1. The appellant-assessee by this appeal under Section 253(1) of the Income-tax Act, 1961 ("the Act"), challenges the first appellate order dated 3-12-1980 of Shri Rajendra Mohan, the learned Commissioner (Appeals), for the assessment year 1967-68, inter alia, on the following ground : The learned Commissioner (Appeals) erred in holding that proceedings initiated under Section 148 read with Section 147(a) are valid.
2. The assessee is a limited company by status and its business is banking. The relevant accounting period is the calendar year ending 31-12-1966. The original assessment appears to have been completed some time in 1970. The learned ITO, thereafter, felt reason to believe that by reason of omission or failure on the part of the assessee to disclose truly and fully all material facts necessary for each assessment year, the income chargeable to tax had escaped assessment.
The omission on the part of the assessee is said to be that it had not shown the appreciated amount of Rs. 61,574 in its income and in fact the same was directly credited to the contingency fund account. In these circumstances, the learned ITO initiated reopening proceedings under Section 147(o) of the Act, with the prior approval of the learned Commissioner (Appeals). In reply to the notice under Section 148, the assessee appears to have written a letter on 18-12-1975 staling that the return already furnished may be treated as return in compliance to the said notice On further insistence, the assessee filed a fresh return on 4-2-1976 confirming the contents of the earlier return. In compliance with the notice under Section 143(2) of the Act, Shri M.N.Joshi, the learned advocate on behalf of the assessee, appeared before the learned ITO. The validity of initiation of proceedings under Section 147(a) was objected and it was further mentioned that all material facts had since been disclosed to the learned ITO in the course of the original assessment, and that in terms of the statement showing contingency fund-tiled along with the original return-a clear mention was made of the said sum of Rs. 61,574 acquired or received as "amount on account of devaluation", there was no failure on the part of the assessee and that the situation did not warrant the initiation of the reopening proceedings. The learned ITO, Shri P.N. Bansal, did not accept the contentions raised before him relying upon the ratio in the case of Malegaon Electricity Co. (P.) Ltd. v. CIT  78 ITR 466 decided by their Lordships of the Supreme Court and initiated proceedings under Section 147(a) with the following observations : The contention of the assessee cannot be accepted as the assessee in the course of the original assessment did not disclose the appreciation in its circulating capital amounting to Rs. 61,574 in the profit and loss account nor was this income claimed to be specifically exempt under any particular provision of the law. The figure appeared in the contingency fund account and it could, of course, have been dug out by the ITO by proper scrutiny but the fact remains that it was not discovered by the ITO at that stage. Further the assessee did not bring this item specifically to the notice of the ITO. As the ITO did not apply his mind to its taxability in the course of the original assessment, it cannot be said that it was a case of change of opinion on his part. The facts of the case are on all fours with those obtaining in the case of Malegaon Electricity Co. (P.) Ltd. v. CIT  78 ITR 466 (SC). As observed in the said case, if any part of the receipts could be assessable then it is the duty of the assessee to include it in the return and its failure to do so would amount to failure on its part to disclose fully and truly the material facts necessary for its assessment and would bring its case within the scope of Section 147(0). As such, proceedings under Section I47(a) were validly initiated in this case.
3. A sum of Rs. 61,574 was consequently included in the total income of the assessee during the reopening proceedings by the learned 110, Shri P.N. Bansal, vide his assessment order dated 20-3-1980 under Section 147 read with Section 144B of the Act.
4. Thereafter, the said action of the learned ITO was challenged by the assessee. All the contentions, earlier raised before the learned ITO, appear to have been reiterated and repeated. The learned Commissioner (Appeals), Shri Rajendra Mohan, could not agree with the contentions of the assessee, and, in fact, confirmed the learned ITO's action in the following manner : I am afraid the contention of the appellant-company is not acceptable. Though what the appellant-company says with regard to the furnishing of the details of contingency fund account is correct, the entries made in this account throw absolutely no light on the nature of the receipt. In this account, the narration is-"amount on account of devaluation Rs. 61,574". This entry gives an impression as though it is some kind of a transfer entry. The amount of Rs. 61,574 was not credited to the P & L account. From what follows in ground No. 2 below, it would be abundantly clear that the assessee-company itself does not know the nature of receipt even now, i.e., after 14 years, it cannot explain as to how and when this profit arose. Under the circumstances, lam not inclined to support the contention that there was no omission or failure on the part of the appellant while furnishing the return. The assessment is accordingly, held to be valid. No relief is due to the appellant on this account.
