1. The only common ground raised in these nine departmental appeals is that the Commissioner (Appeals) was wrong in allowing depreciation and deduction under Section 35B of the Income-tax Act, 1961 ('the Act'), in the reopened assessments, which were not claimed in the original assessments.
2. The assessee is a registered firm. The assessments for the years under appeal were originally completed. Subsequently, the assessee, by its letter dated 7-2-1982, informed the IAC that there had been suppression of profit of about Rs. 45 lakhs over a period covering the assessment years 1967-68 to 1978-79. On the basis of the said letter, the IAC initiated proceedings under Section 147(a) of the Act and issued notices under Section 148 of the Act, in response to which the assessee filed returns. In the course of the reassessment proceedings, the assessee had filed statement showing the income escaped. The assessee, however, claimed depreciation and deduction under Section 35B, in the reassessment proceedings, which were not claimed by it in the original assessments. The IAC negatived these claims of the assessee keeping in view the decision in the case of Kevaldas Ranchhodas v. CIT  68 ITR 842 (Bom.).
3. The assessee appealed to the Commissioner (Appeals) and contended that the IAC was wrong in rejecting the assessee's claim for depreciation relying on the decision in the case of Kevaldas Ranchhodas (supra). It was stated that the case of Kevaldas Ranchhodas (supra) was distinguishable on facts. It was pointed out that after the judgment of the Supreme Court in the case of V. Jaganmohan Rao v. CIT  75 ITR 373, the law laid down by the Bombay High Court in Kevaldas Ranchhodas's case (supra) has itself become obsolete. Reliance was placed on the decision in the case of New Kaiser-I-Hind Spg. & Wvg. Co.
Ltd. v. CIT  107 ITR 760 (Bom.), wherein it has been held that the result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. Reliance was also placed on the decision of the Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan  121 ITR 69 (FB), wherein it has been held that a reassessment proceeding "wipes out the original assessment and the reassessment can be in respect of not only the items that escaped assessment but also the entire assessment for the year". Further reliance was placed on the decision of the Calcutta High Court in the case of CIT v. Assam Oil Co.
Ltd.  133 ITR 204, in which the Calcutta High Court followed the Full Bench decision of the Andhra Pradesh High Court and held that once an assessment is reopened, notice is given for a fresh return of all the items. Reference was made to the decision of the Calcutta High Court in the case of Sun Engg. Works (P.) Ltd. v. CIT  111 ITR 166 and it was claimed that the decision of the Calcutta High Court completely covered the assessee's case and, therefore, the IAC was wrong in not allowing the deductions claimed by the assessee in the reassessment proceedings.
4. Against the said consolidated order of the Commissioner (Appeals), the revenue has preferred these present appeals before us. It was contended by the learned departmental representative that a reassessment proceeding is for making a supplement assessment and the subject-matter of the reassessment proceeding is to bring to tax the escaped income. He urged that the reassessment proceeding is for the benefit of the revenue and not for the benefit of the assessee. He submitted that in the reassessment proceeding, the ITO had wide jurisdiction to assess the incomes that had escaped assessment in the original assessment stage. But that does not mean that the assessee may claim any deduction during the reassessment proceedings, which was not claimed in the original assessment. He next submitted that the decision of the Supreme Court and its observations in the case of V. Jaganmohan Rao (supra) should be read in its entirety and proper context. He pointed out that the Supreme Court has held that the reassessment proceedings set aside the earlier underassessment. He also pointed out that the Supreme Court has observed that the duty of the ITO in reassessment proceeding was in respect of the entire income that had escaped assessment during the year. The learned departmental representative urged that in the cases relied on by the Commissioner (Appeals), the Calcutta High Court was concerned with the jurisdiction of the ITO in the reassessment proceedings. He pointed out that the Calcutta High Court has categorically observed that in the case of reassessment, the ITO has not only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment. He further pointed out that nowhere in the aforesaid decisions of the Calcutta High Court, it was held that the assessee was entitled to claim for a deduction in the reassessment proceedings which was not claimed in the original assessment. In short, the learned departmental representative contended that at the time of reassessment, it cannot be open to the assessee to seek reduction of any income originally assessed but not contested by the assessee and that the assessee can merely raise his objection regarding those items which are being brought to tax in the reassessment proceedings and also to the question arising as a result of the adjustment and the originally assessed income and the escaped income reassessed. Referring to the decision on sales tax, it was submitted by the learned departmental representative that under the Sales Tax Laws the object is to ascertain the turnover and when the assessment proceedings