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income-tax Officer Vs. Smt. K. P. Sreemathy. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Reported in(1986)17ITD159(Coch.)
Appellantincome-tax Officer
RespondentSmt. K. P. Sreemathy.
Excerpt:
.....under section 147(a) of the act. in the reassessment order dated 19-2-1981, the ito held the cost of acquisition arrived at rs. 350 per cent is without any basis.thus, the cost of acquisition as worked out by the assessee is on an arbitrary basis. he estimated the value of the land extending to 2.5 acres as on 1-1-1954 as also the value of the building and compound wall. he computed the capital gains by deducting rs. 61,977 as the cost of acquisition of the property out of the compensation received of rs. 1,23,953 and also allowing deduction under section 80t of the act. on appeal, the aac held that in the return filed originally on 5-8-1974 and the statements filed along with the same, the assessee had shown the compensation received and also the cost of the same. thus, the.....
Judgment:
Per Shri T. Venkatappa, Judicial Member - The assessment for the assessment year was originally completed under section 143(1) of the Income-tax Act, 1961 (the Act) on 19-2-1975 determining the total income at Rs. 15,450. The income returned by the assessee in the original assessment proceedings included capital gains amounting to Rs. 7,954. Subsequently, the assessment was reopened under section 147(a) of the Act. In the reassessment order dated 19-2-1981, the ITO held the cost of acquisition arrived at Rs. 350 per cent is without any basis.

Thus, the cost of acquisition as worked out by the assessee is on an arbitrary basis. He estimated the value of the land extending to 2.5 acres as on 1-1-1954 as also the value of the building and compound wall. He computed the capital gains by deducting Rs. 61,977 as the cost of acquisition of the property out of the compensation received of Rs. 1,23,953 and also allowing deduction under section 80T of the Act. On appeal, the AAC held that in the return filed originally on 5-8-1974 and the statements filed along with the same, the assessee had shown the compensation received and also the cost of the same. Thus, the primary facts necessary for the purpose of assessment had been filed at the time of assessment itself and it was up to the ITO either to accept the cost of acquisition shown by the assessee or to make further enquiries about the same. At the time of the original assessment, the ITO had accepted the cost of acquisition shown by the assessee. The reopening of the assessment is only on the basis of the audit objection and no new facts have come to the possession of the ITO. This alone cannot constitute any basis for reopening the assessment. Since there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, the reopening made under section 147(a) is not valid. Thus, he cancelled the reassessment order. Against the same, the revenue has preferred this appeal.

2. The learned departmental representative strongly urged that the reopening of the assessment is valid. The audit report only draws the attention of the ITO to certain facts which can be considered as information. Even if the assessment cannot be sustained under section 147(a) it is sustainable under section 147(b). The AAC was not justified in cancelling the reassessment order. The learned counsel for the assessee submitted that the assessee has disclosed the entire facts fully and truly. No new facts have come to the knowledge of the ITO after the original assessment is completed. The audit report cannot be treated as information. Section 147(a) cannot be applied as there is no failure on the part of the assessee to disclose the facts fully and truly. Since there is no information subsequent to the original assessment section 147(b) cannot be applied. Thus, he supported the order of the AAC.3. We have considered the rival submissions. In the return filed by the assessee, the capital gain of Rs. 7,954 was included. In the statement filed along with the return, the compensation received at Rs. 1,23,953 was shown and out of it the cost of acquisition of the property as on 1-1-1954 at Rs. 87,500 and the cost of the building and compound wall at Rs. 23,500 and the expenses incurred at Rs. 5,000, totalling, Rs. 1,16,000, were deducted and the capital gain was arrived at Rs. 7,954.