5. Therefore, the instant appeal by the assessee before us on the ground mentioned above.
6. On behalf of the appellant-assessee, Shri M.N. Joshi, assisted by Shri P.D. Mooley, the learned advocates, contested the correctness of the action of the revenue authorities below, ft was mentioned that all the primary facts necessary to enable the learned ITO to give a proper treatment to the item of income were furnished and that in fact the sum of Rs. 61,574 accrued on account of devaluation was reflected in the statement filed along with the original return and that the failure of the learned ITO to properly investigate the matter after applying judicial mind cannot tantamount to a failure on the part of the assessee cognisable under Section 147(a). ft was further submitted that, inter alia, on the part of the learned ITO should not be allowed to result in an inference that there was omission on the part of the assessee (sic).
7. Shri M.N. Joshi further mentioned that the original return was filed on 30-9-1967 showing the sum in question as mentioned above and that the original assessment was framed on 26-12-1970. He continued that thereafter the learned ITO issued a notice under Section 154 of the Act, perhaps, on 7-6-1977, saying "... assessment in this case was completed on 26-12-1970 ... it has now come to notice that you had created Rs. 61,574 on account of devaluation in the contingency fund, but this amount was not shown as income in the P & L account, which has escaped assessment ... mistake is apparent from the record and I intend to rectify the same under Section 154 of the Act ... If you have any objection ... case is fixed for hearing at Indore on 19-6-1971". A copy of the learned ITO's show cause notice under Section 154 is available at page 5 of the paper book. The learned advocate, Shri M.N. Joshi, further mentioned that the learned ITO's show cause notice under Section 154 was thereafter duly and properly replied by the assessee vide letters dated 5-10-1971 and 15-2-1972 (copies available at pages 6 and 7 of the assessee's paper book) mentioning that there was no mistake apparent from the record, and, therefore, no rectification was called for. The learned assessee's representative submitted that as a consequence of pages 5, 6 and 7 of the assessee's paper book, i.e., the learned ITO's show cause notice and the assessee's replies, no order by the learned ITO appears to have been passed concerning rectification of the original assessment order.
8. Shri Joshi, learned assessee's representative, contended that the statement showing contingency fund 1966-67-mentioning the amount of Rs. 61,574 on account of devaluation-was shown therein and the said statement was an enclosure with (he original return. He continued that the fact urn of creation or existence of the contigency fund, in fact, was very much in the knowledge of the revenue authorities and that since all primary facts had been placed before the revenue authorities at the material time, there was no justification for initiating the reopening proceedings since the learned ITO could not assume such a power in accordance with law. For assistance the learned advocate relied upon the ratios in the following cases-ITO v. Sirpur Paper Mills Ltd.  113 ITR 393 (AP), ITO v. Madnani Engg. Works Ltd. .
118 ITR 1 (SC), Gemini Leather Stores v. ITO  100 ITR 1 (SC), Ahmedabad Cotton Mfg. Co. Ltd. v. Union of India  95 ITR 639 (Guj.), ITO v. Calcutta Chromotype (P.) Ltd.  97 ITR 55 (Cal.) and CIT v. Late Lt. Col. B.A. Deodhar  132 ITR 668 (MP).
