ORDER
B.C. Mitra, Accountant Member
1. This appeal by the revenue is directed against the Commissioner of Income-tax (Appeals)’s order cancelling the Income-tax Officer’s order of re-assessment under Section 147(a)/144B dated 16-7-1932 by raising the following ground :
For that the learned CIT(A) erred in cancelling the reassessment under the provisions of Section 147(a).
However, during the course of hearing before us, an additional ground was raised by the learned Departmental Representative, which reads as under :
The learned Commissioner of Income-tax (Appeals) erred in holding that the assessment is barred by limitation.
After hearing both the parties, we have admitted the said additional ground as the same arises out of the CIT(A)’s order.
2. The facts in brief are that originally an assessment for the year under appeal was made under Section 143(3) on 29-9-1977 determining the total income of the assessee at Rs. 69,810. Subsequently, the ITO re-opened the assessment under Section 147(a) by issue of a notice under Section 148 which was served on the assessee on 31-3-1978. The reasons recorded for re-opening the assessment as per order-sheet entry dated 30-3-1978-an extract of which has been furnished by the learned Departmental Representative’ reads as follows :
30-3-1978 The assessee received Rs. 5,00,000 (Rupees five lacs) for M/s Assam Forest Products Ltd. during 1974 C.Y. towards sale of standing trees. The original assessment Under Section 143(3) was completed on 29-9-1977 without including any income from sale of such trees either under the head ‘Business’ or under capital gains or other sources. Similar receipts in earlier years have been treated as income the orders made on 29-12-1977. The finding in assessment for assessment years 1972-73, 1973-74 and 1974-75 dated 29-12-1977 are informations within the working of Section 147(6) that income for this year has not been assessed. The necessary particulars as to whether the trees were in fact removed or not, the quantity of trees felled and removed the area of land cleared, whether new plantation were made on such land or not werer not furnished to enable the ITO to decide the taxability of income. Further such capital receipts are liable to be taxed as income from capital gains. The necessary particulars of gains arising out of such sale of trees i.e. the date of acquisition of the assets, whether long term or short term cost to the assessee, cost of improvement of any, fair market value as on 1-1-1971 etc. were not furnished. The failure on the part of assessee to furnish necessary particulars of the transactions amounts to non-disclosure of material facts necessary for the assessment. The assessee failed to disclose fully and truly all material facts necessary for its assessment.
I have therefore reason to believe that income of the assessee escaped assessment within meaning of Section 147(a) as well as Under Section 147(b).
Start proceeding. Issue notice Under Section 148.
Signature
Illegible.
It is, however, not in dispute that the assessment in question was re-opened under Section 147(a) as confirmed by the Inspecting Assistant Commissioner of Income-tax in his order under Section 144B(4) dated 9-7-1982. The reassessment was made on a total income of Rs. 5,46,610 which includes Rs. 4,90,000, which according to the ITO represented the assessee’s business income from sale of standing trees, computed in the following manner :
Sale price realised Rs. 5,00,000
Less : Cost as per up-set
valuation estimated Rs. 10,000
Rs. 4,90,000
The said addition was disputed in appeal before the CIT(A). The CIT(A) held that during the course of original assessment proceedings, the ITO had examined the taxability of the receipt shown of Rs. 5,00,000 in the profit and loss account for the year ending 31-12-1974 and that the ITO had enquired into the matter as he had asked the assessee to furnish information as directed in his letter dated 14-10-1976 in regard to the “total number of trees, quantity of timber sold and agreement with Assam Forest Products (P.) Ltd.”. In the CIT(A)’s opinion, the notice issued under Section 148 was itself invalid, “because it reflects change of opinion on the part of the second ITO”. He further held that the reassessment was time barred as the draft assessment order was served on the assessee on 29-3-1982 and since the assessee did not raise any objection on the merits of the draft assessment proposals sent by the ITO, “the ITO should have completed the assessment within 30 days from the date of issue of the draft assessment order….” Accordingly, the CIT(A) held that the reassessment is abinitio void and that it was barred by limitation.
3. The Departmental Representative with reference to Explanation 2 to Section 147 argued that the assessee having not furnished the details called for by the ITO in his letter dated 14-10-1976 failed to disclose fully and truly the nature of the receipt shown in the profit and loss account to the extent of Rs. 5,00,000 and, therefore, the ITO had the necessary jurisdiction to re-open the assessment within the meaning of Section 147(a) of the Act. It was pointed out that during the course of reassessment proceedings for the assessment years 1972-73, 1973-74 and 1974-75, the ITO on the basis of information gathered was satisfied that due to the assessee’s failure in not furnishing necessary particulars of the sale transactions of timber made with M/s. Assam Forest Products (P.) Ltd., a sister concern of the assessee, income chargeable to tax for the assessment year 1975-76 escaped assessment within the meaning of Section 147(a). In this context, he referred to the impugned order of reassessment giving particulars of the receipts shown on sale of timber during the calendar years 1959, 1963, 1964 and 1971 to 1975 as also for the calendar years 1978 and 1979.
