Per Shri R. L. Sangani, Judicial Member - In this appeal by the assessee for the assessment year 1960-61, the only question that requires decision is whether the Commissioner (Appeals) was justified in holding that the re-opening of the assessment under section 147(a) of the Income-tax Act, 1961 (the Act), was bad in law.
2. The assessee is a company, in the original assessment, the assessee claimed to have paid Rs. 1,67,062 to Southern Engineers, Bombay, for repairs and renovation of the theatre in which the assessee was carrying on business. The ITO was satisfied on the material produced by the assessee that the said amount had been spent by the assessee for the aforesaid purpose. He granted deduction of the said amount and completed the assessment.
3. In the course of assessment for the assessment year 1961-62, the assessee had claimed deduction of Rs. 86,400 towards the said repairs and renovation. This amount was alleged to have been paid to the same party, viz., Southern Engineers, Bombay. The ITO found that the version of the assessee about the said payment was false and that the entire about the said payment were bogus. He, therefore, disallowed the claim. Against the said disallowance, the assessee filed an appeal before the AAC on 12-1-1970. The AAC allowed the claim for deduction of the said amount after reversing the above finding of the ITO.
4. Subsequent to the order of the AAC, the ITO on 27-4-1970 recorded reasons for reopening the assessment for the assessment year 1960-61 in the following words :
'The assessee-company claimed Rs. 1,67,062 as expenses incurred towards repairs of cinema building. Similar claims of repairs of Rs. 86,400 was made in the next assessment, i.e., for the year 1961-62. On detailed examination of the claim, it was found that in reality no repairs to the cinema building were made but they were only bogus expenditures claimed by obtaining bill from the contractor Shri T. V. Vijayan, proprietor of Southern Engineers. As the assessee failed to disclose the true and correct nature of repairs expenses at the time of original assessment. I have reason to believe that the income to the extent of Rs. 1,67,062 has escaped assessment. The provisions under section 147(a) are, therefore, applicable. Hence approval under section 147(a)'
5. After recording the above reasons, the ITO sent the file to the Board for sanction as required by section 151(1) of the Act because eight years had already elapsed from the end of the assessment year 1960-61. The file for sanction of the Board remained pending in the office of the Board for a long time. In the meantime, the departments appeal against the AACs order for the assessment year 1961-62 was allowed by the Tribunal by order dated 22-8-1972. On 20-3-1973, the Board gave sanction as required by section 151(1), for issue of notice under section 148 of the Act. The ITO then issued notice under section 148 which was served on the assessee on 9-4-1973.
6. It was submitted before the ITO in the course of reassessment, that the reopening of the assessment under section 147(a) was bad in law. This plea was not accepted by the ITO. He completed the assessment holding that deduction of Rs. 1,67,062 allowed in the original assessment was unjustified as no such payment had been made by the assessee. For arriving at this conclusion, the ITO relied on the finding recorded by the Tribunal in the appeal for the assessment year 1961-62. The assessee filed an appeal before the Commissioner (Appeals) and reiterated the plea that the reopening of the assessment under section 147(a) was bad in law. This plea was accepted by the Commissioner (Appeals) and the department has now come in appeal before us.
7. The submission on behalf of the department is that since the Tribunal has recorded a finding in the appeal for the assessment year 1961-62 that expenses claimed to have been incurred on repairs and renovation were not in fact incurred, it must be presumed that the material facts disclosed at the time of original assessment for the assessment year 1960-61, were not true, with the result that there was ground for reopening the assessment of the said year under section 147(a). Strong reliance was placed on the decision of the Punjab and Haryana High Court in S. P. Mohan Singh v. ITO . The submission on behalf of the assessee, on the other hand, is that the reopening of the assessment was bad in law, because on the date (27-4-1970) on which the reasons for reopening were recorded by the ITO, which formed the basis of reopening, the finding of the ITO in the assessment order for the assessment year 1961-62 to the effect that no expenses had been incurred in repairs and renovation, had already been quashed by the AAC (vide order dated 12-1-1970) with the result that the ITO could not have reason to believe that those expenses had not been incurred. Mere fact that the order of the AAC was reversed by the Tribunal subsequently would not make any difference as far as the validity of the reopening was concerned. Reliance was placed on certain decisions to which we shall refer presently.
8. We have considered the rival submissions and facts on record. It is necessary to consider at the outset as to what facts were disclosed at the time of original assessment. The assessee had filed the copies of the accounts. He had disclosed that the amount in question had been spent on repairs and renovation. The name of the persons to whom the amount had been paid was duly disclosed. On 16-1-1962, the ITO, by an order, written in the order sheet, had called upon the assessee to produce the details of the repairs. The order sheet dated 22-1-1962, refers that the assessee furnished the required details. The ITO thereupon asked the assessee to produce the books of account and pass books for the period from 1-4-1959 to 30-11-1959. He also issued summons under section 37 of the Indian Income-tax Act, 1922 (the 1922 Act), to Southern Engineers to whom the amount in question is alleged to have been paid. The order sheet dated 31-1-1962 indicates that Shri T. V. Vijayan, proprietor of Southern Engineers, attended and stated that he was being assessed by the Sixth ITO, Bombay. He gave his income-tax account number. On enquiry, the ITO found that the said Shri T. V. Vijayan had filed his return of income for the assessment year 1960-61 showing turnover of Rs. 2,21,388 which included the disputed amount of Rs. 1,67,062. Detailed enquiry was made by the ITO from the said Shri T. V. Vijayan, who disclosed that he was being assessed on estimate basis by applying rate on the gross receipts. He also produced profit and loss account and showed to the ITO the details of each contract. It is, thus, obvious that there was a detailed enquiry by the ITO about the genuineness of payment of the said amount. As a result of the evidence produced before the ITO, the ITO was satisfied about the genuineness of the payment. After he was so satisfied, he allowed the deduction in question.
