2001 PLP 3054 (PTD)

We have heard Mr. G.C. Sharma, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the respondent‑Assessing Officer. Since notices under section 148 of the Act were issued on March 30, 1989, undisputably old section 147, as it existed prior to its amendment by the Direct Tax Laws (Amendment) Act, 1987, would be applicable to the facts at hand. Section 147 material for our purpose, reads as follows: "

147. If‑‑ (a)??????? the Income‑tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income‑tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, ‑income chargeable to tax has escaped assessment for that year, or (b)??????? notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income‑tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 2.‑‑‑Production before the Income‑tax Officer of account books or other evidence from which material evidence could with due diligence, have been discovered by the Income‑tax Officer will not necessarily amount to disclosure within the meaning of this section. " From the aforenoted provisions of law, it is evident that before proceedings under section 147(a) could be initiated, the twin conditions, namely: (i) the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, and (11) such escapement was again by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, which have been held to be cumulative, must be satisfied. The fulfilment of both the conditions is thus, the sine qua non for taking action under section 147(a) and this alone could confer jurisdiction on the Assessing Officer to re‑open a completed assessment and make a re‑assessment. As noticed above, the main ground on which the proposed action under section 147 is challenged is that since the petitioner had placed before the Assessing Officer all the possible information with regard to acquisition of its lands; award of compensation by the Collector; the petitioner's filing further appeals; enhancement of compensation alongwith interest by the District Judge and the High Court, there was no failure on its part to disclose fully and truly all material facts necessary for assessment for the relevant assessment years, as alleged in the impugned notices and merely because the Assessing Officer overlooked and failed to apply the correct provisions of law, it could not be said that the assessee had failed to disclose fully and truly the material facts necessary for the assessment and as such the notice seeking to reopen the assessment were bad in law. The question falling for consideration is whether the petitioner had furnished ail the information with regard to the receipt of compensation and interest thereon and whether such disclosure of information was sufficient to disable the Assessing Officer from issuing the impugned notices under section 148 of the Act. In Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191, the locus classicus on the subject and heavily relied upon by Mr. Sharman, learned senior counsel for the petitioner, the Supreme Court held that the obligation of the assessee is to disclose only primary facts and not inferential facts. The primary facts are those which are material in that if taken into account they would have an adverse effect on the assessee for the assessment of greater income than what has been actually assessed. What facts are material and necessary for assessment differ from case to case. The question whether there is a disclosure or not within the meaning of section 147(a) also depends on the facts and circumstances of each case and is also required to be tested on the anvil of Explanation 2 to section 147, which provides that mere production of evidence before the Assessing Officer would not per se be enough and there may be an omission or failure on the part of the assessee to make full and true disclosure if some material evidence for the assessment lay embedded in the evidence produced, which on the due diligence the Assessing Officer could have discovered but did not. At the same time, as observed by the Supreme Court in Calcutta Discount Company's case (1961) 41 ITR 191, it is not for somebody else, far less the assessee, to tell the Assessing Officer what inferences, whether on facts or law, should be drawn from the primary facts placed before him by an assessee. If the income declared is not acceptable to the Assessing Officer, he is obliged to investigate and bring to tax the correct income. Even the object of Explanation 2 to section 147, casting an. obligation on the assessee to bring to the notice of the Assessing Officer the entire material which may be lying embedded in the evidence, cannot be construed to mean that the assessee is also required to advise the Assessing Officer as to what inference he should draw on the facts pointed out to him. If all the material facts are before the Assessing Officer at the time of original assessment, he cannot later on take recourse to section 147(a) of the Act to remedy the error resulting from his own negligence, lack of knowledge or even oversight. This is the settled position in law. As noticed above, the stand of the Assessing Officer is three‑fold namely, (i) the facts regarding the filing of appeals for enhancement of compensation with interest thereon were not disclosed by the petitioner/assessee in its returns filed prior to the date of order by the Additional District Judge on January 31, 1981 (assessment years 1972‑73 to 1982‑83). (ii) the interest received on January 21, 1982, was not declared in the returns even on accrual basis either with reference to the date of order by the Additional District Judge or from the date of receipt of the amount; and (iii) the interest amount‑of Rs.1,31,41,287, accrued on August 27, 1984, when the High Court decided the matter in the assessee's favour, was not declared in the return filed. To controvert the stand of the Assessing Officer, the petitioner has filed rejoinder‑affidavit, annexing therewith the extracts of the directors' report, balance‑sheet and profit and loss account, stated to be forming part of the returns of income for the relevant assessment years. Copies of assessment orders for the assessment years 1971‑72 and 1974‑75 to 1984‑85 and 1986‑87 have also been placed on record. It will be useful to extract herein the relevant portion of the annual accounts for the year ended June 30, 1973: "Extract of directors' report: As you will have noticed from the profit and loss statement, the company has received Rs.7,45,109.62 paise on account of company's share in compensation for land acquired by the Delhi Administration which has been capitalised and Rs.2,99,844.38 paise as interest on the said amount of compensation. In view of uncertainly about the position of income‑tax liability on the interest income, which relates to several past years, no provision for tax has been made in the accounts for the year. Extract of balance‑sheet: Note:

