A.K.Sengupta, J. - (1.) In this application under article 226 of the Constitution, the petitioner has challenged two notices, one dated March 8, 1976, and the other dated March 29, 1986 (76?) issued under Section 148 of the Income-tax Act, 1961, for the aseessment year 1971-72. The original assessment for the assessment year was completed on March 20, 1971, under Section 143(3) of the said Act.
(2.) The petitioner also preferred an appeal against the said assessment. The Appellate Assistant Commissioner heard the appeal for the assessment year 1971-72 along with the appeals for other two years and granted certain reliefs to the petitioner. The petitioner thereafter went to the Income-tax Appellate Tribunal and the Income-tax Appellate Tribunal disposed of the appeal and a question of law was referred at the instance of the petitioner by the Tribunal under Section 256(1) of the Act relating to the assessability of import entitlement.
(3.) Thereafter, the Income-tax Officer issued notice under Section 148 on March 8, 1976, for the assessment year 1971-72. He also issued another notice for the said assessment year on March 29, 1976, which was handed over to the petitioner's representative presumably by way of abundant caution to avoid limitation. The Revenue authorities have not filed any affidavit-in-opposition. The records were directed to be produced and the reasons recorded for initiation of the proceeding under Section 148 of the Act have been produced. The reasons as recorded for reopening the said assessment for the assessment year 1971-72 are as follows: "It is seen that the assessse's income has escaped assessment, inter alia, because of the following reasons: (1) In consequence of information received from Revenue audit, it is seen that the deductions under Sections 80K, 80L, 80M have been wrongly allowed in the original assessment. For this year, there is no gross total income within the meaning of Section 80B(5), the net result after allowing depreciation being a negative figure. Section 80(2) lays down that the aggregated amount of deduction under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee. In the instant case, since there is no gross total income within the meaning of Section 80B(5), the net result being a minus figure, no deductions under sections 80K, 80L and 80M can be allowed in view of the restriction imposed under Section 80A(2). In the circumstances, excess loss to the extent of Rs. 4,29,027 has been carried forward due to the following incorrect deductions : JUDGEMENT_77_ITR167_1987Html1.htm (2) The cement unit of the assessee-company started manufacture from January, 1969. For this assessment year, being the third year of allowance, unabsorbed deficiency under Section 80J to the tune of Rs. 26,60,874 as per computation filed by the assessee was accepted and carried forward in the original assessment. In the computation of capital employed worked out under Rule 19A, Income-tax Rules, 1962, no deduction as provided in Rule 19A(3)(b) for medium term loan obtained from the State Bank of India, H.O., Calcutta, for rupees two crores was made. It transpires that as per terms of repayment, the loan was repayable during a period of less than seven years and it was utilised in setting up of the cement factory and as such the loan should have been deducted in the computation of capital. The assessee neither deducted the amount of loan in capital computation under Rule 19A nor disclosed the material facts regarding the utilisation and terms of the loan during the course of the original assessment. Thus 6% of 2 crores, i.e., Rs. 12 lakhs have been allowed in excess in computation of relief under Section 80J, Besides an amount of Rs. 10,76,283 has been included in the written down values of fixed assets which is the value of incomplete jobs. As the assets worth Rs. 10,76,283 were not used in the business of the assessee during the computation period, no consideration of the amount should, therefore, have been made in the computation of capital employed. This having been done, 6% of Rs. 10,76,283, i.e., Rs. 64,577 has been allowed in excess in computation of relief under Section 80J. (3) Travelling allowance disallowable under Section 37(3) read with rule 6D has not been disclosed in the return. The same has neither been considered and disallowed in the assessment. It is seen during the course of subsequent years' assessments that substantial amount is disallowable on this score. The amount that has escaped assessment on this score is estimated at Rs. 40,000, (4) The assessee paid compensation on account of short production of controlled cloth. Such payment was in the nature of penalty and should have been disallowed. Information received, vide CBDT's Instruction No. 910 (Circular F.No. 228/51/75-ITA-11 dated January 8, 1976). Such payment was not disallowed in the original assessment as the assessee did not disclose the relevant particulars in the return and in the statement of accounts filed in connection with the original assessment. In view of the facts stated above, I have reasons to believe that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and also in consequence of information in my possession, the assessee's income has escaped assessment and this is a fit case for reopening both under sections 147(a) and 147(b) of the Income-tax Act, 1961." It may be mentioned that the said notice was issued before the expiry of 4 years from the end of the assessment year 1971-72 and, accordingly, the initiation of proceedings is sought to be justified both under Sections 147(a) and 147(b) of the said Act. The short question which calls for determination is whether the conditions precedent for assumption of jurisdiction for initiation of the proceedings in respect of income escaping assessment have been fulfilled or not. This will entirely depend on the materials as disclosed in the said recorded reasons.;