9. The learned departmental representative, Shri P.D. Khandelwal, on behalf of the respondent-revenue, supported the actions of the revenue authorities and further contended that about the sum of Rs. 61,574 full information was not supplied by the assessee and that, therefore, the escapement of income chargeable to income-tax occurred on account of failure on the part of the assessee to fully and truly disclose primary and material facts at the relevant time. He continued that the full details of the amount pertaining to the rate, amount and place wherefrom the sum was received were not placed on record and that even the year of receipt was not disclosed. Shri Khandelwal, no doubt, could not tell the Bench as to what finally happened to the rectification petition under Section 154 but, submitted that absence or presence of an order under Section 154 could not come in the way of proceedings under Section 147(a). He continued that the case laws relied upon by the assessee could not be of any help since the facts of the assessee's case arc different. He further submitted that statement showing contingency fund, copy of which is available at page 4 of the assessee's paper book, cannot be considered as a complete narration.
For assistance the learned departmental representative relied upon the ratios in the following cases--Malegaon Elect. Co. (P.) Ltd.'s case (supra), A.L.A.. Firm v. CIT  102 ITR 622 (Mad.), R.K. Malhotra, ITO v. Kanturbhai Lalbhai  109 ITR 537 (SC), Kalekhan Md. Hanif v. CIT  50 ITR 1, CIT v. Jayantilal Amnillal  68 ITR 1 (SC) and Muthukrishna Reddiar v. CIT[l973] 90 ITR 503 (Ker.).
10. In reply, Shri Joshi, the learned advocate on behalf of the assessee, invited our attention to paragraph 3 at page 900 of Kanga and Palkhivala's The Law and Practice of Income-tux, 7th edn., vol. 1. He further mentioned that during the subsequent assessment year loss in the similar circumstances has been, disallowed by the revenue authorities and that if nothing else, at least in the interest of consistency and fair play, the sum could as well not be taxable.
11. The arguments made on behalf of the rival parties have been heard and the impugned order examined in the light of the ground of appeal, the assessment order, paper book and the case laws. The assessee filed statement showing contingency fund, along with the original return. A copy of such a statement is placed at page 4 of the paper book. A perusal of the said statement shows that among others a sum of Rs. 61,574 is mentioned as "amount on account of devaluation". The statement, i.e., the enclosure, since was filed along with the original return, was naturally before the learned ITO at the time of finalising the original assessment. The assessment was then finalised in the manner considered proper by the learned I.T.O. without taking care of the sum mentioned above. No doubt, the assessee may not be very clear as to what treatment should be given to the said sum, but, at the same time, the respondent learned ITO was also not less confused. He issued notices under Section 154 on 7-6-1971 conveying the clear intention that rectification was intended as is clear from page 5 of the assessee's paper book, i.e., the copy of the notice. After having received the replies from the assessee of 5-10-1971 and 15-2-1972, (copies available at pages 6 and 7), the learned ITO appears to have done nothing in the matter excepting, subsequently, issuing another show cause notice on 7-11-1975 under Section 148 to initiate reopening proceedings under Section 147(a). The learned [TO, Shri P.N. Bansal, while framing the impugned assessment on 20-3-1980 under Section 147 read with Section 144B, clearly admits that the figure in question do appear in [he contingency fund account and that it could have been dug out by the ITO by proper scrutiny. The learned ITO's grievance remains that the assessee did not bring this idea specifically to the notice of the learned ITO. The learned ITO further mentions "as the ITO did not apply his mind to its taxability in the course of original assessment, it cannot be said that it was a case of change of opinion at his part".
From this narration it is clear beyond doubt that the primary facts were definitely available before the revenue authorities at the very outset and the non-application of the mind by the learned ITO at the relevant time is said to have caused the omission. The learned ITO specifically admits that by proper scrutiny, the learned ITO at the original stage must have discovered the controversy. The failure on the part of the learned ITO appears to have resulted in the proceedings under Section 147(a). For the proper appreciation of the scope of Sub-section (a) of Section 147, the same is reproduced as below : "If the ITO 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 ITO or to disclose fully and truly all material facts necessary for his assessment for the year, income chargeable to tax has escaped assessment for that year." 12. A careful reading of the above sub-section clearly indicates that to enable the learned ITO to assume power, under this sub-section, there should have been an omission or failure on the part of the assessee of disclosing fully and truly all material facts necessary for his assessment. Keeping in view the facts available in record, it is safe to infer that there was no such failure on the part of the appellant assessee. All material facts were available to enable the learned ITO to investigate the matter, if he had a plan to do the same.