It is clear from the return and the statement filed along with it that the assessee has disclosed the compensation received, the cost of acquisition of land and the expenses incurred. The ITO accepted the statement and completed the assessment. There is no failure on the part of the assessee to disclose fully and truly the material facts. No facts have come to the knowledge of the ITO subsequent to the completion of the original assessment which came to show that there was failure on the part of the assessee to disclose fully and truly all the material facts. Hence section 147(a) has no application. The only information the ITO received was the audit report. The audit report states that the value of cost of acquisition of the property in 1954 as shown by the assessee is not supported by any evidence, and the value of the asset mentioned in the partition deed is not furnished. It is on the basis of that audit report that the ITO reopened the assessment and estimated the cost of acquisition as on 1-1-1954 at Rs. 61,977 and computed the capital gains in the reassessment order. In our view, the audit report does not constitute information for reopening the assessment under section 147(b). The audit report does not draw the attention of the ITO to any law, but gives an opinion saying that the cost of acquisition shown by the assessee which is low is not supported by any evidence. It is well settled by the decision of the Supreme Court in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 that the opinion of audit party on a point of law could not be regarded as information enabling the ITO to initiate reassessment proceedings under section 147(b). As already pointed out, the audit report does not refer to any point of law but refers to the estimated value of the cost of acquisition of the land in 1954, which according to it, is law and not supported by any evidence. This, in our view, does not constitute information for reopening the assessment under section 147(b). In Harshvadan Mangaldas v. ITO [1982] 137 ITR 147 (Guj.) the assessee sold shares which were not quoted in the market and disclosed a capital loss on the basis of the market value of the shares as on 1-1-1954, which was worked out by an approved valuer. The ITO accepted the same and computed the capital gains. Later on the assessment was reopened under section 147(a). In the wealth-tax return filed by the assessee for the assessment year 1957-58, the assessee had disclosed the market value of the shares at a lower figure than the market value of the shares as on 1-1-1954 shown in the assessment year 1972-73 for the purpose of capital gains. On the above facts, the Gujarat High Court has held that the ITO completed the original assessment on the basis of the approved valuers report and the value shown in the wealth-tax return for the assessment year 1957-58 was not a relevant factor for the purpose of computation of capital loss on the basis of the value of the shares as on 1-1-1954 in the income-tax assessment for the assessment year 1972-73. The assessee was not under an obligation to disclose what value he had shown in his wealth-tax return for the assessment year 1957-58. Thus, the reopening of the assessment under section 147(a) was not justified. In Shekhawati General Traders Ltd. v. ITO [1971] 82 ITR 788 (SC) the assessee sold certain shares. The assessee filed a statement giving the market value of the shares as on 1-1-1954 and computed capital loss. The ITO made the assessment computing the capital loss which was directed to be carried forward. Subsequently, the assessment was reopened under section 147 on the ground that subsequent to 1-1-1954 further bonus shares were issued to the assessee in respect of the shares held by it and on that basis instead of capital loss the figures of capital gain was computed. On those facts, the Supreme Court held that for the ascertainment of the fair market value of the shares as on 1-1-1954 any issue of bonus shares subsequent to that date was wholly extraneous and irrelevant and could not be taken into consideration. The assessee was bound to disclose only such material facts which were necessary for its assessment and not those facts which were wholly extraneous or irrelevant. Under clause (b) of section 147, the information had to be such as would lead the ITO to believe that income chargeable to tax had escaped assessment. The information relating to the acquisition of bonus shares subsequent to 1-1-1954 could not possibly furnish any reason to the ITO to form the belief that income chargeable to tax had escaped assessment for the relevant assessment year. Thus, it was held that there was no question of the case of the assessee falling within clause (a) or clause (b) of section 147. Thus, the ITO had no jurisdiction to initiate reassessment proceedings under section 147. The ratio laid down there in squarely applies to the instant case.

4. In our view, the entire material facts have been disclosed by the assessee fully and truly and there is no failure of non-disclosure of material facts on the part of the assessee. The cost of acquisition of the property as on 1-1-1954 shown by the assessee has been accepted by the ITO in the original assessment. In the reassessment the ITO has proceeded on estimate basis. Thus, no new facts have come into the possession of the ITO after the original assessment whereby it could be said that the assessee has failed to disclose fully and truly. Except the audit report no other information has come to the knowledge of the ITO for making any assessment even under section 147(b). As already stated the audit report cannot be regarded as information under section 147(b). Thus, neither section 147(a) nor section 147(b) could be applicable for reopening the assessment in this case. The reassessment made is not valid.

5. The departmental representative relied on the cases of Mriganka Mohan Sur v. CIT [1974] 95 ITR 503 (Cal.), ITO v. Eastern Coal Co. Ltd. [1975] 101 ITR 477 (Cal.) and Avtar Singh Sandhu v. WTO [1981] 129 ITR 531 (Delhi) in support of his contention that even if it cannot be sustained under section 147(a) it can be considered under section 147(b) if it is within limitation. This contention will not survive as we have held that neither section 147(a) nor section 147(b) is applicable for reopening the assessment this case. The decision of the Madras High Court in M. A. Murugappan v. CWT [1985] 153 ITR 626 relied on by the departmental representative is distinguishable. In that case, the audit party merely brought to the notice of the ITO the note given by the assessee along with the return claiming to be a resident but not ordinarily resident. The facts of that case are, thus, entirely on different ground and that case has no application to the facts of the instant case.

6. Thus, in our view, the reassessment made in this case cannot be sustained either under section 147(a) or under section 147(b). The AAC was perfectly justified in cancelling the reassessment order.


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