1. The company has made reference petition under section 18 of the Land Acquisition Act for enhancement of compensation which is still pending for decision in the. Court of Additional District Judge, Delhi, and is undetermined (emphasis added by us). Extract of profit and loss account: Note: Interest on compensation for land for the accounting year ended on June 30, 1973, is Rs.20,357.91 while the balance Rs.2,79,486.47 is on account of interest for previous years from August 9, 1965 to June 30, 1972." A similar note with regard to the pendency of reference under section 18 of the Land Acquisition Act appears in the annual report for the period ended June 30, 1980. In its annual accounts for the period ended June 30, 1981, the following note was appended: "Note: On company's reference petition under section 18 of the Land Acquisition Act for enhancement of compensation the Court o1 Additional District Judge, Delhi, has given its judgment, but the company being aggrieved with the order, has preferred an appeal before the High Court at Delhi The extent of increase m compensation receivable in terms of judgment of the Additional District Judge Delhi, has not been worked out." (emphasis added) ‑‑ The amount of enhanced compensation with interest having been received by the petitioner in February, 1982, the following note was given in the balance‑sheet for the period ended June 30, 1982. "Notes Forming part of Accounts: During the year the company has received Rs.62,16,113.39 on account of its share interest of Rs.32,63,453.10 and compensation Rs.29,52,660.29 for agricultural land acquired in the past by the Delhi Administration awarded by the Additional District Judge, Delhi. The company being aggrieved, filed appeal against the award given before the Delhi High Court; The Delhi Administration has also preferred appeal against the part of the award and disputed award for compensation and interest affecting company's share amounting to Rs.12,08,297.62 and Rs.32,63,453.10, respectively. No adjustment in respect of the above disputed or non‑disputed receipts has been made. Pending adjustment of the receipts the same has been credited to compensation suspense account. Necessary adjustment will be made on decision of appeals." It is not in dispute that the said annual accounts were filed with the returns of income for the relevant assessment years. From the assessment orders placed on record, we find that in the order for the assessment year 1971‑72, after recording the fact regarding acquisition, litigation with regard to the title of the lands, and the amount of interest received, the Assessing Officer held that though the assessee had apportioned the income to various previous years but since the amount was actually received by the assessee in February 1973, the entire amount was taxable in the assessment year 1974‑75 on receipt basis and he accordingly taxed the same in the said year. As noted above, this order was not challenged by the petitioner and has, therefore, attained finality. It appears that the petitioner was claiming as part of establishment expenses, the expenses incurred by it on the litigation with regard to enhancement of compensation but the same was being disallowed as not incidental to earning of interest income. In the assessment order for the assessment year 1975‑76, the Assessing Officer observed thus: "It is on record that the assessee‑company has preferred an appeal against the award of compensation for agricultural lands owned by the company and acquired by the Government and it is vigorously pursuing the matter in the Courts. It is, therefore, obvious that the entire establishment expenses claimed cannot be incidental to earning of interest income." (emphasis' added) Following this order similar disallowances were made consistently for the assessment years 1976‑77 to 1982‑83, which shows that the Assessing Officer was fully aware of the facts that the assessee is in litigation with respect to enhancement of compensation. We find that having disclosed every material fact with regard to the acquisition of its land; the amount(s) and the time when compensation/additional compensation was received and all these facts having been noticed by the Assessing Officer in the assessment order for the years under consideration, it cannot be said that still the petitioner failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment years. For creating the present situation, the Department has to blame itself for the failure of its officers to apply the correct principles of law to the facts disclosed by the petitioners. It bears mention that conscious of this lacuna in the Act, the Legislature amended section 150 of the Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April. 1, 1989, i.e., subsequent to issue of impugned notice on March 30, 1989. We feel that the said amendment being substantive, the contention of learned counsel for the Revenue that it should be applied with retrospective effect is stated to be rejected. The view we have taken finds support from Calcutta Discount Co.'s case (1961) 41 ITR 191 (SC), and other subsequent decisions on the issue, in the light of which it cannot be said that in the instant case the petitioner ?assessee has failed to disclose fully and truly all the relevant facts necessary for its assessment for the relevant assessment years. In fact the main ground on which the impugned notices are based, namely, the assessee had failed to disclose the information that "it had been fighting for enhanced compensation with interest thereon" is belied from the annual account admittedly forming part of the returns and the afore‑extracted observations in the assessment orders themselves. It is not only the right but the duty of an Assessing Officer to see each item of income and expenditure reflected in the accounts of an assessee and consider whether these disclose the true state of affairs and if not satisfied, he is not bound to accept the same and is required to bring to tax the correct income. We feel that merely because an Assessing Officer fails to apply the correct principles of law because of his ignorance or casual attitude at the time of original assessment, he cannot be permitted to later take recourse to section 147(a) to correct his inaction like in the present case. In so ar as this Court is concerned, the question of taxability of interest on compensation on accrual basis having been settled in CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi), the Assessing Officer was obliged to apply the principles enunciated therein. Under the circumstances we are constrained to hold that the reasons assigned by the Assessing Officer to issue the impugned notices do not fulfil the aforenoted statutory pre‑conditions necessary for issuance of such notices. We are of the view that in the present case the petitioner‑assessee had disclosed fully and truly all material and relevant facts which were necessary for its assessment for the relevant assessment years and there was no omission on its part in that behalf. Having found so we have no option but to quash all the impugned notices issued under section 148 of the Act and we order accordingly. Consequently all the petitioners are allowed and the rule is made absolute but with no order as to costs. M.B.A./306/FC?????????????????????????????????????????????????????????????????????????????????? Petition allowed