9. From the above facts, it is obvious that the assessee had disclosed all material facts and the ITO had made detailed enquiry, about those facts and he accepted those facts after being satisfied that they were true. The question then is whether an assessment made after such detailed enquiry regarding the primary facts disclosed by the assessee could be validly reopened under section 147(a), simply because another ITO assessing the assessee for the subsequent year comes to a contrary conclusion on those very facts. In Calcutta Discount Co. Ltd. v. ITO : 41ITR191(SC) , the Supreme Court observed as follows :
'... The words used are omission or failure to disclose fully and truly all material facts necessary for his assessment for that year. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts, and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable ......' (P. 200)
These observations were quoted with approval by the Supreme Court in CIT v. Burlop Dealers Ltd. : 79ITR609(SC) . In that case, the assessee had claimed in the assessment year 1949-50 that the had paid half the profit to one R under an agreement. This fact was accepted in the original assessment and deduction was duly given. In the assessment for the assessment year 1950-51 the assessee again claimed similar deduction for payment of half profit of a joint venture to said R under the same agreement. However, this time, the ITO found that the said agreement was a got-up device to reduce profits and disallowed the deduction and this disallowance was ultimately upheld by the Tribunal. Meanwhile, the ITO issued a notice under section 34(1) (a) of the 1922 Act for reopening the assessment for the year 1949-50. The Supreme Court held that the assessee had produced its books of account and evidence from which material facts could be discovered. It was further held that the assessee was under no obligation to inform the ITO about the possible inferences that might be raised against it. It was for the ITO to raise such an inference and if he had not done so in the original assessment, the income that escaped assessment could not be brought to tax under section 34(1) (a). The ratio of this decision, therefore, is that mere fact that a contrary finding was recorded in the assessment for the subsequent year would not by itself furnish valid ground for reopening under section 34(1) (a) of the 1922 Act which corresponds to section 147(a) of the 1961 Act. The crucial fact to be considered in such cases is whether the material facts were duly disclosed in the original assessment.
10. The above decision was followed by the Supreme Court in ITO v. Madnani Engg. works Ltd. : 118ITR1(SC) . In that case in the original assessment certain interests paid by the assessee to creditors on hundis were allowed as deductible expenditure. Subsequently, the ITO received information that the said creditors had made havala entries and that the loans were not genuine. The Supreme Court relied on the above mentioned decision and held that since the assessee had produced in the original assessment proceedings all the hundis on the strength which the assessee had obtained loans from creditors as also entries in the books of account showing payment of interest, it was for the ITO to investigate and determine whether these documents were genuine or not. The assessee could not be said to have failed to made a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. In Calcutta Credit Corpn. Ltd. v. ITO : 79ITR483(Cal) , the assessee had claimed allowance of a sum of Rs. 5,000 as financial commission paid to P. C. & Co. That claim was allowed by the ITO. Subsequently, the ITO issued a notice for reopening the assessment on receiving an information that the said payment was bogus. It was held that the reopening was bad. It was observed that it was for the ITO to investigate the claim made by the assessee and find out whether the amount was actually spent for the purposes of the assessees business in order to qualify for allowance. It was no duty of the assessee to disclose at the same time that deduction was not permissible. Consequently, mere fact that the ITO received subsequent information to the contrary would not justify reopening under section 34(1) (a).
11. The ratio of these decisions applies to the facts of the present case. In this case, the assessee had disclosed all primary facts. They were duly investigated by the ITO. The ITO was satisfied about the truth of those facts. In these circumstances, mere fact that a contrary finding was recorded in the assessment for the subsequent assessment year would not justify reopening of the assessment of the earlier year under section 147(a). In this view of the matter, the reopening must be held to be bad in law.
12. The decision in S. P. Mohan Singhs case (supra), which has been relied on by the department is distinguishable because in that case the return had been accepted without making enquiries into genuineness of the cash credits and no evidence had been produced in the original assessment. In our case, as already stated, evidence was produced to substantiate the primary facts in the original assessment and deduction was allowed by the ITO after he was satisfied about the genuineness of the payment as a result of enquiry made by him.
13. Another contention raised on behalf of the assessee was that the reopening of the assessment was bad in law because on the date (27-4-1970) on which reasons were recorded by the ITO under section 148(2), his finding in the assessment for the assessment year 1961-62 about bogus nature of expenses on repairs had already been set aside by the AAC, by order dated 12-1-1970, with the result that his abovementioned finding in the order for the assessment year 1961-62 could not form valid basis for reopening. The reply of the department was that since the department had not accepted the order of the AAC dated 12-1-1970 and had already filed appeal before the Tribunal in which appeal the department ultimately succeeded on 22-8-1972 and since that order of the Tribunal was there before the Board when it gave sanction dated 20-3-1973 under section 151(1), there was no such legal infirmity in the reopening as pointed out by the assessee. We do not deem it necessary to record our considered opinion on this part of the controversy between the parties. We rest our decision on the Supreme Court decisions discussed above in which it is mentioned that when all material facts are duly disclosed in the original assessment proceedings and when the ITO has recorded finding therein about genuineness of payments and allowed deduction after making due inquiry into those material facts, mere recording of contrary finding on those facts (which may a have ultimately become final) in proceeding for subsequent assessment year would not form valid basis for reopening the assessment under section 147(a). The point whether such subsequent contrary finding would amount to information for reopening the assessment under section 147(b) does not arise for consideration in this case.
14. For the reasons already given, we uphold the decision of the Commissioner (Appeals) to the effect that reopening of the assessment under section 147(a) in the present case was bad in law.
15. In the result, the appeal fails and is dismissed.