B.P.Jeevan Reddy, C.J. - (1.) The Income-tax Appellate Tribunal, Allahabad, has stated the following question under Section 256(1) of the Income-tax Act, 1961, for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the reopening of the assessment under Section 147(a) of the Income-tax Act, 1961, was not valid and, therefore, the supplementary assessment made in pursuance thereof has to be annulled."
(2.) The assessee is a company. In the year 1931, it entered into a contract with a German firm for purchase of machinery. The machinery was delivered in April, 1932. The delivery was not within the time stipulated, nor was it according to specifications. The assessee, therefore, instituted a suit against the said firm in 1935 for recovery of a sum of Rs. 2,05,000. The suit was ultimately decreed in December, 1953, for the said sum plus interest pendente lite. Though the total amount so decreed came to more than rupees three lakhs, the assessee could recover only Rs. 2,20,192 from the Custodian of Enemy Properties. This amount was received by the assessee in the previous year relevant to the assessment year 1961-62. In its return for the said assessment year, the assessee disclosed the said amount, but claimed that it was a capital receipt and hence not taxable. The Income-tax Officer accepted the said claim only in respect of a small portion of the said amount and included the rest in the income of the assessee. On appeal, the amount to be included in the income was reduced substantially. Even so, the assessee filed a further appeal to the Tribunal. The Tribunal allowed the appeal on the only ground that the said amount cannot be included in the assessment year 1961-62 for the reason that the assessee was maintaining its accounts on the mercantile basis and that the said amount must be deemed to have accrued on the date of the decree. It may be noticed that the decree was passed in December 1953, which fell in the assessment year 1955-56. On the basis of the Tribunal's judgment, the Income-tax Officer sought to, and did reopen the assessment for the assessment year 1955-56. He proposed to include the said amount in the income of that year. The assessee objected, but his objections were overruled and the assessment revised. On appeal, two contentions were raised, namely, (i) that the initiation of reassessment proceedings was without jurisdiction and (ii) that the assessment has been revised without giving a reasonable and adequate opportunity to the assessee to put forward its case. The Appellate Assistant Commissioner rejected the first ground, but accepted the second and remitted the matter for a fresh determination. The assessee carried the matter in further appeal to the Tribunal on the aforementioned first question. The Tribunal agreed with the assessee and set aside the reassessment proceedings in their entirety. It is thereupon that the present reference was obtained by the Revenue.
(3.) The grounds upon which the Tribunal allowed the appeal are to be found in the following words : "There is no material in these reasons to show that any part of the amount of compensation represented the assessee's income liable to be taxed. The amount of interest was only Rs. 12,500 and this being less than Rs. 50,000 action under Section 147(a) could not have been taken for this year after the expiry of more than eight years. The assessee is, therefore, right in claiming that approval for reopening the assessment for the assessment year 1955-56 could not have been validly accorded on the basis of the reasons recorded by the Income-tax Officer. The letter dated January 13, 1969, written by the Income-tax Officer to the Commissioner of Income-tax further shows that he had taken this action not because of his own belief that any income of the assessee which was taxable in this year had escaped assessment but on the recommendations of Shri D. G. Pradhan, Authorised Representative. The letter further shows that this action was being taken by him only as a protective measure. As claimed by the assessee, the reference to Sections 150 and 153(3) in the letter dated January 13, 1969, also shows that the Income-tax Officer had reopened the assessment in consequence of the order of the Tribunal passed for the assessment year 1961-62, and even though he had mentioned Section 147(a), he was all the time contemplating action under Section 147(b). If the Income-tax Officer really believed that income had escaped assessment because of the failure of the assessee to disclose fully and truly the material facts necessary for assessment, there was no need for him to rely upon Sections 150 and 153(3). We are, therefore, satisfied that the reassessment proceedings were invalid.";