1981 Supreme(P&H) 134

PUNJAB & HARYANA HIGH COURT
S.P.Goyal and J.V.Gupta JJ.
Commissioner Of Income-tax
Versus
Ess Ess Kay Engineering Co.Pvt.Ltd.
Income tax Reference No. 91 of 1976,
Decided On : JUNE 1, 1981

The jurisdictions conferred upon the ITO under the two Clause (a) and (b) of Section 147 are separate and exclusive to each other. Therefore, when the ITO has chosen to take action under either of the two clauses it would not be open to the Tribunal to sustain the order of reassessment under a different clause.

Headnote:

INCOME TAX - Reopening of assessment - Applicability of Section 147(a) and (b) of the Income Tax Act, 1961 - Whether the Tribunal was right in not allowing the department to raise the question of applicability of Section 147(b) of the Act - Whether the Tribunal was right in coming to the conclusion that the assessment proceedings were not validly reopened under Section 147(a) for the assessment year 1966-67.

Fact of the Case:

The assessee, a private limited firm engaged in the manufacture and sale of electrical goods, appointed M/s. Kay Engineering Sales Corporation as their sole selling agents on a payment of 5 per cent commission on the net sales of the products manufactured by the assessee. During the accounting year ending March 31, 1966, the assessee claimed a deduction of Rs. 1,27,313 alleged to have been paid to the sole selling agents. The ITO accepted the claim and allowed deduction. Later, while examining the assessee's accounts for the next assessment year, the ITO formed the opinion that the sole selling agency firm did not render any service to the assessee and hence the income to the extent of Rs. 1,27,313 paid to the said firm by the assessee in the shape of commission had escaped assessment. He issued a notice under Section 148 of the I.T. Act to the assessee. The assessee filed a return of income and challenged the validity of the notice. The ITO overruled the objection of the assessee and reassessed its income by including the amount of Rs. 1,27,313. The assessee's appeal before the AAC was dismissed. The Tribunal allowed the second appeal holding that there was no failure on the part of the assessee to disclose fully and truly the material facts and, therefore, the reopening of the proceedings by invoking the provisions of Section 147(a) was not justified.

Finding of the Court:

The Tribunal erred in not allowing the Revenue to support the reassessment by invoking the provisions of Section 147(b). The Tribunal also erred in its application of the law to the facts of the present case on the ground that the assessee had disclosed fully and truly all the material particulars with regard to the payment of the commission made to the sole selling agents whereas during the course of the assessment for the latter years, the ITO on the basis of the fresh material discovered, found that the assessee had not truly disclosed all the material particulars with regard to the services rendered by the sole selling agents and that the corporation was nothing but a legal device to evade the tax which was due from the assessee.

Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not allowing the department to raise the question of applicability of Section 147(b) of the Income-tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessment proceedings were not validly reopened under Section 147(a) for the assessment year 1966-67?

Ratio Decidendi: 1. The field of operation of Clauses (a) and (b) of Section 147 is not mutually exclusive and, instead, more often than not, overlapping. Under a given set of circumstances, the case may fall under both the clauses or, in the alternative, under either one of them. 2. If the assessment has been reopened under Clause (a) and, on the facts relied upon, it is not possible to hold that there was any failure on the part of the assessee to disclose fully and truly all material facts, it would still be open to the Tribunal to sustain the reassessment if those facts fulfilled the requirements of Clause (b) because all that is required for the applicability of Clause (b) is that the ITO in consequence of information in his possession has reason to believe that income chargeable to tax has escaped assessment for any assessment year. 3. If the assessee may have disclosed fully the facts at the time of the original assessment, if they are found to be untrue on the basis of the material discovered later on by the assessing authority, the assessment would be liable to be reopened under Section 147(a) because in such a case the assessee failed to disclose truly all the material facts necessary for the assessment and it would not merely be a case of change of opinion.

Final Decision: Question No. 1 is answered in the negative, in favour of the Revenue and against the assessee. Question No. 2 is accordingly answered in the negative, in favour of the Revenue and against the assessee.