ORDER
D.C. Agrawal, Accountant Member
1. This is an appeal fled by the revenue raising the following grounds:
1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the assessing officer to allow the carry forward of investment allowance of Rs. 36,05,370/- instead of Rs. 14,59,896/- allowed by the assessing officer by holding that amount of Rs. 21,45,574/-charged Under Section 115J cannot be adjusted against the brought forward investment allowance ignoring the provisions laid down in Sub-section (2) of Section 115Jof the Income Tax Act, 1961.
2. Without prejudice to ground No. 1, the decision of learned CIT (A) is contrary to the decision of Hon’ble Andhra Pradesh High Court in the case of Suryalatha Spinning Mills Ltd. and Anr. 223 ITR 713.
3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that the assessing officer is not justified in reopening the assessment merely because of the change of opinion on the part of the assessing officer ignoring the fact that Section 147 of the Income Tax Act, 1961 had been amended by Direct Tax Law (Amendment) Act, 1989 w.e.f 1.4.89 and the assessee’s case falls under Sub-clause (iv) of Clause (c) below explanation 2 of Section 147.
2. The facts of the case are that the assessing officer passed the assessment order for the assessment year 90-91 on 16.09.91 and determined the income of the assessee Under Section 115J at Rs. 41,45,574/-. The computation of income made by the assessing officer is as under:
Net profit as per profit and loss account ...Rs. 18,92,592/-
Add: investment allowance: ...RS. 52,58,321/-
Add: _________________
Rs. 71,51,913/-
1) depreciation disallowed on account of
capital subsidy 1,44,306
2) Entertainment expenses
Disallowed Under Section 37(2A)
35,000
3) Miscellaneous expenses 12,000 ...Rs. 1,91,306/-
__________
Less : investment allowance current 52,59.321
B/f A.Y 88-89 6,37,236
A.Y 89-90 29,06.558
__________
88,03,115
Restricted to ... ...Rs. 51,97,645/-
_______________
Rs. 21,45,574/-
Investment allowance to be carried forward to assessment year 1991-92 is Rs. 36,05,370/-.
The assessee has shown income Under Section 115J on the basis of following computation:
Net profit as per Profit and Loss Account: Rs. 18,92,592/'-
Add ; investment allowance Rs. 52,59,321/-
________________
Rs. 71,51,913/-
30% of book profit Rs. 21,45,574/-
Therefore, taxable income is determined a Rs. 21,45,574/-.
3. Subsequently, the assessing officer discovered that out of total investment allowance of current year plus brought forward from assessment year 88-89 and 89-90, the total amount is coming to Rs. Rs. 88,03,115/-, but he has restricted the claim to 70% of Rs. 73,43,219/- approximately so as to bring the income as computed under the provision of Income tax Act, 1961 to Rs. 21,45,574/- equivalent to income computed Under Section 115J by taking 30% of book profit. This resulted in carry forward of investment allowance to Rs. 36,05,370/- (8803115 – 5197645). Thereafter, the assessing officer issued notice Under Section 148(1) on 17.8.93 by recording the reasons. The return was filed by the assessee company in response to the said notice on 20.9.93. In the re-assessment, the assessing officer allowed, out of current year’s and brought forward investment allowance, to the extent of Rs. 73,43,219/-out of total available for set off to the extent of Rs. 88,03,115/-. This resulted in carry forward of un-absorbed investment allowance to the assessment year 90-91 to the extent of Rs. 14,59,896/- only as against Rs. 36,05,370/- allowed in the original assessment. However, the income finally assessed by assessing officer remained at Rs. 21,45,574/-, which was 30% of book profit computed Under Section 115J as it was higher of the returned income (nil). While re-opening the assessment, the assessing officer inferred that wrong relief has been granted in as much as set off of current year and brought forward of investment allowance was not fully set off against income computed under the head profits and gains from business or profession. It resulted in excess carry forward of un-absorbed investment allowance to the subsequent year. For taking recourse to provisions to Section 147(1), he inferred that income has escaped assessment, as the assessment so made on 16.09.1991 was subjected to excessive relief under the Act.
