-11 dated January 8, 1976). Such payment was not disallowed in the original assessment as the assessee did not disclose the relevant particulars in the return and in the statement of accounts filed in connection with the original assessment.
In view of the facts stated above, I have reasons to believe that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and also in consequence of information in my possession, the assessee''s income has escaped assessment and this is a fit case for reopening both under sections 147(a) and 147(b) of the Income Tax Act, 1961."
It may be mentioned that the said notice was issued before the expiry of 4 years from the end of the assessment year 1971-72 and, accordingly, the initiation of proceedings is sought to be justified both under Sections 147(a) and 147(b) of the said Act. The short question which calls for determination is whether the conditions precedent for assumption of jurisdiction for initiation of the proceedings in respect of income escaping assessment have been fulfilled or not. This will entirely depend on the materials as disclosed in the said recorded reasons.
This court in the case of Sm. Nirmala Birla and Others Vs. The Wealth Tax Officer, ''M'' Ward Dist. V(I), Calcutta and Others, , construing the similar provision in the Wealth-tax Act, 1957, held that though Clauses (a) and (b) contemplate two separate and mutually exclusive jurisdictions, that does not mean that the same set of facts cannot constitute inference under Clause (a) and information under Clause (b) when they come to the knowledge of the Officer which leads him to believe that wealth or income has escaped assessment. He may believe that the escapement was due to omission or failure of the assessee to disclose fully or truly all material facts. He may also believe that even if there was no failure or omission on the part of the assessee, the new facts comprise information in his possession which call for reassessment of escaped wealth. If it is found that some information did come to the knowledge of the officer which was not known to him before and, on the new facts that were brought to light, a belief under either Clause (a) or (b) could be formed, the notice could not be struck down. The validity of the impugned notices has to be tested in the light of the above principles.
The 6rst ground for reopening is that the deductions under Sections 80K, 80L and 80M of the Act have been wrongly allowed in the original assessment. There is no gross total income within the meaning of Section 80B(5) and the net result after allowing depreciation giving negative figure on (no ?) deduction could be allowed in view of the provisions of Section 80A(2) as the deduction under Chapter VI-A, i. e., deduction, inter alia, under sections 80K, 80L and 80M cannot exceed the gross total income of the assessee. From the assessment order, it would be evident that the Income Tax Officer allowed the deduction under sections 80K, 80L and 80M and before considering depreciation. This was not correctly done in view of specific provisions made in Section 80A(2) read with Section 80B(5). This information would clothe the Income Tax Officer (with the power) to issue the impugned notice.
In the case of National Engineering Industries Ltd. Vs. Commissioner of Income Tax (Central), , this court held that an assessee is entitled to deduction u/s 80M in computing its total income but the amount of deductions cannot exceed its gross total income u/s 80A. Gross total income means the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A or deductions in respect of annuity deposit paid u/s 280-O. Where such gross total income is found to be a net loss in the year concerned, because of the losses suffered during the year, there is no question of any further deduction of 60 per cent. of the dividend earned u/s 80M. The said dividend is to be adjusted against the business loss and the net income of the assessee computed at a negative figure.
The Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, , held that unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at the figure of profits and gains exigible to deduction contemplated in Section 80E(1). The Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, approved the said decision in Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, : "It will thus be seen that, according to this decision, the words ''such profits and gains'' in the latter part of Sub-section (1) of Section 80E were referable to the quantum of the profits and gains attributable to the specified business included in the total income as referred to in the earlier part of the provision. If this decision lays down the correct interpretation of Sub-section (1) of Section 80E, the same interpretation must also govern the language of Sub-section (1) of Section 80M. Structurally, there is hardly any difference between Section 80E, Sub-section (1), and Section 80M, Sub-section (1), and the reasoning which appealed to the court in the interpretation of Sub-section (1) of Section 80E must apply equally in the interpretation of Sub-section (1) of Section 80M."
In that view of the matter, it cannot be said that the Income Tax Officer had no jurisdiction to reopen the assessment for the assessment year 1971-72. It is not necessary to go into the other grounds mentioned in the recorded reasons inasmuch as once it is held that the notice u/s 148 is validly issued, the entire assessment will stand set aside and the Income Tax Officer has to make assessment afresh. It is also well settled that if the notice is issued on more than one ground, and one of the grounds is sufficient to uphold the validity of the notice, then even the other grounds, that are not sustainable, will not make the notice bad. It is not necessary for me to decide the other grounds mentioned for the recorded reason.
For the reasons aforesaid, this application fails and is dismissed. Rule is discharged. All interim orders are vacated.
Prayer for stay of operation of the order is refused.