(Delivered by Hon. Sudhir Agarwal, J.)
1. This reference application has come up at the instance of assessee vide Income Tax Application No. 4 of 1982, arising out of ITA No. 386 (Alld.)/1978-79 and the following reference has been made by Tribunal:
"Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that once the Income Tax Officer re-open the assessment under Section 147(b) of the Income Tax Act, 1961, he is empowered to consider and assess all the other items afresh?"
2. The dispute relates to Assessment Year 1969-70.
3. The assessee is a public limited company carrying on business of manufacturing of cotton textile, rayon yarn and television sets etc. The accounting period relevant to the Assessment Year 1969-70 ended on 31.12.1968. The original assessment under Section 143(3) of Income Tax Act, 1961 (hereinafter referred to as the "Act, 1961") completed on 30.03.1972, on a total income of ' 30,18,194/-. The Assessing Officer allowed development rebate at 35% in respect of electronic units. Based on Appellate Commissioner's order for Assessment Year 1970-71, the Income Tax Officer (hereinafter referred to as the "ITO") initiated proceedings under Section 147(b) of Act, 1961 by issuing a notice under Section 148 on 15.03.1974. The assessee objected thereto but the said proceedings were upheld by Tribunal with further observation that once ITO reopen assessment on the basis of one item, he is empowered to consider all other items afresh. In the notice dated 15.03.1974, issued by Assessing Officer under Section 148 read with Section 147(b), he said:
"On the basis of "Information" within the meaning of Section 147(b), read from A.A.C.'s decision in the case of assessee for Asstt. Yr. 1970-71 regarding non entitlement of higher development rebate to the electronic unit, proceedings are initiated u/s 147(b)."
4. He further said that on the basis of above information he has reason to believe that assessee was allowed excess relief amounting to ' 57,088/- (development rebate on electronic unit allowed at the rate of 35% amounting to ' 1,33,205/- instead of allowable at the rate of 20% i.e. ' 76,117/-).
5. The notice under Section 148 was accordingly issued on 31.07.1973. Initially proceedings were dropped on 15.03.1974 but again initiated on that very date.
6. The Assessing Officer thereafter proceeded to make re-assessment not only in regard to development rebate but other items also, which action has been confirmed by Tribunal observing as under:
"It is by now well-established law that once the I.T.O. re-opens the assessment on the basis of one item, he is empowered to consider all the other items afresh and, therefore, we are not prepared to accede to the submissions made on behalf of the assessee that I.T.O. had re-opened the assessment in the instant case with some ulterior motive/purpose or that his action was mala fide." (emphasis added)
7. The Tribunal relied on the decisions in Commissioner of Income Tax vs. Kerala State Industrial Development Corporation Ltd., [1979 ]116ITR 158 (Ker) and Indian & Eastern Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi, [1979 ] 119 ITR 996 (SC) for taking the view that once assessment is re-opened in respect of one item, all other aspects would also be opened for re-assessment.
8. The assessee made an application under Section 255(i) of Act, 1961 before Tribunal requesting for making reference on two questions but the said application was rejected by Tribunal vide order dated 27.07.1981, whereafter the assessee came to this Court and vide order dated 05.03.1986 this Court directed Tribunal to make reference on the question as noted above, pursuant whereto the above reference has come.
9. This Court is now confined to consider the question, "whether on re-opening of a case under Section 147, it is open to ITO to consider all other items and not to confine to the item on which re-assessment notice has been given".
10. From the order dated 13.03.1975, whereby the Assessing Officer not only re-opened the case but made assessment in respect to various other items, other than the quantum of development rebate, we find that he has relied on Apex Court's decision in V. Jaganmohan Rao and Ors. vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, [1970] 75 ITR 373 in order to hold that once assessment is re-opened, the previous assessment is set aside and whole assessment proceedings restart afresh. This view has also been confirmed by Tribunal while confirming re-assessment proceedings and opening of entire matter afresh.
11. This reference is pending since 1986 and we find that the Apex Court's decision in V. Jaganmohan Rao (supra) has been considered and explained subsequently in Commissioner of Income Tax vs. M/s. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC). The Court having gone through the judgment in V. Jaganmohan Rao (supra) held that principle laid down therein is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of Income Tax Act, 1922 (corresponding to Section 148 of Act, 1961), the previous under assessment is set aside and ITO would have jurisdiction and duty to levy tax on the entire income that had escaped assessment during previous year. What set aside is, thus, only the previous under-assessment and not the original assessment proceedings. The Court very categorically held:
"An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity."
