R.K. Gulati, J. - (1.) AT the instance of the assessee the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the Income-tax Officer was justified in initiating re-assessment proceedings under the provisions of Section 147(a) of the Income-tax Act, 1961 ?"
(2.) FOR the assessment year 1965-66 which is the subject-matter of this reference, the assessment was completed on March 22, 1966. Subsequently, the assessee was served with a notice under Section 148 of the Act whereby the assessment was reopened under Section 147(a) of the Act on the allegation that the assessee had failed to disclose fully and truly all relevant facts necessary for its assessment for the year under consideration as a result of which income chargeable to tax had escaped assessment for that year. The reasons recorded for re-opening the assessment by the Income-tax Officer were to the following effect amongst others : ". . . During the course of assessment of subsequent years it was discovered that the assessee-company was maintaining guest houses at Allahabad and at Nainital. It was found that expenses incurred on these guest houses included certain expenses which were non-business expenses. The fact of their being non-business for Allahabad guest house has finally been confirmed by the Tribunal in subsequent assessment year. The Department has held that out of the total expenses, expenses to the tune of 90 per cent, were such non-business expenses. Thus, the expenses to this extent would be clearly disallowable in the hands of the company in this year. On the same basis depreciation and notional letting value of guest house to the extent of 90 per cent, will be disallowable and assessable respectively in the hands of the company. FOR the year 1965-66 the assessee-company has not given the details of expenses incurred for the maintenance of guest house which would also include large non-business expenses. Similarly, break up of depreciation and notional letting value of the guest house is also not available. In the last completed assessment total additions on these scores have been worked out at Rs. 74,819. The expenses therefore for this year are not likely to exceed this figure. Therefore, an estimate of Rs. 50,000 would be reasonable for the year 1965-66. This income was liable to be assessed in the hands of the assessee which has escaped assessment due to non-disclosure of material facts necessary for the assessment of the company for this year. . . . Therefore, in view of the above facts, I have reason to believe that due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1965-66 income to the tune of Rs. 50,000 has escaped assessment within the meaning of Section 147(a) of the Income-tax Act, 1961. This income will be assessable in this year . . . ." The assessee objected to the re-opening of the assessment, particularly, under, Clause (a) of Section 147 of the Act and referred to its objections which were taken in the assessment year 1964-65, where it is said that the assessment was re-opened in similar circumstances. The objections were, however, overruled by the Income-tax Officer by saying that his predecessor had not accepted them in the assessment year 1964-65 and he agreed with the view of his predecessor. In due course, reassessment for the year under consideration was completed on December 29, 1977. The assessee felt aggrieved and challenged the reassessment order in appeal before the Commissioner of Income-tax (Appeals), Allahabad, where a preliminary objection was taken that the provisions of Section 147(a) were not applicable, for, there was no failure or omission to disclose fully and truly all material facts and if any basis for making a fresh assessment could be found, it could be done only within the ambit of Clause (b) of Section 147.
(3.) THE case set up was that for the assessment year 1968-69 also the assessment was re-opened under similar circumstances and ultimately, the matter was decided by the Income-tax Appellate Tribunal in ITA No. 330 (All) of 1974-75 taking the view that the requirements of Clause (a) of Section 147 on the facts of that year, were not made out. THE appeal for the year under consideration was allowed by the Commissioner of Income-tax (Appeals) taking the view as under : "THE company's guest house at 24 Queens Road, Allahabad, was established in 1962 and this fact was disclosed in the company's balance sheet for the period ending September 30, 1962. A resolution had also been passed by the board of directors of the company on July 31, 1962, that the company's directors Mr. M.R. Shervani and Mrs. T.R. Shervani would be charged for their stay in the guest house at the rate at which paying guests will be charged by the company. Details regarding the investment in the acquisition of the guest house were furnished by the appellant in a letter addressed to the Income-tax Officer, on January 20, 1964. THE fact that Shri M.R. Shervani and Smt. T.R. Shervani were staying in the company's guest house had also been brought to the notice of the Department through the means of the returns of income/wealth filed by these two persond..... ... In view of the foregoing facts and the findings recorded by the Income-tax Appellate Tribunal in their order dated October 25, 1975 in I.T.A. No. 330 (All) of 1974-75 relating to the assessment year 1968-69 in the appellant's case it has to be held that the reassessment proceedings in this case could not have been initiated under Section 147(a) because there was no failure or omission on the part of the appellant company to disclose fully and truly all martial facts necessary for its assessment for the assessment year 1965-66. As the assessment has been made after the expiry of four years' limitation it is clearly bad in law and cannot be sustained. It is, therefore, quashed." The Revenue carried the matter further in second appeal and challenged the order passed in appeal before the Income-tax Appellate Tribunal. The decision of the Appellate Tribunal relied upon by the appellate authority was sought to be distinguished on the ground that it had no application to the facts of the year under consideration, inasmuch as, the assessee had failed to furnish in its returns the necessary information in terms of Section 40(c) as per Part VI-A of the return or at any other stage during the course of the assessment proceedings. Further, on the facts, the action under Section 147(a) was fully justified.;