In regard to the additional ground raised, the Departmental Representative stated that the CIT(A) was wrong in his observation since the assessee had objected to the reassessment proceedings in its letter dated 3-4-1982 which was duly considered by the IAC in his order under Section 144B(4) dated 9-7-1982.
4. In reply, the assessee’s learned counsel by placing reliance on the Hon’ble Supreme Court decision in the case of Indian Oil Corpn. v. ITO [1986] 159 ITR 956, stated that the assessee having disclosed all primary facts during the course of original assessment proceedings, there was no omission or failure on the part of the assessee so as to entitle the ITO to reopen the assessment under Section 147(a) of the Act. He brought to our notice in particular the assessee’s letter dated 20-9-1977 in response to the ITO’s query raised in letter dated 14-10-1976 that the receipt of Rs. 5,00,000 was on the basis of an agreement dated 15-12-1973 entered into with M/s. Assam Forest Products (P.) Ltd. In the said letter, reference was made to the ITO’s order for the assessment year 1972-73, wherein he discussed the taxability of the receipts and his finding to the effect that “the particular agreement was entered into to exploit of its capital for the purpose of the business of the company”. It was pointed out in the said letter that the ITO’s finding was that the receipt of Rs. 5,00,000 shown in the assessment year 1972-73 was capital in nature. It was pointed out that the copy of the agreement was furnished to the ITO along with the said letter dated 20-9-1977. Our attention was drawn to the Director’s report as contained in the printed balance-sheet and profit and loss account for the calendar year 31st December, 1974, wherein it was mentioned, inter alia, that “pursuant to the renewal of the agreement up to 31-12-1976 with M/s. Assam Forest Products (P.) Ltd. as reported last year the assessee has received during the year 1974 Rs. 5,00,000 from M/s Assam Forest Products (P.) Ltd. towards sale of standing trees in its Forest Grant”. The said receipt, it has been stated, has been duly shown on the credit side of the profit and loss account with the narration “sale of standing trees-Rs. 5,00,000”. The assessee’s learned counsel refuted the learned Departmental Representative’s contention raised in support of the additional ground by reiterating the submissions that were made before the CIT(A).
5. The ITO is not categorical in his finding whether the proceedings for re-assessment were to be initiated in terms of Section 147(a) or Section 147(6), as would be apparent from the reasons recorded by him as per order sheet entry dated 30-3-1978. However, the Departmental Representative stated with reference to the IAC’s order under Section 144B(4) that the assessment was reopened under Section 147(a). The conditions required to be fulfilled for taking action in terms of Section 147(a) are (i) that the ITO must have reason to believe that the income, profits or gains chargeable to tax had been underassessed or escaped assessment, and (ii) that he must have reason to believe that such escapement or under-assessment was by reason of the assessee’s failure to disclose fully and truly all material facts necessary for the assessment of that year. While it is the duty of an assessee to disclose fully and truly all material facts necessary for the assessment, it is also incumbent on the assessee to furnish all the facts which are of help to the assessing authority in coming to the correct conclusion. Prom the primary facts, so disclosed by the assessee during the course of assessment proceedings, it is for the taxing authority to draw inferences. In this context, we may refer to the Hon’ble Supreme Court decision in the case of ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1 and the decision in the case of Indian Oil Corpn. (supra). We have now to see whether the conditions required as aforesaid have been fulfilled so as to entitle the ITO to exercise his powers under Section 147(a). The admitted facts are that in the profit and loss account for the year ending 31-12-1974, the assessee disclosed receipts of Rs. 5,00,000 from sale of standing trees. The said profit and loss account was examined by the ITO at the time of original assessment as we find that he directed the assessee to furnish particulars regarding quantitative details of the timber sold as also to furnish the copy of the agreement entered into by the assessee with M/s. Assam Forest Products (P.) Ltd., vide his letter dated 14-10-1976. The assessee replied to the said letter (vide its letter dated 20-9-1977) stating that the amount received to the tune of Rs. 5,00,000 was a capital receipt and in this context reference was made to the “discussion and findings in the order of assessment for the assessment year 1972-73”. A copy of the agreement as called for by the ITO was enclosed with the assessee’s letter. The ITO did not discuss in his order of assessment dated 29-7-1977 about the taxability or otherwise of the receipt shown in the profit and loss account of Rs. 5,00,000. In the re-assessment order, the ITO considered the same materials that were available at the time of original assessment, namely, the agreement