12. The Court further said that it is only in cases of "underassessment" based on Clauses (a) to (d) of Explanation (I) to Section 147, that the assessment of tax due has to be recomputed on entire taxable income. In M/s. Sun Engineering Works (supra) explaining the decision in V. Jaganmohan Rao (supra) the Court very categorically said:
"The judgment in Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recompilation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or "under assessment" but to the entire assessment for the year and start the assessment proceeding de-novo giving right to an assessee to re-agitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings." (emphasis added)
13. The Court further said that Section 147 is part of a taxing statute. It imposes no charge on the subject but deals merely with the machinery of assessment. While interpreting such a provision, construction which makes the machinery workable, should be preferred. It was held that Section 147 is for the benefit of revenue and not an assessee. It aims at garnering the escaped income of assessee. The aforesaid provision cannot be allowed to be converted as revisional or review proceedings so as to make machinery unworkable. Having said so the Court in M/s. Sun Engineering Works (supra) held:
"As a result of the aforesaid discussion, we find that in proceedings under Section 147 of the Act, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under Section 148 and where reassessment is made under Section 147 in respect of income which has escaped tax, the Income Tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147." (emphasis added)
14. It is further said that words "such income" in Section 147 clearly referred to the income which is chargeable to tax but has escaped assessment and ITO's jurisdiction under the section is confined only to "such income" which has escaped assessment. It does not extend to consider generally the concluded earlier assessment. A matter not agitated in the concluded original assessment proceedings, cannot be permitted to be agitated in re-assessment proceedings unless relatable to the item sought to be taxed as "escaped income". Several decisions of various High Courts taking a different view were overruled by Apex Court which included Deputy Commissioner of Commercial Taxes v. Indian Refrigeration Industries P. Ltd. (1980) 46 STC 264 (Mad); CIT v. Ramsevak Paul (1977) 110 ITR 527 (Cal); CIT v. Assam Oil Co. Ltd. (1982) 133 ITR 204 (Cal); CIT v. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad); CIT v. Rangnath Bangur (1984) 149 ITR 487 (Raj); State Bank of Hyderabad v. CIT (1988) 171 ITR 232 (AP); and, CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom) (FB).
15. Sri Shambhu Chopra, learned counsel appearing for Revenue attempted to contend that aforesaid judgment must be read to impose such a restriction at the instance of assessee and not for Revenue. He contended that the Court in M/s. Sun Engineering Works (supra) has observed that Section 147 is for the benefit of Revenue and, therefore, whatever restrictive interpretation the Court has given therein, should be applied only when in the matter of re-assessment an objection is raised by assessee and attempt is made to re-open the entire case, but so far as Revenue is concerned, it is free to treat the assessment completely re-opened once proceeding under Section 147 has been issued and there should be no restriction at all.
16. The submission, in our view, is thoroughly misconceived.
17. Before the Apex Court, assessee was attempting to argue that once assessment proceedings recommenced, the entire assessment would be re-opened as if earlier assessment has gone which argument was rejected by Court. That is how the reference with respect to assessment has come but it cannot be said that natural consequences of a provision would be different for assessee and Revenue. Both the parties will have to follow the same consequences unless a different intention appears from the statute which has not been shown at all.
18. A judgment must be read as a whole and the observations from the judgment should be considered in the light of questions which were before the Court. The decision of Court takes it colour from the questions involved in the case in which it has rendered. While applying the decision to a later case, the Court must carefully try to ascertain the true principle laid down in the decision and not to pick out words from the decision, divorce from the context of question under consideration by Court. If the assessee cannot be allowed to convert the proceedings initiated under Section 147 as revisional or review, the same would also be not available to Revenue.
19. A Division Bench of this Court in Commissioner of Income Tax (Central) Kanpur Vs. M/s Omrao Industrial Corporation (Pvt.) Ltd., Kanpur, 2001 UPTC 897 has also taken similar view following M/s. Sun Engineering Works (supra) and observed:
"6. We find that the scope of the powers of the Income Tax Officer and making a reassessment under Section 147(a) has been settled by the Supreme Court in CIT v. Sun Engineering Works Pvt. Ltd., (1992) 198 ITR 297 where the Supreme Court held that though the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which have led to the issuance of the notice under Section 148, the Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147 and a matter not agitated in the concluded original assessment proceedings cannot be permitted to be agitated in such reassessment proceedings unless relatable to the item sought to be taxed as escaped income. In our view, therefore, for the reasons that have been recorded by the Tribunal, the Income Tax Officer could not add/disallow other items which were allowed by him in the original assessment merely by taking a different view." (emphasis added)
20. On behalf of Revenue, Sri Shambhu Chopra, learned counsel placed reliance on a decision of Madras High Court in Satyamangalam Agricultural Producer's Co-operative Marketing Society Ltd., (2013) 357 ITR 347 but therein we do not find anything which may help Revenue and to persuade this Court to take a different view than what it has expressed above. He also placed reliance on a subsequent decision in Income Tax Officer and another Vs. K.L. Srihari (HUF) and others, (2001) 250 ITR 193 (SC) but therein we find that the Court did not consider the question, whether judgment in M/s. Sun Engineering Works (supra) should be referred to Larger Bench or not, but dismissed appeal on the facts of that particular case. It is difficult to suggest that aforesaid judgment lay down any law on the subject in view of the decision given in the facts of that case.
21. The reference is accordingly answered in negative, i.e., against the Revenue and in favour of assessee.