Judgment:
R.K. Agrawal, J.
1. The Tribunal, Allahabad has referred the following questions of law under Section 27(1) of the WT Act, 1957 (hereinafter referred to as 'the Act') for opinion to this Court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the provisions of Section 17 and not the provisions of Section 35 of the WT Act, 1957 were applicable to the case ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the assets other than jewellery could be revalued in the course of the respondent assessee-assessment proceedings under Section 17 of the WT Act, 1957?'
2. The reference relates to., the asst. yr. 1970-71, for which the relevant valuation date was 31st March, 1970. The respondent is an individual. In the assessment originally made on 16th Dec., 1970, he claimed exemption on the value of the jewellery under Section 5(1)(viii) of the Act, which was accepted by the WTO, on the basis of a decision of the apex Court in the case of CWT v. Arundhati Balkrishna : [1970]77ITR505(SC) . The assessment was made on 16th Dec., 1970. Subsequently, Section 5(1)(viii) of the Act was retrospectively amended by the Finance (No. 2) Act, 1971 w.e.f. 1st April, 1963, whereby the exemption on the value of jewellery was withdrawn. In consequence of this retrospective amendment, the WTO had reason to believe that the assessee's net wealth liable to tax, had escaped assessment. The WTO, therefore, reopened the already completed assessment by issue of notice under Section 17 of the Act. In the reopened assessment, the WTO not only included in the assessee's net wealth the value of the jewellery determined at Rs. 66,700 but also redetermined the value of the assessee's partnership interest in the firms New Kanpur Flour Mills, Nagarmal & Co., the value of share in the property at 24/73, Birhana Road, Kanpur, and the value of shares in the companies. The result was that while the net wealth as originally assessed was Rs. 4,16,910 in the reassessment the net wealth was determined at Rs. 14,91,951.
3. The assessee went in appeal to the AAC. The AAC, while upholding the reopening of the assessment, held that since the assessment was reopened because of the exclusion of the value of jewellery from the assessee's net wealth at the time of the original assessment, the WTO was not justified in proceeding to make a fresh assessment by revising the value of assets from what was taken in the original assessment on the basis of the report of the Valuation Officer for subsequent years by projecting it backwards to arrive at their value for the year under appeal, since this was a mere change of opinion in regard to the valuation of the assets from what was held at the time of the original assessment. The AAC, therefore, upheld only the addition on account of the value of jewellery to the extent of Rs. 66,700 and held that the other additions by revising the value of the assets from what was determined at the time of making the original assessment were not justified.
4. Feeling aggrieved, the Department came in appeal before the Tribunal. The respondent also preferred a cross-objection on the ground that the AAC should not have upheld the reopening of the assessment under Section 17 of the Act and in any case he ought to have dealt with the other grounds of appeal before him. The Tribunal after considering the arguments advanced by the respective parties, had upheld the reopening of the assessment and further held that the WTO while making reassessment cannot be confined only to the addition on account of value of the jewellery and could have revalued the other assets at an amount different from what was determined at the time of original assessment. The Tribunal had further directed the AAC to deal with other grounds regarding valuation of some of the assets made by the WTO in reassessment.
5. We have heard Sri Vikram Gulati, the learned counsel for the applicant, and Sri A.N. Mahajan, the learned standing counsel appearing for the Revenue.
6. The learned counsel for the applicant submitted that, as a result of the legal fiction incorporated with retrospective operation and the amendment of Section 5(1)(viii) of the Act by the Finance (No. 2) Act, 1971 w.e.f. 1st April, 1963, the omission of the value of the jewellery from the net wealth of the applicant was a mistake apparent from the record which could only be rectified by having recourse to the proceedings under Section 35 of the Act and not under Section 17 of the Act. He relied upon the following decisions :
(i) IAC of Agrl. IT & ST & Anr. v. V.M. Ravi Namboodiripad, : [1974]96ITR73(SC)
(ii) Indian & Eastern Newspaper Society v. CIT, : [1979]119ITR996(SC) and
(iii) CWT v. Sheela Devi Goel, : [1981]132ITR517(All) .
7. Sri Mahajan, the learned counsel for the Revenue, has submitted that Section 5(1)(viii) of the Act was retrospectively amended by the Finance (No. 2) Act, 1971 w.e.f. 1st April, 1963 whereby the exemption on the value of the jewellery was withdrawn. The WTO has granted exemption on the value of the jewellery which, in view of the retrospective amendment, was not admissible and, therefore, the wealth insofar as the exemption granted on jewellery, had escaped assessment of tax. He further submitted that it is not correct to say that if an item can be subjected to tax by taking recourse to the proceedings under Section 35 of the Act, being a mistake apparent on the record, the jurisdiction under Section 17 of the Act is not ousted and, therefore, the Tribunal had rightly upheld the reopening of the assessment. According to him, once the assessment is reopened, the entire assessment is at large and de novo assessment is to be made. The other items can also be revalued in the course of reassessment proceedings under Section 17 of the Act.
