Per Shri. A. Satyanarayana, Accountant Member - This appeal filed by the revenue is against the order of the CIT (Appeals) dated 18-10-1983 for the assessment year 1975-76, for which the previous year ended on 31-3-1975.
2. The assessment was originally made on a 9-1-1978 on a total income of Rs. 3,08,600. In the original assessment the assessee was allowed development rebate amounting to Rs. 55,018 being 25 percent of the actual cost of the freezing plant amounting to Rs. 2,20,071. In the words of the ITO "later on it was found that the freezing plant was installed on 27-3-1975 only and that according to section 16(c) of the Finance Act, 1974 development rebate on machinery and plant installed after 31-5-1974 but before 1-6-1975 is admissible only if the assessee had either purchased or entered into contract for the purchase of machinery before the first day of December, 1973". The ITO noticed that the assessee by its letter dt. 16-9-1976, during the original assessment proceedings, has, however, admitted that there was no contract with the suppliers for the purchase of the freezing plant installed on 27-3-1975 and that the order for purchase was placed on 20.6.1974 only. The ITO came to the conclusion that in those circumstances, the assessee was not entitled to the development rebate as per section 16(c) of the Finance Act, 1974. According to the ITO "Consequent on this information the assessees income chargeable to tax had escaped assessment within the meaning of section 147(b) of the Income-tax Act, 1961". He, therefore, initiated proceedings under section 148 by issuing a notice on 25.3.1980. In response to the said notice the assessee filed the return on 25-2-1981. The assessee in its letter dated 8-11-1976 claimed that an agreement was entered into with M/s Crepaco Inc. U. S. A. as early as in November 1973 and that it was in pursuance of the said agreement that the American company supplied the freezer on 30-9-1974. After giving a number of opportunities for producing the contract for the purchase of the plant the assessee at last produced the invoice No. 47-3157-01 dated 4-10-1974 issued by the American Company for the sale of the freezer. The assessee wanted the invoice to be accepted as evidence of the contract having been entered into before 1-12-1973. By relying on a mention made in the said invoice that the sale was made as per quotation No. 6-307892 dated 20-7-1973.
The ITO did not agree with this submission of the assessee. As the assessee has failed to adduce any evidence to show that it entered into the contract before 1-12-1973, the ITO rejected the contentions of the assessee and withdrew the development rebate of Rs. 55,018 allowed earlier by his reassessment order dated 21-3-1981.
3. Against the withdrawal of the development rebate in the reassessment order, the assessee appealed to the CIT (A). The CIT (A) annulled the reassessment observing as under :- "From the assessment order it is clear that by letter dated 16-9-1976, the appellant had admitted that there was no contract or agreement with the suppliers for the purchase of Freezing Plant. The first assessment was completed only on 9-1-1978 after the receipt of this letter.
Therefore, whatever information was necessary for coming to a correct decision in this case was available with the Income-tax Officer when he made the first assessment. The Income-tax Officer has not pointed out that he has received any information subsequent to the completion of the assessment which would given him jurisdiction to reopen the assessment. The Income-tax Officer, therefore, did not have jurisdiction to reopen the assessment and so the order dated 21st March, 1981 is annulled and the appeal allowed.
4. Against the above finding of the CIT (A) the revenue preferred the present appeal. At the time of hearing the departmental representative filed copies of ITOs letter dated 19-8-1976, assessees letter dated 16-9-1976, assessees letter dated 8-11-1976, ITOs letter dated 24-11-1976, notes dated 17-11-1977 made by the ITO on which lines the assessment was made on 9-1-1978, reasons recorded on 25-3-1980 for reopening under section 147(b) and letter dated 28-6-1978 from the ITO to the assessee. The arguments of the departmental representative were to the following effect :- By letter dated 19-8-1976 the ITO wanted the assessee to furnish particulars in respect of date of purchase of the Freezing Plant, date of installation of the Freezing Plant, date from which it was put to use in the business, whether any contract had been entered into for the purchase of the Freezing Plant earlier and if so, the date when the contract was entered into with full details and the name and address of the seller. In response to the said letter of the ITO the assessee replied on 16-9-1976 that the date of installation was 27-3-1975, that it was put to use on 27-3-1975, there was no contract, that the order was placed on 20-6-1974 with Crepaco Inc., Chicago, U. S. A. The assessee, by its letter dated 8-11-1976 informed the ITO that it had entered into an agreement with the seller of the Freezer M/s. Crepaco Inc., U. S. A. as early as in November 1973 and that the order was supplied on 30-9-1974 in pursuance of the said agreement. The ITO vide his letter dated 24-11-1976 required the assessee to produce the agreement said to have been entered into by the assessee with M/s.
Crepaco Inc. in November 1973 and the entire correspondence relating to the purchase of the freezer. The agreement alleged to have been entered into by the assessee with the American company in November 1973 was not produced before the ITO. Then there was a change in the incumbent of the office of the ITO. The successor ITO overlooked the earlier correspondence. So, when he made the assessment on 9-1-1978 allowed the assessees claim for development rebate. The ITO by his letter dated 28-6-1978 brought to the notice of the assessee the provisions of section 16 of the Finance Act, 1974 and requested the assessee to produce the agreement said to have been entered with the supplier in November 1973 referred to in its letter dated 8-11-1976. In the said letter the ITO informed the assessee of his proposal to revise the assessment by withdrawing the development rebate already granted in the absence of the agreement. Still there was no compliance from the assessee for the production of the agreement said to have been entered in November 1973. Thereafter, the ITO recorded the reasons on 25-3-1980 for reopening the assessment under section 147(b). He issued notice under section 148. As the assessee has not produced the alleged agreement entered into in November 1973, the ITO withdrew the development rebate by his reassessment order dated 21-3-1981. The assessee had evaded the production of the contract for the purchase of the Freezer. This information was available to the ITO subsequent to the making of the original assessment on 9-1-1978. The succeeding ITO failed to notice the correspondence on the subject already in the file.
