Commissioner of Income Tax vs A.V. Thomas Exports Ltd.

P.P.S. Janarthana Raja, J.—This appeal is filed u/s 260A of the Income Tax Act, 1961 by the revenue, against the order of the Income Tax

Appellate Tribunal, Chennai Bench ''A'', Chennai in ITA No. 567 (Mds.)/2003 dated 12-12-2005 raising the following substantial question of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the re-assessment beyond a period of 4 years from the

end of the relevant assessment year is time barred?

The facts leading to the above substantial question of law are as under:

The assessee is a domestic company in which the public are substantially interested. The assessee is engaged in the manufacture and export of

garments. The relevant assessment year is 1990-91 and the corresponding accounting year ended on 31-3-1990. The original assessment was

completed on 27-3-1992 on ''Nil'' income. In computation of total income, deduction from the gross total income u/s 80HHC was allowed to the

extent of Rs. 12,45,994. The balance of Rs. 2,32,758 was set off against the business loss. The total income was computed as ''Nil''. Later the

assessment was reopened by the assessing officer on 19-8-1998 on the basis of Supreme Court decision in the case of Commissioner of Income

Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, . In that decision, the Supreme Court held that the

unabsorbed income of earlier years are to be set off before allowing deduction under Chapter VI-A. The said decision, dated 5-3-1997, was not

available at the time of completion of the assessment. Aggrieved by the order of reopening of the assessment, the assessee filed an appeal to the

Commissioner (Appeals). The Commissioner (Appeals) dismissed the appeal and confirmed the order of the assessing officer. Aggrieved, the

assessee filed an appeal to the Income Tax Appellate Tribunal (''Tribunal'' in short). The Tribunal allowed the appeal and set aside the order of the

Commissioner (Appeals). Hence the present tax case is filed by the revenue.

Learned standing counsel appearing for the revenue submitted that later, the Supreme Court laid down the law of the land and the reassessment

has in effect brought the assessments within the four corners of law and the extended period is available to the revenue under the Act as the

assessee had not disclosed fully and truly all material facts necessary for the assessment. Further, it is submitted that there was excessive deduction

u/s 80HHC of the Act which enabled the revenue to reopen the assessment under the provision of law.

Heard the counsel. The original assessment was completed u/s 143(3) of the Act. The assessing officer applied, his mind and completed the said

original assessment. There is no finding by the assessing officer that there is any failure on the part of the assessee resulting in the escapement of

income. The assessing officer must give categorical finding for the purpose of initiating reassessment under the proviso to Section 147 of the Act. In

this case the reassessment proceedings were initiated after 31-3-1995 and, hence the proceedings initiated by issue of notice u/s 148 is ab initio

barred by limitation. In this case, the initiation of proceedings is after a period of four years and the finding given by the Tribunal is that no income

has escaped assessment by reason of failure on the part of the assessee. Hence, there is no jurisdiction to reopen the assessment under the

provision of Section 147 of the Act. The scope of the said provision has been considered by this Court in the case of Commissioner of Income

Tax Vs. Elgi Finance Ltd., , and the same reads as follows:

...The law relating to the reassessment has undergone a change from 1-4-1989. The change was brought in by the Direct Tax Laws (Amendment)

Act, 1987. Two sets of provisions were available u/s 147 in Clause (a) and Clause (b). This distinction has now been taken away by the

Amendment Act. Previously, the line of distinction was a limitation period of four years and the limitation period exceeding four years. The

assessing officer would reopen a back assessment within a period of four years as long as he had reason to believe in consequence of any

information, that income has been under-assessed or income has escaped assessment. In the case of limitation, providing for a period exceeding

four years, there should have been a failure on the part of the assessee to disclose fully and truly all material facts leading to the escapement of

income. But as a result of the amendment brought with effect from 1-4-1989, the above distinction had been obliterated and the assessing officer

could reassess the income as long as he had reason to believe that income chargeable had escaped assessment. The new law has inserted a

proviso to Section 147 in the following words:

Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action

shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax

has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s 139 or in response to a

notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for

that assessment year.

In addition to the time-limits provided for u/s 149, the law has provided another limitation of four years under the proviso to Section147. As far as

the above proviso to Section 147 is concerned, the law prescribes a period of four years to initiate reassessment proceedings, unless the income

alleged to have escaped assessment was made out as a result of failure on the part of the assessee to disclose fully and truly all material facts

necessary for the assessment. (p. 678)

The Tribunal has applied the correct principle of law and held as follows:

But whether recourse to Section 147 could be made beyond four yearsis the real question in the present appeal. Circumstances for extending

limitation beyond four years do not exist in the facts of the present case.As such on the ground of limitation assumption of jurisdiction undersection

147 is bad. In the case of Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), ,it was held that if there

is no failure to file return or to disclose fully andtruly all material facts, issuance of notice beyond the period of four yearsis barred by limitation. In

the case of Keshrimal Jivji Shah and Another Vs. Bank of Maharashtra and Others, it was held that Section 147 of the Act does not

postulateconferment of power upon the assessing officer to initiate reassessment proceedings upon a mere change of opinion. It is incumbent on the

assessing officer to prove that there was a failure to disclose material facts necessary for the assessment for the issuance of notice beyond the

period of four years.

It is true that the Apex Court does not make the law from the date it is pronounced but from ab initio. This theory is based on the principle of

ACTUS CURIE NEMINEM GRAVIBIT (An act of the court shall prejudice no man). The party ought not to be prejudiced by the delay, but

should be allowed to enter up his judgment retrospectively to meet the ends of justice. When highest court of the land declares a principle of law, it

should be assumed as if this was the law for all time. But law is not an antique to be abroad, dusted and put back on the shelf. It is dynamic in

nature. It is often difficult to describe with exactitude the correct position of law at a given point of time. Till the time apex body determines the

correct position things go as per the interpretation of law made by competent courts. At time there may arise cleavage of judicial opinion. But

matter gets settled when Supreme Court adjudicates it. Inability to anticipate the view to be taken by the Apex Court cannot be termed as failure

on the part of the assessee. Previous knowledge never becomes non-existent it goes on developing in the lap of time. Human knowledge is always

improving and progressing. The world was assumed to be flat until it became known that the world is found. That does not mean that gravitation

did not exist before Newton''s discovery of the law of gravitation. Human knowledge is never static. Theory of evolution of Darwin does not make

the previous knowledge non-existent. Human knowledge, as we have mentioned, is always progressing. So relativity was always there but we

became aware only after Einstein. This is the basic difference between discovery and invention. The information about the law on the basis of

which Section 147 proceedings were initiated, was not there until the Supreme Court say it to be so. Therefore, what the Orissa High Court has

held at that time was a relevant judicial interpretation as to the law. In the circumstances it cannot be said that income escaped assessment by

reason of failure on the part of the assessee.

From a reading of the above, it is clear that the Tribunal had given a categorical finding by applying the law enunciated by the Supreme Court

judgment in the case of Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), , as well as this Court

judgment cited supra and come to the correct conclusion. Hence we do not find any error or legal infirmity in the order of the Tribunal so as to

warrant interference. Under these circumstances, no substantial question of law arises for consideration of this Court and accordingly the tax case

is dismissed. No costs.