8. Having heard the learned counsel for the parties, we find that in the present case the WTO had initially granted exemption on the value of the jewellery under Section 5(1)(viii) of the Act. The aforesaid provisions were retrospectively amended by the Finance (No. 2) Act, 1971 w.e.f, 1st April, 1963. In view of the retrospective amendment made in the provisions, the exemption which has been allowed would be deemed to have been wrongly allowed and, thus, a case of wealth having escaped the assessment to tax under Section 17 of the Act would arise. It is well settled that the circumstances under which an order under Section 147 and an order under Section 154 of the IT Act, 1961, analogous to Sections 17 and 35 of the Act, can be passed, are not mutually exclusive and may overlap. There is no conflict between the two sections so as to suggest that the provisions of one section will not apply where the provisions of the other section is applicable as held in Hira Lal Sutwala v. CIT : [1965]56ITR339(All) , Mrs. Gladys S. Koder v. ITO, : [1976]104ITR220(Ker) , Sirsa Industries v. CIT, , Indra Singh & Sons (P) Ltd. v. Union of India : [1967]64ITR501(Cal) , G. Sreerama Murthy v. ITO : [1974]97ITR290(AP) , CIT v. Himatlal Bhagubhai : [1972]86ITR481(Guj) , R. Madhavan Nair v. CIT, : [1976]105ITR813(Ker) , Bihar State Road Transport Corporation v. CIT, : [1976]103ITR736(Patna) and ITO v. Margarine & Refined Oil Co. Ltd., : [1982]133ITR791(KAR) . The AO has jurisdiction to take action under either of the two sections as the circumstances may require.
9. In the case of V.M. Ravi Namboodiripad (supra) the apex Court was considering the question as to whether after the amendment of Sub-section (3) and omission of Sub-section (4) of Section 3 of the Kerala Agrl. IT Act, 1950, with retrospective effect from 1st April, 1958, by the Act No. XII of 1964, the assessment could have been rectified taking recourse to the power of rectification under Section 36 of the said Act or the Agrl. ITO could only have exercised the power of reassessment under Section 35 of the said Act. The apex Court has held that the Agrl. ITO was empowered to make the rectification under Section 36 of the Act. The apex Court had not held that if a case falls, both under the provisions of reassessment and rectification, recourse to any one of the provisions cannot be taken. It had justified the action under Section 36 of the said Act.
In the case of Indian and Eastern Newspaper Society (supra) the apex Court has held that the information of an audit party on a point of law could not be regarded as information enabling the ITO to initiate reassessment proceeding under Section 147(b) of the IT Act.
In the case of Sheela Devi Goel (supra) this Court has upheld the action of the WTO under Section 35 of the Act for rectification of the assessment order consequent upon retrospective amendment of Section 5(1)(viii) of the Act, by the Finance (No. 2) Act, 1971. This Court had not considered the question as to whether the provisions of Section 17 of the Act is also attracted or not.
10. As already mentioned hereinabove, as a result of retrospective amendment in Section 5(1)(viii) of the Act, the exemption on jewellery was not admissible and, therefore, the net wealth chargeable to tax has escaped assessment for that year. Thus, the WTO was perfectly justified in initiating proceeding under Section 17 of the Act.
11. So far as the question as to whether in the course of reassessment proceedings, the assets other than jewellery could be revalued by the AO concerned, it may be mentioned here that once the assessment is reopened, the original order of assessment ceases to be operative and the fact of reopening of assessment is to vacate or set aside the original order of assessment and to substitute in its place the order made on reassessment, as held in the case of Dy. CCT v. H.R. Sri Ramulu, (1977) Tax LR 1855 (SC), Saran Engineering Co. Ltd. v. CIT, : [1983]143ITR765(All) , Sharda Trading Co. v. CIT, : [1984]149ITR19(Delhi) , CIT v. Rangnath Bangur/Purshottam Dass Bangui, and Kundan Lal Srikrishan v. CST (1987) 65 STC 71 (SC).
12. In the case of V. Jaganmohan Rao & Ors. v. CIT : [1970]75ITR373(SC) , the apex Court has held as follows :
'...once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the ITO cannot be confined only to that portion of the income. Section 34 in terms states that once the ITO decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.'
A Full Bench of the Bombay High Court in the case of CIT v. Indian Rare Earth Ltd., : [1990]181ITR22(Bom) , has held that once a valid proceeding under Section 147 of the IT Act is started, the AO has not only the jurisdiction but it is his duty to complete the whole assessment de novo. While reassessing an assessee, the AO does not assess him on the escaped income but the assessment is made on his taxable income, as held in the case of CST v. H.M. Esufali KM. AbdulaJi : [1973]90ITR271(SC) . Thus, it is well settled that if an assessment has been reopened, the entire assessment is to be made afresh and, therefore, the assets can be revalued also.
13. In view of the foregoing discussion, we answer both the questions of law in the affirmative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.