dated 15-12-1973 entered into by the assessee with M/s. Assam Forest Products (P.) Ltd. as also the figures pertaining to the receipts or sale of standing trees from 1971 \td 1979 calendar years, the area under tea cultivation during the said period as also the garden development expenses on account of re-plantation and new plantation of tea bushes. It is not known what information the ITO obtained subsequent to the completion of the original assessment on the basis of which he was satisfied that due to the failure or omission on the part of the assessee to disclose fully and truly material facts, income liable to tax had escaped assessment. There is nothing to show from the records before us what particular enquiries were made by the ITO from M/s. Assam Forest Products (P.) Ltd. who were granted licence to “cut, fell and remove standing trees” in terms of the agreement dated 15-12-1973. The particulars called for by the ITO in his letter dated 14-10-1976 could only be furnished by M/s. Assam Forest Products (P.) Ltd. as they obtained the licence from the assessee to exploit the natural wealth of the assessee, namely, the standing trees. The ITO in the impugned order of re-assessment has considered the particulars that were available from the balance-sheets filed by the assessee subsequent to the completion of the original assessment. From the particulars available from the balance-sheets pertaining to the calendar years 1971 to 1979, the ITO came to the conclusion that the transaction of sale of standing trees was adventure in the nature of trade and the profit derived from such transaction was assessable to income-tax on, “the principle that profit derived from capital which is consumed or exhausted in the process of realisation are nonetheless taxable income”. In fact, in the assessment year 1972-73, the ITO considered the agreement dated 30-3-1971, which has been referred to in the assessee’s subsequent agreement dated 15th December, 1973 and came to the conclusion that the amount received of Us. 5,00,000 on sale of standing trees was a capital receipt in the hands of the assessee.
6. The Departmental Representative contended before us that the assessee did not furnish the details called for in the ITO’s letter dated 14-10-1976 and, therefore, there was non-disclosure of material facts which enabled the ITO to exercise jurisdiction under Section 147(a) read with Explanation 2 thereof. The said Explanation reads as follows :
Explanation 2 : Production before the Income-tax Officer of account books or other evidence from which material evidence could with due dilingence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.
There was a similar Explanation to Section 34 of the Income-tax Act, 1922. The scope and intent of Explanation to Section 34 has been explained, by their Lordships of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 at page 201 which reads as follows :
It may be pointed out that the Explanation to the sub-section has nothing to do with ‘inferences’ and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose ‘inferences’-to draw the proper inferences being the duty imposed on the Income-tax Officer.
The issue also came up before the Supreme Court in the case of Madnani Engg. Works Ltd. (supra) wherein by following the decision in the case of CIT v. Burlap Dealers Ltd. [1971] 79 ITR 609, it has held that the assessee was under no obligation to inform the ITO about the true nature of the transaction and there was accordingly no failure on his part to disclose fully and truly all material facts necessary for its assessment. Since all the primary facts were before the ITO at the time of the original assessment, we hold that the ITO had no jurisdiction to re-open the assessment under Section 147(a) of the Act. The CIT(A) was accordingly justified in cancelling the ITO’s order of re-assessment under Section 147(a).
7. Now coming to the additional ground raised at the time of hearing before us, we find that the ITO’s draft assessment order for the assessment year 1975-76 is dated 24-3-1982 which was forwarded to the assessee as per his letter dated 26-3-1982. The assessee submitted its objections to the draft assessment proposals of the ITO as per its letter to the ITO dated 3-4-1982. Thereafter, the IAC passed an order under Section 144B(4) on 9-7-1982 after hearing the assessee on the points raised in its letter objecting to the draft assessment proposals of the ITO. The IAC’s order was forwarded to the ITO as per his Memo dated 13-7-1982, a copy of which was forwarded to the assessee. On receipt of the IAC’s order, the ITO passed the final order of assessment under Section 143(3)/ 144B read with Section 147(a) on 16-7-1982. It will be apparent from the dates mentioned above that the ITO’s order was within the time allowed under Section 153(3) read with ‘Explanation 1(iv). We accordingly by reversing the CIT(A)’s order in this regard hold that the ITO’s order of assessment Was not barred by limitation. Since we have upheld the CIT(A)’s order cancelling the re-assessment under Section 147(a), our aforesaid observation that the assessment was not barred by limitation will be of academic interest only.
8. In the result, the appeal is allowed in part.