ORDER
George Cheriyan, Senior Vice-President
1. This appeal by the Revenue relates to the assessment year 1979-80* The assessee is a public limited company. The accounting period ended on 30-9-1978. The original assessment in this case was completed on 18-11-1982. Subsequently, the Income-tax Officer on 26-3-1984 recorded the following reasons:-
It is seen that the a had received a sum of Rs. 38,90,240 during the previous year relevant to asst. year 1979-80, as additional levy price from the Govt. of Tamilnadu. This has not been included in the sales and shown as part of the prof it but had been credited to a suspense account,’ resulting in an understatement of income and consequently underassessment of income. I have, therefore, reason to believe that by reason of omission/failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment, income had escaped assessment to the extent of Rs. 38,90,240 for the asst. year 1979-80 within the meaning of Section 147(a).
Issue notice Under Section 148.
In compliance with the same, the assessee filed a return and in making the revised assessment on 27-3-1985, the Income-tax Officer brought to the tax the additional price on levy sugar of Rs. 38,90,240 and he also withdrew an amount of Rs. 33,86,872 which was stated to be excess depreciation allowed.
2. The assessee appealed and the first submission before the C.I.T.(A) was that there was no omission or failure on the part of the assessee in fully and truly disclosing all material facts and, therefore, invoking the provisions of Section 147(a) was without jurisdiction.
3. To support the contention, the assessee relied on the fact that the amount of Rs. 38,90,240 stood included under the head ‘Current liabilities & Provision’ and further there was specific mention of this amount in the Auditor’s Report as well as the Directors’ Report. According to the assessee, therefore, all material facts had been disclosed.
4. The C.I.T. (A) in particular referred to the contents of the Directors’ Report which in substance stated that the loss was arrived at without taking into account the additional sales realization of Rs. 38.90 lakhs which was collected as per the terms of the Madras High Court order. He also referred to a note which was furnished by the assessee during the course of hearing at the time of the original assessment regarding the fixation of levy price. Finally, the C.LT.(A) concluded that the records showed that in respect of the additional sugar price, facts had been stated which would lead to the conclusion that there was no failure or omission on the part of the assessee to disclose all material facts.
5. In coming to the aforesaid conclusion, the C.I.T.(A) referred to the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41ITR 191 and certain other judicial pronouncements.
6. As there was no omission or failure on the part of the assessee to disclose the material facts relating to the receipt of Rs. 38.90 lakhs, the CI.T.(A) concluded that the I.T.O. had no jurisdiction to act Under Section 147(a) and, therefore, he cancelled the reassessment as made.
7. The C.I.T.(A) also considered the nature and receipt and he held that on merits the amount was clearly business income.
8. Yet another point discussed by the C.I.T. (A) was that relating to the withdrawal of depreciation and on this issue the C.I.T.(A) held there was no failure on the part of the assessee since it was the decision of the I.T.O. to grant depreciation initially at 15% and on change of opinion, he could not restrict the rate of depreciation to 10%.
9. Another ground which the assessee sought to raise was not permitted to be raised by the C.I.T.(A).
10. The Revenue is in appeal against the cancellation of the assessment on the ground that the commencement of proceedings under Section 147(a) was without jurisdiction. According to the grounds of appeal, the C.I.T.(A) erred in holding that the assessee fully and truly disclosed all primary and material facts necessary for assessment and that the C.I.T.(A) failed to note that the assessee did not include the amount in the sales turnover and also did not make a claim for exemption of the amount by showing the same as a receipt which was not taxable in Part-Ill of the return of income. In view of these alleged omissions on the part of the assessee, according to the Revenue, the C.I.T.(A) should have held that the assessee did not disclose primary facts in regard to the assess ability of the income.
11. The learned Departmental Representative placed great emphasis on the wording of Explanation 2 to Section 147 which reads as under:-
Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.