are reopened to redetermine the turnover, naturally the whole matter is opened before the Sales Tax Officer. On the other hand, he submitted that income-tax proceedings deal with multi-coloured assessment, where various sources of income were being brought to tax and even under one hand, there may be several sub-heads under which the income is computed. He urged that if the ITO starts reassessment proceedings in respect of a small escapement, it cannot give handle to the assessee to reopen the settled matters which had not been in dispute in the original proceedings. He submitted that once the reassessment proceeding starts, the ITO cannot only consider the items which prompted him to start the proceedings but also to bring to tax all the items of income which had escaped assessment at the original stage in view of the decisions in the case of Subakaran Gangabhishan (supra). The learned departmental representative vehemently urged that the decisions of the Calcutta High Court in the cases of Sun Engg. Works (P.) Ltd. (supra) and Assam Oil Co. Ltd. (supra) do not help the assessee's case inasmuch as in both the cases it has been clearly observed by the Calcutta High Court that in the reassessment proceedings, the ITO has root only the jurisdiction but also the duty to levy tax on the entire income that had escaped assessment. Reference was also made to the decision of the Calcutta High Court in the case of Satyendra Mohen Roy Choudhury v. CIT 4 ITC 447, wherein it has been held that once it is found that income has escaped assessment, the assessee cannot resist proceedings to assess it merely by showing that income, profit or gains had been assessed at a too high figure.
5. The learned counsel for the assessee, on the other hand, strongly supported the order of the Commissioner (Appeals). He also reiterated the same contentions as were advanced before the Commissioner (Appeals) and placed reliance on the cases already cited before the Commissioner (Appeals).
6. We have heard the rival submissions, perused the records and the cases cited before us by the parties. The main question for consideration in these appeals is whether the initiation of proceedings under Section 147 completely wipes out the assessment order originally made. After reviewing the various decisions cited before us by the rival parties, we are of the view that when reassessment proceeding starts, i.e., a fresh assessment proceeding, the ITO has to bring to tax all incomes which have escaped assessment in the original assessment proceedings.
7. The Supreme Court has laid down in the case of V. Jaganmohan Rao (supra) that once valid proceedings are started under Section 34 of the Act, the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.
Reading this observation, one cannot get the impression that once the reassessment proceedings start, they are for all purposes full assessment proceedings where the ITO as well as the assessee have the full right about all the aspects of the assessee's income. In other words, the above observations cannot be interpreted to mean that such matters, which have become final, could again be reopened and disturbed even if the reassessment proceedings are validly started for bringing to tax any specific item. It is true that once the proceedings start, the ITO or the IAC need not be confined to those items for which the proceedings had been taken. He can very well bring to tax all the items which are found to have escaped assessment at the original stage.
However, if certain matters become final and concluded in the original proceedings, the assessee cannot come forward and claim that the particular item of income should be excluded or reduced, though he might not have objected to it in the original proceedings. It is also likely that in the original assessment proceedings, some matter may come up in appeal even before the High Court and the matter might have been decided against the assessee. In the reassessment proceedings, the assessee cannot again claim that the matter should be considered in his favour, though it had become conclusive in the original proceedings.
This view has also been taken by the Calcutta High Court in the case of Satyendra Mohen Roy Choudhury (supra). Hence, in our opinion, the initiation of the reassessment proceedings wipes out the original assessment only to the extent that apart from the escaped income, the other items are adopted as per the original proceedings. By such adoption, the original assessment for the purpose of computing total income is made part of the reassessment order. In view of the above discussions, in our opinion, the decisions of the Calcutta High Court do not help the assessee inasmuch as the Calcutta High Court in all the cases had laid stress on the point that in the reassessment proceedings, the subject-matter is the escaped income. In the case of Assam Oil Co. Ltd. (supra) the Calcutta High Court was concerned with the validity of the proceedings under Section 147(b). Therefore, this case does not apply to the facts of the present case. In view of what we have stated above, we are of the opinion that the Commissioner (Appeals) was not justified in directing the IAC to allow admissible depreciation and weighted deduction under Section 35B in the reassessment proceedings which were not claimed by the assessee during the original assessment proceedings. We, therefore, set aside the consolidated order of the Commissioner (Appeals) and restore that of the IAC for each of the assessment years under appeal.