Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance of the expenditure of Rs. 2,79,717 incurred by the assessee in respect of the writ petitions by applying Section 80VV of the Income-tax Act, 1961 ?"
(2.) In this proceeding the assessment year involved is 1979-80 for which the relevant year of account is the year ended on December 31, 1978.
(3.) The facts found by the Tribunal as contained in the statement of case are as under : "In the relevant accounting period, the assessee paid a total sum of Rs. 3,21,207 on account of fees to lawyers in connection with various writ proceedings filed by the assessee challenging notices under Sections 148 and 142(1) of the Income-tax Act, 1961, and other proceedings in the High Court. Out of the said sum of Rs. 3,21,207 a sum of Rs. 41,490 is in respect of fees paid to counsel, which relate to criminal revision proceedings for quashing criminal prosecutions launched by the Income-tax Department against the assessee-bank. The remaining amount of Rs. 2,79,717 exclusively relates to fees paid to lawyers in respect of various writ petitions, which the assessee-bank filed in the High Court at Calcutta challenging the jurisdiction of the Income-tax Officer to issue notices under Sections 148 and 142(1) of the Act. The proceedings in respect whereof the assessee made the said payment to various lawyers are reported in Grindlays Bank Ltd. v. ITO and Grindlays Bank Ltd. v. ITO. The assessee claimed the said amount by way of deduction under Section 37 of the Act. In making the assessment, the Income-tax Officer allowed only Rs. 41,490 out of the total claim of Rs. 3,21,207 ; of the balance sum of Rs. 2,79,717, the Income-tax Officer restricted the allowance to Rs. 5,000 by applying Section 80VV of the Act. On appeal, the Commissioner of Income-tax (Appeals) sustained the said order of the Income-tax Officer. On further appeal before the Tribunal, it was submitted on behalf of the assessee that by the writ application the assessee challenged the competent authority and/or jurisdiction of the Income-tax Officer to initiate proceedings under Section 147 of the Act and/or to issue the notices under Sections 148 and/or 142(1) of the Act and the said writ proceedings do not relate to determination of any liability under the Act by way of tax, penalty or interest and, consequently, the expenditure incurred by the assessee in respect of the said proceedings does not and/or cannot come within the mischief of Section 80VV of the Act. It was also submitted before the Tribunal that by the Finance Act, 1985, Section 80VV has been omitted with effect from April 1, 1986, and re-enacted with modifications in Section 40A(12). Attention of the Tribunal was drawn to the change in the language which has been introduced in Section 40A(12) of the Act which has been inserted by the said Finance Act 1985, with effect from April 1, 1986. The Tribunal negatived the aforesaid contentions made on behalf of the assessee by making the following observations : "The issuance of notices under Section 148 and/or Section 142(1) is the basis for starting income-tax proceedings for determination of tax, penalty or interest. The tax, penalty or interest could not be determined unless the notices under Sections 148, 142(1) and 139(2) are issued. Therefore, the notices which were issued by the Income-tax Officer are the basis for starting of the proceedings for determination of tax, penalty or interest. The assessee being aggrieved by these notices went to the High Court through writ petitions and challenged the jurisdiction. However, that is a different issue, but the expenditure was in respect of the income-tax proceedings which were started by the Income-tax Officer by issuing notices under Sections 148 and 142(1) for determination of the penalty or interest. Under the above circumstances, after considering the arguments and the case-law and the paper book of the assessee, it is concluded that the amount was rightly disallowed by the Commissioner of Income-tax (Appeals) under Section 80VV of the Act." It will appear from the judgment in the case of Grindlays Bank Ltd. v. ITO, that two writ petitions were moved on behalf of the Grindlays Bank Ltd. challenging the notice issued under Section 148 of the Income-tax Act, 1961, in respect of the assessment years 1958-59, 19GG-67 to 1970-71. The two writ petitions were disposed of by a common judgment because identical questions of fact and law arose in both the cases. The case of the assessee was that although all the relevant and -material facts were before the original Assessing Officer, there was no non-disclosure of any material fact on the basis of which reassessment proceedings could have been initiated for the aforesaid assessment years. It was held by T.K. Basu J (at page 723) : "I am of the opinion, after going through the records and the correspondence, that the Income-tax Officers at the time of the original assessments were fully aware of the various items of claim as part of the head office expenses. If some item was wrongly allowed as a deduction, it was entirely due to an error on the part of the Assessing Officer and cannot be held to be due to any omission or failure on the part of the assessee. It is pointed out that any alleged information with regard to the reorganisation and with regard to the head office expenses in connection with the assessment year 1971-72 cannot be called any material regarding head office expenses for the earlier assessment years, viz., 1967-68 to 1971-72, Therefore, for those years, the Income-tax Officer cannot be held to have reason to believe that any income has escaped assessment because of excessive head office expenses being allowed due to any omission or failure on the part of the petitioners.";