1985 PLP (Trib (PTD)

SIKANDAR HAYAT KHAN (MEMBER). This departmental appeal against the impugned orders of the learned Appellate Assistant Commissioner contained in Appeal No. 326, dated 10th May, 1980 relates to the assess ment year 1976‑

77. The solitary objection of the department is that the learned Appellate Assistant Commissioner was not justified setting aside the impugned assessment with a direction to frame it on the basis of pro rata basis as the respondent had filed a declaration of excess income under section 3(c) of the repealed Income‑tax, Act, 1922. It was stated that the said section only covered the assessments upto the charge year 1975‑76 and not any part of the assessment year 1976‑

77. Consequently a prayer has been made that the order of the learned Appellate Assistant ‑Com missioner may be vacated and that of the Income‑tax Officer be restored.

2. The respondent namely Messrs C S ..T M Ltd. is a public limited company. Its assessment for the period ending 30th September, 1975 relevant to the assessment year 1976‑77 was finalized on a net income of Rs 63,88,561 under subsection (3) of section 23 of the repealed Income‑tax Act, .1.922. The respondent having felt aggrieved against the impugned assessment filed an appeal before the learned Appellate Assistant Commissioner who by virtue of Order No. 326, dated 10th May, 1980 set it aside. In this connection relevant portion of the appellate order is set out below: "Furthermore, the declaration filed by the appellant company under section 3(c) was for the period 1st October, 1972 to 30th June, 1975. The assessment under appeal covers the accounting period from 1st October, 1972 to 30th September, 1975. The appellant further argued that the income, profits and gains uptil 30th June, 1975 included in the year under appeal were liable to be assessed under section 3(c) of the Act. Undisclosed income defined under section 3(c) read with Fifth Schedule; is all the income profits and gains of any previous year or years ending before the Ist July, 1975 which were chargeable to tax but were not so charged. By acceptance of declaration under section 3(c), it was incumbent upon the department to frame the assessment in the manner laid down under section 3(c). It appears from the assessment order that the income‑tax Officer had not fully understood the situation at the time of framing the assessment. The Income‑tax Officer had himself conceded that the definition of the undisclosed income includes the period before Ist July, 1975 and the Income‑tax Officer was ‑‑under legal obligation to frame the assessment by the adoption of pro rata basis the incomes, profits and gains of the company under section 3(c) of the Act uptil this period. This assessment order for the year under appeal is set aside with the directions that the. Income‑tax Officer should deal with it within the frame work of law and as directed above."

3. The learned departmental Representative' first dealt with the objection of the learned Appellate Assistant Commissioner with regard to the fact that the respondent was denied a reasonable opportunity of being heard. He brought to our notice that the respondent was served with the notice under sections 23(2) and 224) of the repealed Income‑tax Act, 1922. In addition to these notice our attention was drawn to the service of, a notice under subsection (3) of section 23 of the said Act on the respondent. He argued that an assessment framed after the service of these notice could dot be held to have been framed without affording the respondent a reasonable opportunity of being heard. This aspect of the case we brought to the notice of the account namely Mr. E.. H...He could con trovert the fact that notice under sections 23(2), 22(4) and 23(3) of the Act were duly served on the respondent. The service of these notice on the respondent also stands, proved from para 2 of the impugned assessment. In this view of the matter, the learned A. A. C. was not justified in coming to a hasty conclusion that the impugned assessment was finalized without giving the respondent due opportunity of being heard.

4. It is true that the respondent filed a declaration of excess income for the period from 1st October 1972 to 30th June 1975 on 31 st August 1976 to declare an excess income of Rs. 7,00,

000. This declaration represented investment of undisclosed income in the fixed assets of the respondent. According to the Income‑tax Officer the declaration of excess income entitled the respondent to the disposal of pending income‑tax and sales tax assessment in accordance with para 19 of C. B. R. & S. Circular No. 63(211) I‑T‑IV/76, dated 14th July, 1976. This is set out below for facility of reference. "Where assessment for any year for which declaration has been made is pending the Income‑tax Officer will finalize the assessment on the basis of the returns. He may, however, make such, additions to the returned income out of be expenditure claimed in the trading and P & L account as may be inadmissible under the law or of income claimed to be exempt under the law and which the Income tax Officer holds to be taxable."

5. The instructions of the Board given according to the Income tax Officer and the learned Departmental Representative were not relevant to the assessment year 1976‑

77. In this connection our attention was invited to the definition of under closed income according to section 3(c) of the Fifth Schedule. This is incorporated below: "For the purposes of this Schedule and section 3(c,) undisclosed income of a person means all income, profits and gains of any previous year or years ending before the 1st day of July, 1975 which were chargeable to tax but not so charged.

6. The meaning of income charged and income chargeable were clarified by the Central Board of Revenue vide its Circular of even number dated 14th July 1976. In this connection para 2 of the said Circular is given below: "According to the definition given in rule I of the Fifth Schedule undisclosed income of person means income, profits and gains of any previous year or year ending before the first day of July, 1975 which were chargeable to tax but were not so charged. In plain language undisclosed income constitutes such income as was liable to income‑tax in any year upto assessment year 1975‑76 which was not assessed to tax for that year.

7. Thus according to the learned Departmental Representative assessment relating to the charge year 1976‑77 was rightly framed under subsection (3) of section 23 of the repealed Income‑tax Act, 1922. The accountant of the respondent, namely Mr. E .H ..repeated same argument for the adoption of pro rata basis of income, profits and gains of the company under section 3(c) of the Act as was held by the learned Appellate Assistant Commissioner.

8. From para. 2 of the Fifth Schedule section 3(c) we find that every person who was chargeable to income‑tax under the provision 3(c) was, required to file a declaration of his undisclosed income with the concerned Income‑tax Officer by 31st August, 1976. The respondent taking advantage of section 3(c) filed a declaration of excess income by the due date. However this was subject to the provision of para. I of the Fifth, Schedule which defines undisclosed income. , Even at the cost of repetition we would like to observe that undisclosed income a person means all income, profits and gains of any previous year or year ending before the first day of July, 1975 which were chargeable to tax but were not so charged. According to this definition of undisclosed income, it constituted such income as was liable to income‑tax in any year upto the assessment year 1975‑76 which has not assessed to tax for that. Thus in our opinion any assessment relating to the charge year 1976‑77 was undoubtedly beyond the scope of undisclosed income as defined in para, I of the Fifth Schedule section 3(c).

9. The learned Appellate Assistant Commissioner observed that it was incumbent upon the departmental to frame the assessment in the runner laid down under section 3(c). This observation is disposed of by a short comment. We would like to point out that in pursuance to the declaration of excess income under section 3(c) the pending assessment were to be disposed of in accordance with para. 19 of C. B. R. Circular even number dated 14th July 1976. However according to para, 2 of the Circular and definition of undisclosed income only those pending assessments were to be finalized according to para. 19 in respect of which any previous year or years ended before the first day of July, 1975. In other word's only those assessment were to be finalized in accordance with para. 19 where the previous years ended on 30th June, 1975. As in the case of the respondent its previous year ended on 30th September, 1975 (assessment year 1976‑77) the provision of para. 19 were not applicable in respect of the assessment year 1976‑

77. The mere fact that the previous year of the respondent ended on 30th September, 1975 did not entitle it' to the benefit of pro rata basis the computations of income, profits and gains of the company for the assessment year 1976‑

77. In this view of the matter, we have no hesitation in vacating the orders of the learned Appellate Assistant Commissioner and restoring the assessment framed by the Income‑tax Officer. M. B. A. Appeal accepted.