4. The CIT (A) cancelled the re-opening of the assessment by observing as under:
6. Having considered carefully the counsel’s submissions, I am afraid the assessing officer is not justified in re-opening the assessment in view of the case laws relied upon by the appellant. I find that it was nothing but change of opinion, on the part of the assessing officer regarding the treatment book profit Under Section 115J for the purpose of determining the amount of investment allowance to be carried forward that had caused the reopening of the assessment. As stated earlier, the ultimate effect of the reassessment order is that the book profit Under Section 115J was adjusted against the brought forward investment allowance with the result that the investment allowance allowed to be carried forward in the original assessment was reduced by the amount of the book profit Under Section 115J. In the case of CIT v. Khetani textile Industries P Ltd. relied upon by the appellant, the Hon’ble Bombay High Court held that the reassessment made on the basis of change of opinion on the part of the ITO on the same set of facts was invalid. In the case of CIT v. Bhanji Lavji
79 ITR 582, the Hon’ble Supreme Court held that when the primary facts necessary for assessment are fully and truly disclosed to the ITO is not entitled, on a change of opinion, to commence proceedings for reassessment Under Section 34(1)(a). On the aforesaid principle, the 3rd and 4th grounds of appeal succeed in view of the fact that the reassessment in the appellant’s case was made on the same set of facts which were fully disclosed to the assessing officer at the time of original assessment proceedings merely because of change of opinion on the part of assessing officer.
5. The CIT (A) relied on the decision of Hon’ble Gauhati High Court in the case of Lallacherra Tea co.’s case reported in 239 ITR 611 and also Tribunal’s decision in Fax Exports (P) ltd v. CIT 56 ITD 132, and Tribunal’s decision in Singh Alloys & Steel industries ltd. v. DCIT 55 ITR 13 (Cal). According to these decisions, the book profit Under Section 115J, which has been charged to tax, would not be adjusted against losses, which have been carried forward. According to the CIT (A), the re-opening was nothing but change of opinion.
6. The revenue has agitated on both the accounts, i.e. on account of not upholding the re-opening of assessment and also directing the assessing officer to allow original amount of unabsorbed investment allowance to be carried forward to the assessment year 91-92 i.e. 36,05,370/- as against Rs. 14,59,896/-.
7. Before us, the learned DR submitted that the income assessed Under Section 115J is only deemed income. The assessing officer is required to make assessment as per provisions of Income tax Act, 1961. He is also required to work out book profit and 30% thereof. If 30% of book profit is more than the income computed under the normal provisions of Income tax Act, 1961, then the 30% of the book profit is to be treated as assessed income and tax is to be levied thereon. Secondly, as per explanation to Section 147(1) (reproduced below for ready reference), if excess relief is allowed, it will be deemed to be a case of income escaped assessment.
147. If the Assessing Officer 13 has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return Under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1 ; Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment namely:
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.
8. The learned DR also submitted that Hon’ble Supreme Court, in Karnataka Small Scale Industries Development Corporation v. CIT 258 ITR 770, has held that computation as per normal provisions of Income tax Act, 1961 is actual and not fictional or notional. The deductions claimed are not to be ignored and only the balance of amount of losses, un-absorbed depreciation, unabsorbed investment allowance etc. are to be allowed to be carried forward to the next year. Thus, according to learned DR, a regular assessment is being done according to normal provisions of the Act and also income is computed at 30% of the book profit. Merely for the reason that 30% of the book profit is higher and is adopted for the purposes of levying tax, the normal assessment as per Income tax Act, 1961 does not become non-entity or non-existent. Since, the assessment of total income as per normal provisions of Income tax Act, 1961 very well stands, the escapement of income has to be seen therein only. Since excess relief has been allowed in the computation of income, this is a case of escapement of income and hence, provisions of Section 147 would be applicable. The learned DR also submitted that the decision of Hon’ble Gauhati High Court, on which the CIT (A) relied, has been reversed by the Hon’ble Supreme Court in Karnataka Small Scale Industries Development Corporation v. CIT 258 ITR 770 (KSSIDC for short).
