ORDER
A. Satyanarayana, Accountant Member
1 – This appeal filed by the revenue is against the order of the CIT(A) dated 9-11-1988 for the assessment year 1982-83 for which the previous year ended on 30-6-1981.
2. The assessee is a private limited company. For the assessment year 1982-83, the assessee filed a return of income showing an income of Rs. 3,43,108 before adjustment of loss of earlier years. The assessee has filed a revised return on 17-9-1983 showing an income of Rs. 4,00,108 before adjustment of loss of earlier years. The assessment was completed under Section 143(3) on 13-8-1984. The total income was determined at Rs. 4,03,770 by disallowing an amount of Rs. 3,666 under Section 35B.
3. Subsequently, on 25-3-1988, the Assessing Officer passed an assessment order under Section 143(3), read with Section 147(b) of the Income-tax Act, 1961. In the course of the said reassessment order, the Assessing Officer stated that notice under Section 148 was issued on information that income chargeable to tax had escaped assessment. In the reassessment order, the Assessing Officer disallowed Rs. 29,442 from the foreign buyers’ entertainment expenditure of Rs. 34,442. Against the reassessment order dated 25-3 1988. the assessee preferred an appeal before the CIT (Appeals).
4. Before the CI’T(A), objecting to the reassessment, it was pointed out that no new information had come: into the possession of the Assessing Officer, that in the course of the original assessment proceedings it had been disclosed that foreign buyers had been entertained and an expenditure of Rs. 34,442 had been incurred, that no part of the said expenditure had been disallowed while completing the original assessment and that the reopening of the assessment was based on a change of opinion. The re-assessment order was cancelled by the CIT(A) by observing as under:
I see no reason to differ from the aforesaid contention. The records clearly show that the foreign buyers’ entertainment expenditure had been disclosed in the statement filed during the course of the original assessment proceedings. The conclusion that Section 37(2A) should have been applied to this expenditure is not based on any new material but on a reappraisal of the existing facts. The order under appeal is, therefore, cancelled.
The revenue is aggrieved over this.
5. The arguments of the departmental representative were to following effect: The CIT(A) erred in cancelling the re-assessment made under Section 143(3), read with Section 147(b) of the Act. He failed to see that foreign buyers’ entertainment expenses were included under export promotion expenses and weighted deduction was claimed under Section 35B at the time of original assessment and the Assessing Officer allowed weighted deduction as claimed. He failed to see that in the course of the assessment proceedings for the assessment year 1983-84 while claiming weighted deduction under Section 35B complete details including foreign buyers’ entertainment expenses were shown in the same statement in which the weighted deduction was claimed. This statement filed for the assessment year 1983-84 constituted information from a source external to the record for the assessment year under consideration and that it led the Assessing Officer to go into the details filed separately for the export development expenses for the year under consideration. He failed to note that Explanation 2 to Section 37(2A) was inserted by the Finance Act, 1983 with retrospective effect from 1-4-1976. On going through the amendment, the Assessing Officer had come into possession information warranting disallowance under Section 37(2A). He failed to see in any event that the discovery of the Assessing Officer, after he made the assessment, that he committed an error, was information obtained after assessment. He failed to note that escapement of income as a result of lack of vigilance or inadvertence can well be within the ambit of Section 147(b) of the Income-tax Act, 1961. The following decisions of several High Courts supported the stand of the Department:
(a) Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 (Mad.).
(b) Family of V.A.M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314 (Mad.).
(c) CIT v. Rathinasabapathy Mudaliar [1964] 51 ITR 204 (Mad.).
(d) CWT v. Smt. Arundhati Balkrishna Trust [1977] 108 ITR 78 (Guj.).
(e) Canara Industrial & Banking Syndicate Ltd. v. CIT [1964] 51 ITR 479 (Mys.).
In the circumstances, the order of the CIT(A) should be vacated and that the re-assessment order of the Assessing Officer be restored.
6. The assessee’s counsel filed a paper book of 17 pages containing inter alia export promotion expenses for the year 1980-81 as filed before the Assessing Officer at the time of the original assessment proceedings. The arguments of the assessee’s counsel were to the following effect:
While filing the return of income for the assessment year 1982 83 by letter dated 24-6-1982 the assessee’s counsel filed 36 items as detailed therein, which included details of the export promotion expenses under item (11). This can be seen at page 1 of the paper-book. The details of export promotion expenses for the year 1980 81 are given at page 7 of the paper book. The said statement clearly showed foreign buyers’ entertainment expenses of Rs. 34,442. Thus, it will be seen that all this information was before the Assessing Officer during the original assessment proceedings which culminated in the passing of an assessment order on 13-8-1984 under Section 143(3). So, the Department cannot contend that the error committed by the Assessing Officer in not disallowing any amount under Section 37(2A) was information obtained after assessment. It amounts to a change of opinion only as held by the CIT(A).
7. We have considered the rival submissions, ease law cited and the papers filed before us. Explanation 2 to Section 37(2A) was inserted by the Finance Act, 1983 with retrospective effect from 1-4-1976. As per the said Explanation, entertainment expenditure included expenditure on provision of hospitality of every kind by the assessee to any person. In the statement titled “export promotion expenses for the year 1980-81”, foreign buyers’ entertainment expenses of Rs. 34,442 was exhibited. The ITO ought to have applied the said Explanation 2 to Section 37(2A) and disallowed the same. This was not done apparently in the original assessment order dated 13-8-1984. This was due to lack of vigilance on the part of the Assessing Officer or due to inadvertence or negligence or to the perfunctory performance of his duties without due care or caution. Such inadvertence or negligence comes within the ambit of Section 147(b) [corresponding to Section 34(1 )(b) of the 1922 Act], as has been held by the Madras High Court in the case of Family of V.A.M. Sankaralinga Nadar (supra). The Madras High Court held in the case of Salem Provident Fund Society Ltd. (supra) that information for purposes of Section 34 need not be wholly extraneous to the record of the original assessment. In the present case, after the original assessment was made on 13-8-1984, the Assessing Officer discovered that an error had been committed by him in not disallowing, under the Explanation 2 to Section 37(2A), the foreign buyers’ entertainment expenses. It cannot be called a mere change of opinion on the same facts. A mistake apparent on the face of the order of assessment would itself constitute “information”. Even though all the facts were in the original records, the case was covered under Section 147(b) and the reassessment is not invalid and this was not a case of mere change of opinion on the same facts but a case of getting information that income has escaped assessment – See Rathinasabapathy Mudaliar’s case (supra). This led to the issue of notice under Section 148 dated 25-3-1987 which resulted in the reassessment order dated 25-3-1988. In these facts and circumstances of the case, we uphold the reassessment and reverse the impugned order of the CIT(A).
8. In the result, the appeal is allowed.