13. The learned departmental representative relied on the ratio in the case of A.L.A. Firm (supra) for the proposition that the failure on the part of the learned ITO to apply his mind to the question cannot vitiate or render invalid the reopening proceedings under Section 147(6). The said ratio, with due deference to their Lordships of the Madras High Court, cannot be of any help to the revenue since, first of all, the proceedings in the case before their Lordships were under Section 147(6), whereas the matter before us concerns with Section 147(fl). At the same time a complete answer to the learned departmental representative's contention is available in the ratio of Gemini Leather Stores' case (supra) wherein their Lordships of the Supreme Court observed that want of enquiry on the part of the learned ITO cannot warrant or justify the reopening proceedings under Section 147(a). The case before their Lordships of the Supreme Court was under Section 147(a) and deals with the want of diligence and over-sight on the part of the learned ITO.14. Further, the revenue does not get any support from the ratio in the case of Malegaon Electricity Co. (P.) Ltd. (supra) since first of all their Lordships of the Supreme Court declined to answer the question, and, moreover, in the said case before their Lordships, there was no complete disclosure of the material facts. The facts being distinguishable, the revenues' case is not fortified in any manner from the said ratio. Similarly, the ratio in the case of Kasturbhai Lalbhai (supra) also cannot lead anybody anywhere since the case before their Lordships of the Supreme Court was under Section 147(i) and the facts were, therefore, different and distinguishable. 15. Before we proceed further, we want to say that we have not been able to understand the wisdom and relevance of the following case laws relied upon by the revenue-Kalekhan Md. Hanif v. CIT (supra), CIT v. Jayantilal Amratlal (supra) and Muthukrishna Reddiar v. CIT (supra).
In spite of our best efforts, we failed to connect ratios in these above three cases with the controversy before us. Therefore, it could not be possible to be guided from them.
16. The assessee since had disclosed the primary facts at the relevant time and there was a failure on the part of the learned ITO to examine the issue at the relevant time, the initiation of reopening proceedings would naturally tantamount to some sort of a change of opinion.
Reopening in the event of the change of opinion cannot be legally supported. Moreover, since the relevant facts were available before the learned ITO at the initial stages, the reopening proceedings under Section 147(a) cannot be justified and for such a conclusion, we are fortified by the ratios in the following cases-Ahmedabad Cotton Mfg.
Co. Ltd. (supra), Calcutta Chromotype (P.) Ltd. (supra), ITO v. Sirpur Paper Mills Ltd. (supra), ITO v. Madnani Engg. Works Ltd. (supra) and CIT v. Late Lt. Col. B.A. Deodhar (supra).
17. It may not be out of the place to mention below a small paragraph from page 900 of Kanga and Palkhivala's The Law and Practice of Income-tax, 7th edn. vol. 1, to fortify the stand of the assessee : In cases where there has been no failure on the part of the assessee to make a return of his income and to disclose fully and truly all material facts necessary for his assessment, the ITO cannot take any action under this section except in the case covered by Clause (b).
and Clause (b) is confined to cases where the ITO 'has in consequence of information in his possession reasion to believe' that income has escaped assessment.
18. In the light of our preceding discussions, we are of the considered view that the learned ITO since could not legally assume power under Section 147(a), was not justified to initiate the reopening proceedings, and, as such, wrong action of the learned ITO should have been at least negatived by the learned Commissioner (Appeals). Since the learned Commissioner (Appeals) failed to rectify the rectifiable mistake, the impugned order on this point is erroneous to that extent.
We, therefore, set aside the same.
19. About the contention of the learned assessee's representative that the loss in the similar circumstances was disallowed by the revenue authorities during the subsequent assessment year, we do not want to comment since the same pertains to the merit of the matter whereas we have found that the very proceedings of reopening were not justified.