9. Against this, the learned Counsel for the assessee submitted that there is no escapement of income because originally assessed income was Rs. 21,45,574/- and the re- assessed income is also 21,45,574/. There is no change in the income assessed in the regular assessment as well as in the reassessment. There is no escapement of income. Hence, reopening is bad. Secondly, as per provision of Section 152(2), if by making any variation or addition, originally assessed income does not change, then assessing officer is duty bound, by the mandatory provisions therein, to drop the proceedings for re-assessment. Thirdly, as per sub-clause iv of clause C to explanation 2 of Section 147, what is to be found by the assessing officer for re-opening of the assessment is that in the original assessment, “excessive allowance under this Act has been computed”. The assessing officer has computed investment allowance at Rs. 88,03,115/- in the original assessment and same figure has been computed in the re-assessment. Therefore, there is no excessive investment allowance computed by the assessing officer so as to invoke the provision of Section 147.
10. We have heard the rival submissions and considered the facts and material on record. The first important question that arises for consideration is whether computation of income under the provisions of the Act before assessing the income Under Section 115J is part of assessment or not? If final income computed Under Section 115J on which tax has been levied is the only assessment and such income being 30% of the book profit is the only assessed income, then, provisions of Section 147 may not be invoked because in the present case, originally assessed income being 30% of the book profit and finally assessed income again being 30% of the book profit is the same. There is apparently no excessive loss or allowance in this assessed income, as both the figures are the same. But this, in our view, is not the correct legal position.
11. Section 115J reads as under:
Special provisions relating to certain companies.
115J. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company 41[(other than a company engaged in the business of generation or distribution of electricity)], the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 42[but before the 1st day of April, 1991] (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.
43[(1A) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956).J]
Explanation.-For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year 44[prepared under Sub-section (1A)J, as increased by-
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves 45[(other than the reserves specified in Section 80HHD 46[or Sub-section (1) of Section 33AC])], by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III 47[applies; or]
48[(g) the amount withdrawn from the reserve account Under Section 80HHD, where it has been utilised for any purpose other than those referred to in Sub-section (4) of that section; or
(h) the amount credited to the reserve account Under Section 80HHD, to the extent that amount has not been utilised within the period specified in Sub-section (4) of that section;]
49[(ha) the amount deemed to be the profits under Sub-section (3) of Section 33AC;] 50 {if any amount referred to in Clauses (a) to (f) is debited or, as the case may be, the amount referred to in Clauses (g) and (h) is not credited] to the profit and loss account, and as reduced by,-
(i) the amount withdrawn from reserves 51[(other than the reserves specified in Section 80HHD)] or provisions, if any such amount is credited to the 52[profit and loss account :
Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or]
(ii)the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or
(iii) the amounts [as arrived at after increasing the net profit by the amounts referred to in Clauses (a) to (f) and reducing the net profit by the amounts referred to in Clauses (i) and (ii)] aITRibutable to the business, the profits from which are eligible for deduction Under Section 80HHC or Section 80HHD; so, however, that such amounts are computed in the manner specified in Sub-section(3) or Sub-section (3A) of Section 80HHC or Sub-section (3) of Section 80HHD, as the case may be; or]
(iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable.
(2) Nothing contained in Sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year54a to be carried forward to the subsequent year or years under the provisions of Sub-section (2) of Section 32 or Sub-section (3) of Section 32A or Clause (ii) of Sub-section(1) of Section 72 or Section 73 or Section 74 or Sub-section (3) of Section 74A or Sub-section (3) of Section 80J.