He also relied on the ratio of two decisions of the Supreme Court, the first being that in the case of Kantamani Venkata Narayana & Sons v. First Addl. ITO [1967] 63 ITR 638 where at page 644, the Supreme Court has stated as under:-
It is clearly implicit in the terms of Sections 23 and 34 of the Income-tax Act that the assessee is under a duty to disclose fully and truly material facts necessary for the assessment of the year, and that the duty is not discharged merely by the production of the books of account or other evidence. It is the duty of the assessee to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax officer may not on that account be precluded from exercising the power to assess income which had escaped assessment.
The second judgment is that in the case of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624 (SC), where at page 628, the Supreme Court has observed as under:
The assessee’s contention is that the Income-tax Officer could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. Explanation 2 to Section 147 of the Act makes the position abundantly clear. The principles have also been well-settled and reiterated in numerous decisions of this court: See Kantamani Venkata Narayana & Sons v. First Addl. ITO [1967] 63 ITR 638 (SC) and ITO v. Lakshmani Mewal Das [1976] 103 ITR 437, (SC). Hidayatullah J., as the learned Chief Justice then was, observed in Calcutta Discount Co.’s case [1961] 41 ITR 191 (SC) that mere production of evidence before the Income-tax Officer was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts – the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. It is sufficient to refer to the decision of this court in Calcutta Discount Co. Ltd.’s case [1961] 41 ITR 191 (SC) where it had been held that if there are some primary facts from which a reasonable belief could be formed that there was some nondisclosure or failure to disclose fully and truly all material facts, the Income-tax Officer has jurisdiction to reopen the assessment. This position was again reiterated by this court in Malegaon Electricity Co. (P.) Ltd. v. CIR [1970] 78 ITR 466 (SC)
The learned Departmental Representative submitted that the essence of the law on the point has been set out in the aforesaid decision of the Supreme Court and the later decision of the Supreme Court also referred to the decisions in the case of ITO v. Lakhmani Mewal Das [1916] 103YTR431andCalcuttaDiscount Co. Ltd. [1961] 41 ITR 191. The learned Departmental Representative also sought to refer to a judgment of the Calcutta High Court in CIT v. Hoosen Kasam Dada (India) Ltd. [1973] 91 ITR 453.
12. Based on the ratio of the aforesaid judgments, the learned Departmental Representative took us through the balance-sheet of the year and according to him, the exhibiting of certain amounts under the head ‘Current Liabilities’ would not absolve the assessee of the duty of bringing to the notice of the I.T.O. that the amount of Rs. 38,90,241 was taxable. He submitted that if the current liabilities were exhibited at page 16 at a figure of Rs. 2,81,06,248 and the details in Schedule ‘E’ gave the break-up, and other liabilities were shown at Rs. 45,34,854 up to this stage, he submitted, by a perusal of the figures, one could not discern that there was an amount of Rs. 38,90,241 which was not offered for taxation though, according to him, it clearly formed part of the sale receipts. His submission was that mere mention of this amount in the course of narrations in the Auditor’s Report as well as the Directors Report, would not improve the case of the assessee. He, therefore, submitted that the information given by the assessee was not sufficient to get out of the scope of the Explanation to Section 147 which we have set out earlier and according to him, the C.I.T.(A) was in error in canceling the assessment.
13. The learned counsel for the assessee, on the other hand, submitted that the Auditor’s Report and the Directors’ Report were an integral part of the Annual Report and it was only expected that these reports would necessarily be perused by the I.T.O. because they were explanatory of the accounts. According to him, the contents of these reports clearly brought out the fact that Rs. 38,90,241 which was collected as per terms of the Madras High Court order and deposited in the bank separately pending disposal of the Writ Petition on levy sugar price had not been taken into account in arriving at the gross loss. He, therefore, pleaded that applying the ratio of the judgments of the Supreme Court relied on by the learned Departmental Representative, it was the assessee who had to succeed and not the Revenue.
14. We have considered the rival submissions. It is necessary to set out the facts in detail. In the reasons recorded for re-opening on 26-3-1984, the I.T.O. had only stated in substance that the assessee had received a sum of Rs. 38,90,240 as additional levy price on sugar from the Government of Tamil Nadu and this had not been included in the sales but had been credited to a suspense account resulting in understatement of the income and, therefore, he was of the opinion that there was escapement of income. It is seen that there was no discussion whatsoever in the reasons recorded about what was exhibited in the accounts or of the contents of the Auditor’s Report or the Directors’ Report.