The CIT (A) ought to have found that the ITO making the original assessment did not apply his mind as to the requirement of an agreement concluded prior to 1-12-1973 for the purchase of the Freezer Plant so as to be eligible for development rebate for the assessment year 1975-76 in terms of section 16(c) of the Finance Act, 1974.
Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts on law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. See the decision of the Supreme Court in CIT v. A. Raman & Co. [1968] 67 ITR 11. For reassessment proceedings under section 147(b) of the Income-tax Act, 1961, the statute does not require that the information must be extraneous to the record. It is enough if the material on the basis of which the reassessment proceedings are sought to be initiated came to the notice of the Income-tax Officer subsequent to the original assessment. See the decision of the Madras High Court in A. L. A. Firm v. CIT [1976] 102 ITR 622. The expression "information" which was introduced into the Indian Income-tax Act, 1922, by an amendment of 1939, has not been defined either in the 1922 Act or the 1961 Act."To information" means to "impart knowledge" and a detail available to the ITO in the paper filed before him does not by its mere availability become an item of information. It is transmuted into an item of information in his possession only if and only when its existence is realised and its implications are recognised. If there was non-advertence of the mind on the earlier occasion and an advertence on a later one that would be sufficient to form the foundation on a later one that would be sufficient to form the foundation for reassessment.
See the decision of the Kerala High Court in CIT v. Kerala State Industrial Development Corpn. Ltd. [1979] 116 ITR 158. Reference may also be made to the decision of the Supreme Court in Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624.
5. The arguments of the assessees counsel were to the following effect : The agreement entered into in November 1973 was only oral. Order was placed on 20-6-1974. All the relevant information connected with the claim of development rebate was available with the ITO when he made the original assessment on 9-1-1978. The information should be got by the ITO from external sources only and not from the existing record. In the present case as the relevant information was in existence in the record of the ITO section 147(B) is not attracted.
6. We have considered the rival submissions. The ITO, long after the completion of the original assessment found out from the available record that the Freezing Plant was installed on 27-3-1975 and that the assessee admitted in its letter dated 16-9-1976 that there was no contract with the supplier. By the letter dated 28-6-1978, the ITO required the assesee to produce the agremeent with the suplier of the Freezing Plant said to have been entered into in November 1973 as claimed by the assessee in its earlier letter dated 8-11-1976. The assessee failed to produce the alleged agreement said to have been entered into in November 1973. Then the ITO initiated proceedings under section 147(b) and issued notice under section 148 on 25-3-1980. The information that there was no agreement and claim of the assessee as to the execution of the agreement in November 1973 was all there already in the file of the ITO when he made the assessment on 9-1-1978. This information was transmuted into an item of information in his possession at a later date only. The Kerala High Court held in the case of United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218 that : " to inform means to impart knowledge and a detail available to the Income-tax Officer in the papers filed before him does not be its mere availability become an item of information. It is transmuted into an item of information in his possession only if, and only when, its existence is realised and its implications are recognised. The awareness of the Income-tax Officer, for the first time, after the assessment order of the 19th November, 1957, that the bonus shares were issued not out of premiums received in cash and the consequent result in the light of the Finance No. (2) Act, 1957, was information within the meaning of that expression as used in section 34(1) (b) of the Indian Income-tax Act, 1922, and the reopening of the assessment order under section 34(1) (b) was not illegal." Later, the Kerala High Court held in Kerala State Industrial Development Corpn. Ltds case (supra) that : "If there was non-advertence of the mind on the earlier occasion and an advertence on a later one that would be sufficient to form the foundation for reassessment." According to the ITO the information that there was no agreement with the suppliers of the Freezing Plant came to him subsequent to the completion of the assessement on 9-1-1978. That is why he mentions in the reassessment order dated 21-3-1981 that "Later on, it was found that the Freezing Plant was installed on 27-3-1975 only ..... The assessee by its letter dated 16-9-1976 has, however, admitted that there was no contract agreement with suppliers for the purchase of freezing plant installed on 27-3-1975 and that the order for purchase was placed on 20-6-1974 only." But we have to see whether the ITO, when he completed the original assessment was aware of the implications of the said information or not. The ITOs letter dated 19-8-1976 clearly shows that he was fully aware of its implications. That is why he asked the assessee to furnish details about the date of purchase of the Freezing Plant, date when it was put to use, whether any contract has been entered into for its purchase earlier, etc. So it cannot be said that there was any inadvertence of the ITOs mind on the earlier occasion and an advertence on the later occasion. Even assuming it to be so, in the light of the Supreme Court in the case of Indian & Eastern Newspapers Society v. CIT [1979] 119 ITR 996, how far the decision of the Kerala High Court in Kerala State Industrial Development Corpn. Ltd.s case (supra) holds good, is to be examined by the Full Bench of Kerala High Court or the Supreme Court. The Supreme Court in the above decision (delivered on 31-8-1979) held as under : "The proposition in the decision of the Supreme Court in the case of Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287, to the effect that a case where income had escaped assessment due to oversight, Inadvertence or mistake of the ITO must fall within s. 34(1) (b) of the Indian Income-tax Act, 1922, is stated too widely and travels farther than the statute warrants insofar as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment." Thus, in the circumstances of the case, we hold that the reopening of the assessment is not valid and the CIT (A) was right in annulling the same.