12. From a bare reading of the section, it is clear that this section provides two stages of assessment. One is computation of income of the assessee under the Act in respect of any previous year relevant to the assessment year commencing on or after 1.4.88 and before 1.7.91 and the second is computation of 30% of book profit. If 30% of the book profit is equal to or more than the income computed under the provisions of the Act, then 30% of the book profit will be deemed to be the total income of the assessee chargeable to tax for the relevant previous year. The first stage envisages computation of income under the Act i.e. after taking into account the deductions allowable under the Act. It is only after the deductions are given effect to and if the resultant income is less than30% of the book profit then, the assessee’s total income would be deemed to be a notional income fixed at 30% of its book profit. The deductions are actually allowed while computing income under the provisions of the Act. There is no notional or fictional income. In the above case i.e. Karnataka Small Scale Industries Development Corporation v. CIT 258 ITR 770, the following observations of Hon’ble Supreme Court are relevant and to the point page 775.
The first stage referred to above envisages computation of income under the Act, that is, after taking into consideration all deductions allowable under the Act. It is only after the deductions are given effect to, and if the resultant income is less than 30 per cent, of the book profit, that the assessee’s total income would be deemed to have a notional income fixed at 30 per cent, of its book profit. It may be that the assessees are not required to pay tax on the figure of the assessable income arrived at after deducting the amounts permissible under the Act. However, it cannot be said that therefore the deductions are not taken into account. If the deductions had not in fact been allowed then the assessee would not have had an assessable income less than 30 per cent, of its book profit, entitling it to pay tax only on 30 per cent, of its book profit. In deeming the total income to be 30 per cent of the book profit, the deductions claimed are not ignored as contended by the appellants but are a necessary ingredient of the formula for applying the fictional total income. The decisions cited in the context of the operation of statutory fictions are not apposite as there is no notional or fictional but actual deduction. Once the deductions are taken into consideration and the assessee is put into the category of those companies covered by Section 115J(1) only then is the assessee required to pay on a notional income of 30 per cent, of its book profits.
Had Section 115J not been introduced, the assessee would have been entitled under the provisions of Sections 32(2), 32A(3), 72(1)(ii), 73, 74, 74A(3) and 80J(3) to carry forward only the unabsorbed depreciation allowance Under Section 32, investment allowance Under Section 32A, losses Under Sections 72, 72A, 73, 74 and permissible deductions Under Section 80J to the following assessment year to be set off against the profits and gains of that assessment year. All that Section 115J(2) does is to preserve this right, viz., to carry for ward the balance of the unabsorbed deductions in the relevant previous year to the next assessment year. Section 115J does not create any right nor does it serve to allow all the deductions taken into consideration for determining whether the total income should be quantified Under Section 115J(1), to be carried forward under Sub-section (2) of Section 115J. It allows only the unabsorbed losses, depreciation, investment allowance, etc., which otherwise could have been carried forward, to be carried forward.
This construction of Sub-sections (1) and (2), Section 115J is in keeping with the avowed purpose for which Chapter XII-B was introduced in the Act by the Finance Act, 1987. This was stated by the Finance Minister in his Budget Speech1 in the following manner.
It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so called ‘zero-tax’ highly profitable companies deserves attention. In 1983, a new Section 80WA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a ‘minimum corporate tax’ on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit…. This measure will yield a revenue gain of approximately Rs. 75 crores.
13. The relevance of Section 115J(2) was also considered by the Hon’ble Supreme Court in the above case. It observed as under:
In addition, a contemporaneous exposition of the purport of Section 115J is contained in Circular No. 4952, dated September 22, 1987, issued by the Central Board of Direct Taxes. The circular gives explanatory notes on the provisions relating to direct tax in the Finance Act. With reference to Section 115J, it was said :
Section 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the Income-tax Act. Secondly, the book profit is to be worked out in accordance with the Explanation to Section 115J(1) and it is to be seen whether the income determined under the first process is less than 30 per cent, of the book profit. Section 115J would be invoked if the income determined under the first process is less than 30 per cent, of the book profit. The Explanation to Sub-section(1) of Section 115J gives the definition of ‘book profit’ by incorporating the requirement of Section 205 of the Companies Act in the computation of the book profit. Brought forward loss or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction Under Section 80 J, to the extent not set off as computed under the Income-tax Act.
