1985 PLP 853 (PTD)

KANIA, J.‑Two questions have been referred to us for our determination in this reference under section 256(1) of the Income‑tax Act, 1961 (referred to hereinafter as "the said Act"). The said questions are as follows (1) Whether, on the facts and in the circumstances of the case, the pro ceedings under section .147(6) for the assessment year 1962‑63 were valid in law ; and (2) Whether, for the purposes of computing the written down value for the assessment years 1962‑63 and 1963-64, the contributions made by the consumers prior to January. 1961 should be deducted ?

2. The relevant assessment years are 1962‑63 and 1963‑64, respectively. The assessee is a Limited Liability Company which carries on the business of generation and distribution of electricity at two places, namely, Jaunpur and Fyzabad. It maintained accounts on the basis of calendar years, so that the corresponding 'previous years' for the two years in the reference are the calendar years 1961 and 1962. The assessee laid electric cables for supplying electrical energy to consumers. The consumers were required to contribute a portion. of the cost of cables. The written down value of the service connections as on 1‑1‑1961 was Rs. 1,21,11.00 (1,21,110) in the case of the undertaking of the assessee at Jaunpur and Rs. 2,93,527 in the, case of the undertaking of the assessee at Fyzabad, The consumers contribution at Jaunpur was Rs. 1,59,969 and that at Fyzabad was Rs. 2,70,

584. Under section 10(5) of the Indian Income‑tax Act, 1922; the consumers contribution was not to be deducted for working out the written down value and deprecia tion under that Act and for both the assessment years under consideration, the assessee claimed that the written down value of the service connections as worked out under the Indian Income‑tax Act, 1922, should be adopted as the written down value for working out the depreciation. The said Act, namely, the Income‑tax Act, 1961, was applicable to the said assessment years and in the said Act the definition of the term 'actual cost' was changed. In respect of the assessment year 1962‑63 which was to be made under the said Act, the Consumers' contribution made prior to 1st January, 1961, was not deducted iii computing the written down value, but for the assessment year 1963‑64 the written down value was computed by the Income‑tax Officer after deducting the consumers contributions prior to 1‑1‑1961. The assessment for the year 1962‑63 was re‑opened later under section 147 (b) of the said Act and depreciation of Rs 13,529 for Fyzabad and Rs. 5,349 for Jaunpur service connections was disallowed. In the proceedings before the Income‑tax Officer, who reopened the assessment for the assessment year 1962‑63, it was contended by the assessee that the assessment could not be reopened under section 147 (b) as the conditions for bring into play that provision were not complied with. In respect of this point, all that the Income‑tax Officer has stated is as follows : "On the day of appointment, two points were urged before me, firstly, the assessment cannot be reopened under section

147. Secondly, there is no jurisdiction for taking into consideration all the contributions from the consumers right from the beginning. Both points of the assessee cannot be sustained. It will be sufficient to point out that the assessment is reopened very much within the 4 years' time limit permitted by section 147(b) under which the assessment is being completed. The assessee had not deducted the contributions from the cost of service line connections as was obligatory in view of the provi sions of sections 43 (1) and 43 (6)."

3. Against this decision of the Income‑tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant commissioner rejected the contentions of the assessee and confirmed the assessment for the said assessment years. Regarding the question of reopen ing of assessment under section 147 (b) of the said Act, the Appellate Assistant Commissioner held that the Income‑tax Officer concerned, who passed the original order of assessment, had not applied his mind to this question at all at the time of the original assessment and the appellant had not actually supplied the details of the contributions received from the consumers prior to 1‑4‑1961 alongwith the return for the assessment year 1962‑

63. A mere mention in the balance‑sheet of an account to which contributions had been credited would not assist the appellant in getting out of the mischief of section 147(b). The assessee then preferred an appeal to the Income‑tax Appellate Tribunal in respect of the legality of the action taken under section 147 (b). The Tribunal practically made the same observations as have been made by the Appellate Assistant Commissioner, stating, inter alia that the Income‑tax Officer while making the original assessment for the year 1962‑63 had not applied his mind at all to the question whether the consumer's contribution had to be reduced from the written down value of the service connections and that no details of the contributions received from the consumers prior to 1‑4‑1961 were furnished along4vith the return. Regarding the immediately preceding observation made by the Tribunal, the assessee made an application to the Tribunal for rectification. That application was rejected, but from the order made on the said rectification application, which order was dated 14‑6‑1971, it can be seen that the assessee had, alongwith the return, annexed the balance‑sheet showing the consumers' contributions for service connections in respect of the assessment year 1962‑

63. The Tribunal rejected the entire appeal of the assessee. It is from this order of the Tribunal that the aforesaid questions have been referred to us.

