VEERASWAMI J. - There are two petitions before us under article 226 of the Constitution, the one for direction forbidding the 1st Income-tax Officer, Tirunelveli, from reopening the assessment of the petitioner for the assessment year 1959-60, and the other to quash an order which the Income-tax Officer made subsequently reopening the earlier assessment. The Income-tax Officer made that order because this court declined to make any interim order pending the first writ petition, but permitted him to proceed with reassessment.
The assessee, who is the petitioner, is a registered partnership carrying on business in the manufacture and sale of earn in Tirunelveli town. For the assessment year 1959-60 the firm filed a return showing a net loss of Rs. 90,958, the accounting year therefor having ended on December 31, 1958. This result was arrived at after deducting depreciation and development rebate. The development rebate as claimed was allowed. It appears the Assistant Accountant-General in his audit report dated December 4, 1964, pointed out that the development rebate in respect of machinery purchased and installed after January 1, 1958, had been allowed in the assessment year, though development reserve was not created to the extent of 75 per cent. as prescribed in section 10 (2) (vib) of the Income-tax Act, 1922, and that this was a mistake. Since the assessment according to the Income-tax Officer required revision in the light of the audit report, he sought sanction of the Commissioner for reopening the assessment and withdrawing the development rebate that had been allowed by mistake. In answering a query from the Commissioner, the Income-tax Officer stated that only from the balance-sheet as on December 31, 1958, it could be found whether the assessee had created a separate reserve for development rebate, and that at the time of making the claim for allowance of development rebate he failed or omitted to produce evidence regarding such creation of reserve in order to support the claim. The Income-tax Officer expressed his view in his communication to the Commissioner that his amount could be treated as a failure on the part of the assessee to disclose fully and truly all the material facts in support of his claim which would attract section 147 (a). Sanction of the Commissioner followed and pursuant to it, when a notice under section 148 was served on the assessee, it immediately came up to this court with a petition under article 226 of the Constitution to restrain the Income-tax Officer from proceeding further on the ground that he had no jurisdiction to act under section 147 (a). In the reassessment order dated October 31, 1966 the Income-tax Officer referred to the fact that no reserve had been created in the accounts as required by the statutory provision, that subsequent creation of such reserve was not sufficient compliance and that, therefore, the development rebate originally allowed should be disallowed On that view he added sum of Rs. 86,754 to the assessment.
It is contended before us for the assessee that it had in the original assessment proceedings placed all the primary facts before the Income-tax Officer, and that there was no omission on its part which could at all have resulted in any under-assessment. What the petitioner disclosed before the Income-tax Officer at the time of the original assessment was this. Along with the return it separately furnished particulars of development rebate claimed. The particulars were that for electrical machinery development rebate was claimed at Rs. 6,525 being the 25% on the additions of machinery called at Rs. 26,101 and a further sum of Rs. 80,299 being development rebate at 25% or Rs. 3,20,916 stated to be the value of spinning and general machinery. In the particulars the assessee also mentioned that depreciation and development rebate on certain further items would be considered in the following year. But we are actually not concerned with this matter. It was specifically mentioned by the assessee that in its books of account, it passed entries debiting the profit and loll account and crediting the electrical machinery account and the spinning and general machinery account with the two sums of Rs. 6,525 and Rs. 80,299 respectively as development rebate due to it at 25% on the additional machinery installed during the previews year ended December 31, 1958. The said entries were passed through the day book of the firm. These facts were before the Income-tax Officer in the initial proceedings and there is no doubt about this.
The question, therefore, is whether the primary facts disclosed to the Income-tax Officer has stated above were in any wise incomplete so that it could be said there was omission on the part of the assessee which resulted in under-assessment in the sense that the development rebate claimed was wrongly allowed. We may at once notice that the particulars required under the proviso to section 10(2) (vib) were not furnished along with the return in the original assessment proceedings. It is admitted that no separate reserve as for development rebate has been created. Clause (b) of the proviso requires that before a claim for development rebate could be allowed, it is necessary that before a claim for development rebate could be allowed, it is necessary that an amount equal to 75% of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to a reserve account to be utilised by the assessee during a period of ten years next following for the purposes of the business of the undertaking. All that the assessee did was to debit the profit and loss account with the entirety of the development rebate and credit the same in the machinery account It does not require such scrutiny to conclude that if that is all what was done by the assessee, it was not entitled to allowance of the claim for development rebate. Incur view the facts as presented originally before the Income-tax Officer were quite adequate to enable him to come to the conclusion that the claim on account of development rebate could not be sustained as the requisites of the said process have not been complied with. No further facts were necessary in order to enable him to come to that conclusion. The allowance of development rebate is a sort of concession which is not allowed unless the requisites are fulfilled. The facts as presented by the assessee before the Income-tax Officer did not in any way suggest that those requisites have been complied with. The true position as emerging from the accounts, was squarely presented to the Income-tax Officer by stating that all that the assessee had done in support of its claim for development rebate was only that it had debited the profit and loss account and credited the machinery account with the entirety of the development rebate. Was it necessary for the assessee to go further and tell the Income-tax Officer that there was no compliance with the requisites of the proviso because it had not created a reserve as required under the proviso In our view there was no further duty on the assessee to reiterate that no such reserve had been created, which was obvious from the facts already before the Officer.
It is strenuously argued before us by Mr. Balasubrahmanyan for the revenue that this was clearly a case of omission on the part of the assessee to file the balance-sheet which alone would have disclosed separate reserve in the accounts pertaining to development rebate. We fail to appreciate the argument. We are not satisfied that the filling of a balance-sheet would in any way have added to the primarily facts which were already before the Income-tax Officer. As we mentioned, the fact on the face of them showed that the assessee was not entitled to allowance of the rebate claimed. Learned counsel for the revenue cited decided cases which interpreted section 34 (1) (a) of the 1922 Act and section 147 of present Act. But we do not think it necessary to cover the area, for, if there was no omission on the part of the assesses which resulted in under-assessment, the jurisdiction under section 147(a) will not be available. The test we have applied to find out whether there was omission on the part of the assessee is whether the primary facts squarely placed before the Income-tax Officer themselves did not warrant allowance of the rebate. In fact, learned counsel for the revenue, when asked, could not say that the Income-tax Officer on the primarily facts before him could not have rejected the claim, as he was bound to do, because they did not show that the requisites of the proviso to section 10(2) (vib) had been complied with. We do not think that the balance-sheet, it filed, would have added to the primary facts. The balance-sheet would after all be reflective of the position of account in regard to development rebate and that position was clearly presented before the Income-tax Officer. This is not a case where the assessee simply placed its accounts and documents before the Income-tax Officer entirely leaving it to him to look into them. While we agree with the department that there was under-assessment, we are unable to accept the contention that it was as a result of any omission on the part of the assessee.
W. P. No. 1528 of 1967 is allowed and in view of this, the other petition W. P. No. 4721 of 1965, becomes unnecessary and it is dismissed. No. costs.