14. The decision in Lallacherra tea company case given by Hon’ble Gauhati High Court was not approved by the Hon’ble Supreme Court. Therefore, the decision of CIT (A) based on Lallacherra case cannot be upheld in view of the decision of Hon’ble Supreme Court in KSSIDC’s case.
15. Thus, there is a clear judgment by the Hon’ble Supreme Court that income is to be computed according to the provisions of the Act and all the deductions, allowances including brought forward allowances have to be allowed and whatever balance left has to be carried forward to the next year.
16. Here, the assessed income is only notional and deemed income being 30% of the book profit. The income computed as per normal provisions of the Act is also the assessed income. The status of income computed under the provisions of Act is no less than the normally assessed income and that is why all the deductions and allowances are allowed to be set off against income so computed and only balance of un-absorbed allowances are allowed to be carried forward. Without there being an assessment, and there being an assessed income under the normal provisions of the Act, no unabsorbed depreciation, loss or investment allowance could be allowed to be carried forward to the next year.
17. Section 32A(3) provides for the carry forward of investment allowance, reads as under:
(3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year [the total income for this purpose being computed after deduction of the allowances Under Section 33 and Section 33A, but without making any deduction under Sub-section (1) of this section or any deduction under Chapter VIA] is nil or is less than the full amount of the investment allowance:
(i) the sum to be allowed by way of investment allowance for that assessment year under Sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil; and
(ii) the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year.
Explanation.-Where for any assessment year, investment allowance is to be allowed in accordance with the provisions of this sub-section in respect of any ship or aircraft acquired or any machinery or plant installed in more than one previous year, and the total income of the assessee assessable for that assessment year [the total income for this purpose being computed after deduction of the allowances Under Section 33 and Section 33A, but without making any deduction under Sub-section (1) of this section or any deduction under Chapter VIA] is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely:
(a) the allowance under Clause (ii) shall be made before any allowance under Clause (i) is made; and
(b) where an allowance has to be made under Clause (ii) in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.
18. Further, it is apparent that for allowing unabsorbed investment allowance to be carried forward to the next year, total income has to be computed and investment allowance, brought forward from earlier years has to be first set off against such income and if income is further available to be set off then current year’s investment allowance has to be set off and balance of investment allowance not so set off, if any, will be allowed to carried forward to the subsequent years for being set off against those year’s income in such a manner that income of that year is nil. Thus, computation of income has to be carried out in accordance with the provisions of the Act for the purposes of setting off investment allowance. In such a computation deduction Under Section 33 and Section 33A is allowed but no deduction under chapter VI-A will be considered before setting of investment allowance. If any income is left in the current year then it will be available for adjusting deductions under chapter VI-A. If a loss is arrived on computation before allowing any set off of investment allowance, then such loss has to be intimated to the assessee as per Section 157, which reads as under:
157, Intimation of loss.-When, in the course of the assessment of the total income of any assessee, it is established that a loss has taken place which the assessee is entitled to have carried forward and set off under the provisions of Sub-section (1) of Section 72, Sub-section (2) of Section 73, Sub-section (1) or Sub-section (3) of Section 74 or Sub-section (3) of Section 74A, the Assessing Officer shall notify to the assessee by an order in writing the amount of the loss as computed by him for the purposes of Sub-section (1) of Section 72, Sub-section (2) of Section 73, Sub-section (1) or Sub-section (3) of Section 74 or Sub-section (3) of Section 74A.