15. The current liabilities as exhibited at page 16 of the printed accounts in the balance-sheet shows a gross figure of Rs. 2,81,06,248. The details are given in Schedule ‘E’ and Schedule ‘E’ again is comprised of four items out of which “Other Liabilities” come to Rs. 45,34,854 which item comes under the head “Current Liabilities and Provisions”. If there were no further clarifications, the Revenue could very well have urged there was no full and true disclosure of all material facts because the Supreme Court has pointed out in the case of Kantamani Venkata Narayuna & Sons (supra) that the duty of the assessee was not merely discharged on the production of books of accounts but it is the duty of the assessee to bring to the notice of the I.T.O. particular items in the books of accounts which are relevant. The question, therefore, which survives is whether the assessee has satisfied the requirement of bringing to the notice of the I.T.O. the particular items in the assessee’s books of accounts which merited his consideration.
16. We proceed to examine whether the requirement to which we have referred in the preceding paragraph has been satisfied. The assessee is a company and the Auditor’s Report and the Directors Report form an integral part of the Annual Report and the contents of these reports have necessarily to be perused by every person who wants to be acquainted with the figures depicted in the balance-sheet and profit and loss account, be he a shareholder, an Income-tax Officer or any other person who would like to know the affairs of the company. The Auditor’s Report states as under at page 12:-
(iii) Other liabilities under Current Liabilities & Provisions include Rs. 38,90,241 representing the additional amount collected between the price allowed under the Court’s interim order and the price notified by Government on levy sugar sales during 1977-78 in respect of 1977-78 production. The company has furnished Punjab National Bank guarantee to the Madras High Court for Rs. 38,88,342 for which Fixed Deposits amounting to Rs. 38,89,726 have been lodged with them as security.
It is clear from the aforesaid that the amount of Rs. 45,34,854 appearing in Schedule ‘E’ included the amount of Rs. 38,90,241 and this fact had been expressly brought out by the clarificatory note in the Auditor’s Report which we have set out above. Thereafter, in the Directors Report, there is the following mention at page 6:-
The loss is arrived at without taking into account the additional sales realization of Rs. 38.90 lakhs collected as per the terms of the Madras High Court order and deposited in the bank separately pending disposal of the writ petitions on levy sugar prices and also without taking into account the amounts claimed under the Incentive Scheme for the years 1976-77 and 1977-78.
The assessee has proceeded to point out further that the loss returned by them for the year was arrived at without taking into account “the additional sales realization of Rs. 38.90 lakhs collected”. Therefore, what the assessee had expressly pointed out was that the amount of Rs. 38.901akhs was an additional sales realization which the assessee had not taken into account in arriving at the net loss. The nature of the amount of Rs. 38.90 lakhs was also, therefore, fully and specifically described and attention was drawn to the same. There is yet another paragraph in the Directors’ Report which reads as under:-
Levy price for the years from 1974-75 to 1976-77:
The Madras High Court on disposing of the writ petitions filed by the sugar factories in Tamil Nadu delivered judgment on 5th January, 1979 quashing the notifications issued by the Government of India relating to the prices fixed for levy sugar produced during sugar seasons from 1974-75 to 1976-77 and directing the Union Government to refix the price within six weeks without taking into account the extra realization from free market sales and the additional cane price paid over the statutory price.
The Central Government has preferred an appeal before the Supreme Court and the orders of the Madras High Court have been stayed.
The writ petition filed in respect of the 1977-78 levy price notification has not yet been taken up by the Madras High Court for disposal. As an interim measure, as stated in the report of last year, the company was allowed to collect certain price which was higher than the notified price against furnishing bank guarantee. Up to 16th August, 1978, i.e., date of decontrol, the company had collected amounts aggregating to Rs. 38.90 lakhs by way of additional price pursuant to the interim orders of the Court. The company has kept this amount in fixed deposit with the company’s bankers who had given a guarantee to the High Court.
