ORDER
Pradeep Parikh, Accountant Member
1. Identical issues arise out of these two appeals by the assessee and, hence, they are being disposed of by this common order.
2. Briefly stated, the first ground is that the learned CIT (Appeals) erred in upholding the validity of the reopening of the assessment under Section 147(a) of the Income-tax Act, 1961 and, secondly, the CIT (Appeals) erred in holding that expenses which are complimentary and supplementary to advertisement are also covered by Section 37(3A) of the Act.
3. Since the fate of the second ground would depend on the survival or otherwise of the first ground, we first take up to decide whether the IAC was justified in assuming jurisdiction under Section 147(a) of the Act, or not.
4. Before going into the facts of the case, it would be pertinent to note that Sub-section (3A) of Section 37 of the Act was introduced by the Finance Act, 1978 with effect from 1-4-1979. These provisions were discontinued with effect from 1-4-1981 and re-introduced in the Act in a modified manner with effect from 1-4-1984. The avowed objective of the provision was to put a curb on extravagant and socially wasteful expenditure, as it was then considered, on advertising, publicity and sales promotion.
5. In order to avoid confusion in figures, we shall restrict our discussion to assessment year 1979-80 and then apply the principles to assessment year 1980-81 on the same basis as are applied in arriving at the decision for assessment year 1979-80.
6. The accounts for the year ended 31-12-1978, relevant to assessment year 1979-80, were filed along with the return of income. These accounts did not contain the account head “Sales Promotion” as it used to have in the earlier years. However, while computing the income, the assessee considered and mentioned as to which expenses in its opinion came within the purview of Section 37(3A) of the Act and which did not and determined on its own the amount disallowable under the said provisions. While assessing the income, the Assessing Officer picked up two items of expenditure totalling to Rs. 8,81,894 which in his opinion fall within the purview of Section 37(3A) of the Act, but had been claimed as not applicable by the assessee.
7. After the completion of the assessment, it came to the notice of the Assessing Officer that certain expenses which in his opinion should have been subjected to partial disallowance under Section 37(3A), have escaped his attention due to lack of disclosure and hence called for the details of such expenses which the assessee readily furnished. The Assessing Officer observed that the account head styled as “Sales Promotion Expenses” did not find a place in the Profit & Loss Account and the expenses which hitherto were classified under that head were now scattered and classified into various other heads including the head “Miscellaneous Expenses” He further observed that the regrouping was done in such a manner as would render it difficult for any Assessing Officer exercising due diligence to discover the quantum of “sales promotion” expenses and hence the assessee did not make a full and true disclosure of material facts as contemplated in Section 147(a) of the Act. The Assessing Officer, thus, reopened the assessment under the said section, the validity of which has been upheld by the CIT (Appeals) and is now being contested before us by the assessee. Sri S.E. Dastur, the learned counsel for the assessee, contended before us that the IAC wrongly assumed jurisdiction under Section 147(a) insomuch as that the assessee had fully and truly disclosed all material facts. In support of his contention, he took us through the compilation filed by the assessee. Page three of the compilation shows three items totalling up to Rs. 2,60,71,534 which in the opinion of the assessee are subject to partial disallowance under Section 37(3A) of the Act. The same page also shows seven items totalling up to Rs. 35,06,017 which, in the opinion of the assessee, falls outside the purview of Section 37(3A) of the Act. From the first group to which Section 37(3A) of the Act is made applicable, a sum equivalent to 15 per cent amounting to Rs. 39,10,730 has been treated as disallowable by the assessee itself and accordingly has added it back to the income in the statement showing computation of total income on page one. This, the learned counsel submits, was a full and true disclosure envisaged by Section 147(a) of the Act.
8. For the other expenses, which were grouped under the head “Miscellaneous Expenses” and which, in the opinion of the Assessing Officer, should have been disclosed separately, Sri Dastur contends that the assessee is not bound to give the break-up of these expenses either under any provision of law or under the prescribed form of return and would have furnished the details had it been asked for by the Assessing Officer. In other words, what the learned counsel contends is that since the assessee is not legally bound to disclose it and since the Assessing Officer did not ask for the details, it does not amount to a non-disclosure.
9. As for the necessity of doing away with the head “Sales Promotion Expenses” and regrouping of certain expenses, Sri Dastur contends that in any large company, generally it is an on-going process carried out in consultation with the auditors of the company.
10. The learned counsel further drew our attention to their letter dated 15-9-1981 addressed to the Assessing Officer with which, among other details, the details pertaining to advertisement expenses were also enclosed. As per these details, the total advertisement expenses amounted to Rs. 2,83,56,883 as compared to Rs. 2,95,77,551 shown as per the details submitted with the return. Sri Dastur also draws our attention to item No. 13 in the said letter which, though pertains to bad debts written off included in “Miscellaneous Expenses” is indicative of the fact that the head “Miscellaneous Expenses” consists of many such expenses which should have prompted the Assessing Officer to call for the details of “Miscellaneous Expenses”. Hence, Sri Dastur contends, this reinforces the fact that there has been a true and full disclosure on the part of the assessee.
11. Sri Dastur then draws our attention to their letter dated 20-1-1982 which, he asserts, is indicative of the fact that the assessee has replied to all the queries raised by the Assessing Officer during the course of the assessment proceedings and hence has not defaulted on any count, more so on the count of disclosing material facts.