19. Thus, for setting off of investment allowance as per Section 32A(3), income as per provisions of the Act has to be computed. If it results into positive income, then investment allowance is to be set off against such income. If computation results into loss, then the assessee has to be intimated as per Section 157 of such business loss which also includes investment allowance not so set off on account of there being no positive income. Thus, determination of business loss and unabsorbed investment allowance, which is carried forward to the succeeding years for set off against business income of those years, are integral part of computation of income, which is an important step in the process of assessment. When Section 147(1) provides that income has escaped assessment, it provides that income has escaped from computation. Thus, where there is incorrect determination of investment allowance to be carried forward to the succeeding years, then by virtue of Sub-clause (iv) of clause C of explanation 2 to Section 147, there is an escapement of income. Thus, in a case, where provisions of Section 115J are not invoked, then excessive deduction on account of investment allowance will definitely be escapement of income within the meaning of explanation 2 of Section 147.
20. The effect of Section 115J is limited to choosing of higher income of the two, i.e. the one computed under the provisions of I.T. Act and the other 30% of book profit as provided Under Section 115J. Further, whether income computed under the provisions of the Act is higher than 30% of book profit as per Section 115J, or is less than that can only be known when the two incomes are computed. At the initial stage when there is a prima facie allegation on the basis of some information or other material, that income has escaped assessment, it is not necessary that before reopening the assessment final computation is worked out. Material available at the initial stage of reopening may be later explained fully or partly resulting into computation of lower amount in the finally reassessed income. Conversely information available at the initial stage of reopening may snowball into large escapement of income than envisaged, due to further investigation and gathering more material and thus, finally re-assessed income may be more than what was originally thought at the time of re-opening, and even come out to be more than 30% of book profit computed as per Section 115J. Therefore, merely because, after reassessment, the 30% of book profit was still higher than the income computed as per normal provisions of the Act, it will not invalidate the reopening of the assessment. The validity of reopening does not depend upon the quantum of finally assessed income.
21. Thus, we hold that there are two computations of income, before invoking the preference of higher of the two. One is under the normal provisions of the Act and the other is books profit as provided Under Section 115J. To us, the figure of book profit, is constant. It is worked as provided in Sub-section (1A) of Section 115J. There is no authority to the assessing officer to disturb this figure except as provided in the section. This is as per Profit and Loss Account prepared as per books of accounted maintained.
22. Thus, where there is material to show escapement of income, it will only affect the computation of income as per other provisions of the Act (other than Section 115J) and not the book profit as per Section 115J. If the interpretation given by the learned Counsel for assessee is accepted then for justifying reopening of assessment in cases, where provisions of Section 115J are invoked, there should be sufficiency of escapement i.e. the escapement of income should be sufficient enough so as to take the normally computed income more than 30% of book profit. This interpretation is not acceptable. Neither the “sufficiency of material” nor the “sufficiency of escapement” is relevant for reopening of assessment.
23. In view of the discussions held above, we hold that the provisions of Section 152(2) are not applicable as escapement of income is seen in the income computed under normal provisions of the Act (other than Section 115J) and not in the computation of book profit. Another argument of learned Counsel for assessee that the computed investment allowance is the same i.e. Rs. 88,03,115/- both in the original as well as in re-assessment, hence there is no escapement within the meaning of Sub-clause (iv) to clause C to explanation 2 to Section 147, is also not acceptable because what the Sub-clause (iv) means the allowance/deduction from the income computed. If the computed figure is one and the allowed figure is other, still the case would be considered under this clause as allowance means actually allowed while computing the income.
24. The decision of Hon’ble Gauhati High Court in Lalcherra Tea co.’s case (supra) on which CIT (A) had relied is no longer a good law as it was overruled in KSSIDC’s case (supra).
25. Thus, we hold that the reopening, of assessment by the assessing officer was justified. This ground of the revenue is allowed.
26. Other grounds of the revenue are consequential to reopening as the decision of Hon’ble Supreme Court in KSSIDC’s case is binding on the authorities. They have to allow to carry forward only the actually unabsorbed investment allowance to the next year and not the notionally computed investment allowance. The order of assessing officer is restored and that of CIT (A) is set aside. Therefore, two grounds of the revenue are allowed.
27. In the result, the appeal of the revenue is allowed.