4. Coming first ‑to the controversy regarding the reopening of the assessment for the assessment year 1962‑63, it may not be out of place to refer to the relevant portion of section 147 of the said Act at this stage. The said portion runs 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 re‑compute the loss or the concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." It will be noticed that the action taken by the Income‑tax Officer in reop ening assessment for the assessment year 1962‑63 was under clause (b) and not clause (a) of section 147 of the said Act. A plain reading of the said clause (b) makes it clear that for reopening an assessment under that clause, the In come‑tax Officer must have reason to believe that the income chargeable to tax escaped assessment for any assessment year and such belief is in. consequences of information in his possession. Although, there is considerable controversy as to what is the nature of information required to be possessed by the Income‑tax Officer before taking action under clause (b) of section 147, there is no dispute that he must have information which gives him reason to relieve that the income chargeable to tax has escaped assessment. There is also no dispute that such information must be acquired by the Income‑tax Officer after the assessment order sought to be reopened has been passed. Mr. Joshi, learned counsel for the Commissioner, has urged that the requisite information may even be obtained by the Income‑tax Officer from the record of the original assessment or from an investigation of the material. on record or inquiry or research into the facts or law. In support of this contention, he relied on the decision of the Supreme Court in Kalyanji Mavji & Co. v. Com missioner of Income‑tax (1976) 102 I T R 287 :1976 Tax L R 123). It vas pointed out by him that although it has been observed in a subsequent case decided by the Supreme Court that some other dictum laid down in Kalyanji's case was too wide, the aforesaid proposi tion relied upon by him was in no way whittled down. It was not disputed by Mr. Joshi that a mere change of mind on the part of the Income‑tax Officer cannot enable him to act under clause (b), but, according to him, in the present case, as pointed out by the Tribunal, the Income‑tax Officer who passed the original order of assessment had not applied his mind at all to the question of deduction of consumer's contributions in computing the written down value. Even the realisation by the Income‑tax Officer that he had failed to take this into account constituted, according to Mr. Joshi enough ground to take action under clause (b) of section

147. In support of this, he has cited several authorities. It was, on the other hand, contended by Mr. Dastur, the learned counsel for the assessee, that the admitted position was that the contributions made by the consumers had been shown in the balance‑sheet annexed to the original return for the assessment year 1962‑63 and that these contributions had been set out in the balance‑sheet, and hence the case was one of a mere change of mind on the part of the Income‑tax Officer‑ According to Mr. Joshi, these contributions have not been set out on the correct side of the balance‑sheet, as they were set out by the assessee on the liability side, whereas according to Mr. Dastur, there was nothing improper or incorrect in this procedure and the said contributions did in fact represent liabilities of the assessee. In our view, it is not necessary to go into this controversy or to discuss the cases cited before us in that connection. It is apparent that it is for the Income‑tax Officer reopening the assess ment under clause (b) of section 147 of the said Act to state that he had reason to believe that that income had escaped the assessment in the earlier assessment, that the belief had been induced by some information received by him after the original‑order of assessment was made. It is also for him to give some indication at least as to what was the nature of the said information received by him: It may be that it is given sufficient information that the Income‑tax Officer who made the original assessment had overlooked some relevant provision of law in making the original order of assessment but it i for the Income‑tax Officer to state that in his order re‑opening the assessment. Now, in the present case, as we have already pointed out, the only ground given by the Income‑tax Officer for reopening the assessment is that the assessment was reopened very, much within the time limit of four years an that the assessee had not deducted the said contributions. He has nowhere stated in his order that any information was received by him in this regard after the original order of assessment was made or that the officer who mad the original order of assessment had omitted by oversight or otherwise to take into account or to consider the question of the contributions by the consume or even that the Income‑tax Officer, passing the original order of assessment had made any mistake which was later realised by the Income‑tax Officer reopening the assessment. In view of this, one totally fails to see how it was open to the Appellate Assistant Commissioner or to the Tribunal to indulge in guesswork as to what was the information on which the Income‑tax Officer passing the order of re‑assessment could have acted and this is exactly what the Appellate Assistant. Commissioner and the Tribunal have done. Both the Tribunal and the Appellate Assistant Commissioner have stated that the Income‑tax Officer passing the original order of assessment had not applied his mind to the question whether the consumer s contributions had to be deducted from the down value of the service connection, but one fails to see as to what was the basis on which they could have said so. The order of assessment and that of re‑assessment were passed by the different Income‑tax Officer. It may be mentioned that even the notice for showing cause against the reopening assessment under clause (b) of section 147, was not issued by the Officer, who passed the original order of assessment but was issued by the Officer, who ultimately passed the order reopening the assessment. The Income‑tax Officer, who passed the original order of assessment, does not seem to have appeared even before Tribunal or made a statement as to what was the mistake he had trade, if any, in passing the original order of assessment. In our view, therefore, there is no material at all to show that there was any information, on the basis of which the Income‑tax Office passing the order of re‑assessment, under clause (b) of section 147 could have acted and the order of re‑opening the assessment under that clause is clearly bad. In view of this question No. 1 is answered in the negative and against the Commissioner. Regarding question No. 2, as far as the assessment year 1962‑63 is concerned, the question becomes academic, because of the view which we have taken on question No.

1. As far as the assessment year 1963‑64 is concerned, the said question No. .2 is concluded against the assessee by the decision of a Division Bench of this Curt in Commissioner of Income- tax, Bombay City I v. Bassein Electric Co. Ltd. (1979) 118 I T R 884) and hence i n respect of that assessment year, the said question is answered in the affirmative and against the assessee.

5. Looking to the facts and circumstances of the case, there will be no order as to the costs. M. B. A. Reference answered accordingly