12. The learned Departmental Representative, on the other hand, contended that the statement of advertisement expenses attached with the statement showing computation of total income, in fact concealed more than what it revealed. He further contended that the assessee had been regularly filing the details of miscellaneous expenditure suo motu till assessment year 1978-79. It is only during assessment years 1979-80 and 1980-81, the assessee failed to file such details and that was with a view to avoid the provisions of Section 37(3A) of the Act being attracted. Besides these, he mainly relied on the order of the learned CIT (Appeals) and pleaded that the reassessment proceedings are valid in law.
13. We had the opportunity of travelling through a number of judicial pronouncements along with both the learned counsels. However, we shall refer to them as we proceed to appreciate the rival arguments.
14. We take up the first argument of Sri S.E. Dastur mentioned at para 8 above. This pertains to the disclosure the assessee has made in its computation of total income showing as to which items can be visited by the provisions of Section 37(3A) of the Act and which cannot. This disclosure, in our opinion, can at best be compared with a situation at the customs barrier at the airport. A person who ought to have passed through the red channel, has passed through the green channel, innocently claiming “this is all I have to disclose and nothing more”. In support of his contention, Sri Dastur cited the decision of the Supreme Court in the case of ITO v. Radheshyam Ladia [1987] 166 ITR 134. In the said case, their Lordships followed the earlier decision in the case of V.D.M.RM.M.RM. Muthiah Chettiar v. CIT [1969] 74 ITR 183 (SC) only because and we repeat, only because by that time the question had become academic. Their Lordships have clearly mentioned that this decision (i.e., V.D.M.RM.M.RM. Muthiah Chettiar’s case (supra), do not, in their opinion, lay down the correct law on the subject and but for the amendment carried out in the form of the return, they would have referred the matter to a larger Bench. However, the circumstances in the instant case being distinct, the decision cited by the learned counsel cannot help him.
15. Sri Dastur has also cited the case of East India Hotels Ltd. v. Dy. CIT [1993] 204 ITR 435 (Cal.). The said decision also is not helpful to the assessee in the instant case. In the case cited supra, the assessee had wrongly understood the import of the notification and hence did not constitute omission or failure on the part of the assessee to disclose all material facts.
16. The next argument put forth on behalf of the assessee, as mentioned in para 9 above, is that it is not obligatory to furnish the details of Miscellaneous Expenses unless specifically asked for by the Assessing Officer. Under normal circumstances, we would have considered this to be a valid argument. But, in the instant case, the circumstances and the conduct of the assessee compel us to draw adverse inference. Up to assessment year 1978-79, the assessee used to furnish the break-up of miscellaneous expenses suo motu when Section 37(3A) was not on the statute book. For the next two years during which the provisions were applicable, the assessee did not furnish the details and resumed giving the details when the said provisions were withdrawn from assessment year 1981 -82. This is just not fair. We are unable to accept this contention put forth on behalf of the assessee.
17. Now we take up the next contention of Sri Dastur as mentioned in para 10 above, that regrouping is an ongoing process. To some extent, we agree with this contention because basically accounting is an art and not a science. There are many expenses which can be grouped under more heads than one and a transaction can be recorded in more ways than one. This is what prompted. The Institute of Chartered Accountants of India to declare Accounting Standards which are still in the developing stage. For the years with which we are concerned in the instant case, the accounting standards were probably in the stage of conception only. The note “Previous year’s figures have been regrouped wherever necessary” is a common and usual feature in published accounts. It may be pertinent to note that regrouping is done of previous year’s figures to make them comparable with the current year’s figures. A material change in the company’s operations or a major shift in the accounting policy or some other circumstances may necessitate the regrouping of previous year’s figures. But in the instant case, what were such circumstances to reclassify certain expenses, or to eliminate totally the head “Sales Promotion” expenses, is not explained by the learned counsel in spite of a specific question put to him which was replied to by simply mentioning “as an ongoing process”. Sales promotion expense is an important item for any industry and more so for a consumer goods industry. When a high-profile company, as one in the instant case, manufacturing and selling a wide range of consumer goods, totally eliminate the head ‘Sales Promotion Expenses’, it ought to have disclosed this fact by way of a suitable note which would have been an important disclosure to the shareholders of the company as well as to the other users of the balance sheet. In the case of Tarachand Ghanshyamdas v. CIT [1983] 139 ITR 571 (Cal.), the assessee had disclosed two accounts at the time of original assessment. Later on, it came to the notice of the Assessing Officer that certain amounts standing to the credits of these two accounts represented concealed income and hence the assessment was reopened. The AAC held the reopening invalid on the ground that the two accounts had been disclosed at the time of the assessment. The Tribunal held that there was a failure to disclose fully and truly all material and relevant facts and as such income had escaped assessment. The Calcutta High Court held that the finding of the Tribunal was based on evidence and was not perverse. Hence, the reassessment proceedings were valid.
18. As regards inviting our attention to certain correspondence as mentioned in paras 11 and 12 above, we do not see much force in that which can support the assessee’s contention of adequate disclosure and hence do not think it necessary to consider the same at length.
19. The CIT (Appeals) has also dealt with at length in her order sustaining the reopening of the assessment and we are in agreement with the reasons given therein.
20. In view of the discussion above, we confirm the action of the CIT (Appeals) and hold the reopening of the assessment under Section 147(a) of the Act for both the years to be valid.
21 to 39. [These paras are not reproduced here as they involve minor issues.]