The aforesaid note refers to the report of the earlier year. If we go to the report of the earlier year, i.e., the year ended 30-9-1977, the note forming part of the account shows under item (2)’CONTINGENT LIABILITIES’, the following:-
(a) Difference in price collected in excess of levy sugar sales pursuant to the interim orders of the Tamil Nadu High Court Rs. 2,21,122 and Rs. 9,83,041 during the years 1975-76 and 1976-77 respectively.
What we found was that for the year ended 30-9-1976 (asst. year 1977-78), the assessee had shown Rs. 2,21,122 as its income and had suffered tax thereon. For the year ended 30-9-1977 relevant to the assessment year 1978-79, the amount of Rs. 9,83,041 had been shown as its income originally but the assessee had claimed exemption at the assessment stage. The assessment for the year 1978-79 was made on 15-9-1981 and there the claim was processed by the I.T.O. who negative the claim observing as under:-
Rs. 9,83,041 Credited to Profit and loss account being amount collected in excess of sale of levy sugar:
This represents the difference between the sale price of levy sugar of Rs. 183.69 fixed by the High Court and the price of Rs. 178.23 notified by the Government. The assessee has not accepted the notified price of Rs. 178.23 and filed a writ petition before the High Court of Madras. The High Court fixed the sale price of levy sugar at Rs. 183.69. Accordingly the assessee collected the price of levy sugar at Rs. 183.69. In view of the above position the amount collected by the assessee at Rs. 183.69 is in order and there is no excess collection. Hence, the difference of Rs. 9,83,041 has to be treated only as income. The assessee’s claim that there is an excess collection of Rs. 9,83,041 is not maintainable.
This event has occurred prior to recording of reasons for this year which was on 26-3-1984. The assessee had also contested this disallowance of the claim by way of appeal and the matter had been decided by the C.I.T. (A) on 23-1-1984 which is also a date prior to the recording of reasons and the C.I.T.(A) had confirmed the said disallowance. Later, the matter went up to the Tribunal and the Tribunal’s order was rendered subsequently where the Tribunal laid down a formula for computing the disallowance. Therefore, firstly the accounts for the year now under consideration, i.e., the year 1978-79, clearly showed that the amount of Rs. 38,90,241 represented sale proceeds and the same had not been taken into account in arriving at the loss of the year. The requirements as laid down by the Supreme Court for satisfying the requirement that there was no omission or failure on the part of the assessee to fully and truly disclose all material facts as set out in the judgment of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd.’s case (supra) which refers to the earlier judgments in the cases of Kantamani Venkata Narayana & Sons (supra), Lakhmani Mewal Das (supra) and Calcutta Discount Co. Ltd. (supra) ate fully satisfied. Therefore, in the present case, an analysis of the facts showed that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts.
17. The accounts of this year further refer to the position of the accounts for the earlier year. We have looked into that position and what we have found is that while in the assessment year 1977-78 the assessee had offered a similar amount for taxation, in the assessment year 1978-79 though the amount was offered for taxation originally, it was claimed as exempt. Such claim was processed and negative by the I.T.O. and confirmed by the C.I.T.(A). The processing and negative of the claim by the I.T.O. on 15-9-1981 for the assessment year 1978-79 was prior to the date of the original assessment for this year which was on 18-11-1982. Viewed from this angle also, it cannot be said that there was any omission or failure on the part of the assessee to disclose fully and truly any material facts because the matter for the earlier year was also the subject of specific processing on a date anterior to the date when the I.T.O. recorded reasons for his belief that there was failure on the part of the assessee to fully and truly disclose material fact as far as this year is concerned.
18. For all the aforesaid reasons, we agree with the C.I.T.(A) that since there was no failure on the part of the assessee to fully and truly disclose all material particulars, the provisions under Section are not attracted. This being so, the cancellation of the assessment is in order. The appeal of the Revenue will, therefore, fall to be dismissed.