ORDER
B.V. Venkataramaiah, Accountant Member
1. These appeals by the assessee and the revenue relate to the reassessments for the assessment years 1962-63 and 1966-67 to 1968-69. The assessments were reopened by the ITO to include in the total income of the assessee ; the interest accrues on loans in ‘court account’. The assessee had not included in its return the interest on those advances where it had resorted to legal proceedings against defaulters for recovery of interest. This was on the ground that the realisation of interest was not certain. According to the ITO, the assessee had concealed the income in the returns filed by it at the time of the original assessments by not including the interest on such sticky advances. The reassessments were completed adding interest accrued on such loans to the income originally assessed. The assessee went in appeal. It challenged the reopening of the assessments. One ground was that the case did not fall under Section 147(a) of the Income-tax Act, 1961 (‘the Act’) as the assessee had not failed to disclose primary materials necessary for completion of its assessments. Another ground was that the concealment, if any, related to the Syndicate Bank Ltd. before it was nationalised on 31-3-1970. The old bank still existed. The ITO could have taken action against the old bank and not against the successor. Reliance was placed on Section 5(5) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and also Section 170 of the 1961 Act. The Commissioner (Appeals) held that the reopening was justified. He mainly proceeded on the ground that the ITO could entertain a reasonable belief that the interest on sticky loans was justifiably includible in the total income of the erstwhile Syndicate Bank Ltd. and the failure on its part to so include the interest in its taxable income led to concealment of income and the reopening of the assessment. However, on merits, following the decision of the Tribunal for the assessment year 1974-75, he deleted the addition. The revenue has come up in appeal on the merits of the deletion of the interest on sticky loans while the assessee has come up in appeal against the merits of the reopening of the assessment.
2. It was argued by the learned counsel for the assessee that Section 5(5) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 read with Section 170 of the 1961 Act clearly precluded action against the present Syndicate Bank Ltd. with regard to roping in any escaped income of the erstwhile Syndicate Bank Ltd. The learned departmental representative, on the other hand, submitted that since the entire business of the erstwhile bank was taken over by the assessee, Section 5(1) was applicable. He stressed that all borrowings, liabilities and obligations of whatever kind of the erstwhile bank were transferred to the new bank. The obligation and liabilities also included payment of proper taxes and as such the reopening was justified. The learned counsel for the assessee, however, relied on Section 5(5) which protected only existing litigation and not future proceedings. The learned departmental representative also submitted that the old Syndicate Bank Ltd. sans its banking business had been amalgamated with some other concern. It was no longer in existence. Recourse to Section 170 was not necessary in this case at all as Section 5(1) was wide enough to empower the ITO to collect taxes which have been evaded by the erstwhile banking company.
3. Section 5(1) and Section 5(5) are as follows :
General effect of vesting.–(1) The undertaking of each existing bank shall be deemed to include all assets, rights, powers, authorities and privileges and all property, movable and immovable, cash balances, reserve funds, investments and all other rights and interests in, or arising out of, such property as were immediately before the commencement of this Act in the ownership, possession, power or control of the existing bank in relation to the undertaking, whether within or without India, and all books of account, registers, records, and all other documents of whatever nature relating thereto and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the existing bank in relation to the undertaking.
(5) If, on the appointed day, any suit, appeal or other proceeding of whatever nature in relation to any business of the undertaking which has been transferred under Section 4, is pending by or against the existing bank, the same shall not abate, be discontinued or be, in any way, prejudicially affected by reason of the transfer of the undertaking of the existing bank or of anything contained in this Act but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the corresponding new bank.
4. Although the learned counsel’s arguments as regards the interpretation of Section 5(5) are correct, we have to agree with the learned departmental representative that Section 5(1) gave wide powers to the ITO to collect from the new bank the correct amount of tax which the erstwhile banking company was under an obligation to pay. There is an obligation on every assessee to pay the correct amount of tax due from it. The obligation cannot abate by virtue of succession to its business. Although the quantification of this obligation might come later, there was no cessation of its liability. Support for this proposition can be had from the decision of the Supreme Court in the case of Ahmed Ibrahim Sahigra Dhoraji v. CWT [1981] 129 ITR 314. In that case, it was held that the extra tax which became payable on a later date consequent on voluntary disclosure by the assessee relating to concealment of income for earlier years, was a liability deductible from the net wealth on the valuation dates relevant to such earlier years. Recourse to Section 170 is not necessary in this case. Since the Tribunal should not be unduly influenced by procedural technicalities in CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC), we hold that the provisions of Section 5(1) override the provisions of Section 170. Following the above decision of the Supreme Court, we hold that proceedings can be taken against the successor of the erstwhile bank for assessing the escaped income of the latter.
5. It, however, remains for us to find out whether the conditions for application of Section 147(a) are satisfied. It seems that the assessee had changed over to the new method of accounting where interest on accrued loans was not included in the profit and loss account. It is claimed that this was the position even in 1953. The balance sheets and profit and loss account filed along with the return of income would also indicate that the assessee was not taking into account such interest as part of the profit. For the assessment year 1970-71 the assessee had clearly brought this point to the notice of the ITO. We have also gone through the reasons recorded by the ITO in connection with the reopening of the assessments. These do not indicate that there was a failure on the part of the assessee in disclosing the true and correct particulars of income. In fact, in IT Appeal No. 126 (Bang.) of 1983 dated 11-12-1984, we held that the reopening of the assessment was bad. It is not for the assessee to indicate what conclusions are to be drawn from the materials disclosed by it before the ITO. If the material is there and the ITO fails to draw the correct conclusions, it is not possible to say that there was failure on the part of the assessee to disclose primary materials necessary for the completion of the assessment, e.g., the Supreme Court decision in the case of ITO v. Ldkhmani Mewal Das [1976] 103 ITR 437 further reiterated in ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1. On these grounds, we hold that the reopening under Section 147(a) was not valid.
6. The assessee’s appeals are allowed.
7. We have held in our earlier orders that on merits, the interest on sticky loans cannot be included in the total income of the assessee.
8. The appeals filed by the revenue are, accordingly, dismissed.