Judgment:
1. In this case, assessments were originally completed under section 143(3) for all the three years. After delivery of the judgment of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337, the Assessing Officer wrote a letter to the assessee-bank asking for details of interest amounts credited to the suspense account for all these three years. Notices under section 154 were also issued by the Assessing Officer for all the three years, on 21-8-1987 seeking to rectify the assessments by including the amounts of interest credited to suspense account in the respective assessments.
Later-on, however, the Assessing, Officer did not proceed further with the rectification proceedings under section 154. On the other hand, he reopened the assessments by issuing notices under section 148 on 19-11-1987. All the assessments were completed under section 143(3) read with section 147 on 4-2-1988. In the re-assessment, the amounts of interest credited to the suspense accounts were added back.
2. In the first appeals, the CIT (Appeals) held that the pronouncement by the Supreme Court will certainly have to be treated as an information for taking action under section 147(a) of the Act, as the Supreme Court formulates the law of the land. Accordingly, he held that the action of the Assessing Officer in initiating proceedings under section 147(a) was valid. The CIT (Appeals) thus upheld the re-assessments for all the years.
3. The assessee has come up in further appeals before us. It has candidly been admitted by the learned counsel for the assessee appearing before us that on merits, the assessee does not have any case inasmuch as in accordance with the abovementioned judgment of the Supreme Court, the amounts of interest credited to the suspense accounts are liable to be treated as income accruing to the assessee.
For assessment years 1983-84 and 1984-85 again, the learned counsel for the assessee has admitted that by using the abovementioned judgment of the Supreme Court as "information", the Assessing Officer could have validly reopened the proceedings under section 147(b). The assessment orders for these two years mention the assessments as having been completed under section 143(3) read with section 147(a) / (b). The learned counsel for the assessee thus submits that if the proceedings be considered as having been completed under section 143(3) read with section 147(b), there is nothing to object to. Hence, we also hold that so far as assessment years 1983-84 and 1984-85 are concerned, the re-assessment proceedings initiated under section 147(b) and re-assessment orders passed consequent thereto have got to be considered as valid. Accordingly, we uphold these assessments.
4. So far as however assessment year 1982-83 is concerned, the matter stands at a different footing. The time-limit for issue of notice in a proceeding under section 147(b) had clearly elapsed for this year on 31-3-1987 whereas the impugned notice under section 148 was actually issued on 19-11-1987 only. Hence, this notice is to be considered as one for initiating the re-assessment proceedings under section 147(a) alone. The learned counsel for the assessee contends in this connection that since there was neither concealment nor lack of disclosure of any material facts at the stage of the original assessment, the Assessing Officer was not empowered to initiate proceedings under section 147(a) for this year.
5. The learned DR has argued in this connection that at the original assessment stage, the assessee had not shown separately the figure of interest credited to suspense account and that on the other hand, the printed account merely showed the following amount : It is thus argued by the learned DR that the act of the assessee in not disclosing the figure of interest credited to the suspense account, at the original assessment stage tantamounts to non-disclosure of material information required for completing the assessment and hence, the Assessing Officer was empowered to reopen the assessment proceeding under section 147(a). He has relied on the judgment of the Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624 wherein the Supreme Court observed as below : "It is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee known all the material and relevant facts-the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or in advertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted." Thereafter the learned DR has also tried to rely on another judgment of the Supreme Court in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 but inasmuch as this particular judgment relates to reopening of proceeding under section 147(b), we are not taking into consideration this particular judgment.
The learned counsel for the assessee has, on the other hand, strongly contended that all the primary facts necessary for making the assessment were there before the Assessing Officer. It is also stated that the Department was very much in knowledge of the fact that the assessee-bank was crediting interest on sticky loans to suspense account and that the issue relating to assessability of such interest was decided in favour of the assessee by the order of the Karnataka High Court dated 2-11-1983 in ITRC No. 298/82 in the assessee's own case for assessment year 1973-74. The learned counsel for the assessee has also relied on the judgment of the Karnataka High Court in the case of Canara Sales Corpn. Ltd. v. CIT [1989] 176 ITR 340/44 Taxman 430 in support of his contention that when the primary facts are disclosed, there is no case for the Department to reopen the proceeding under section 147(a).
6. We find that the letter of the Assessing Officer addressed to the assessee dated 18-12-1986(before reopening the assessment proceeding under section 147), starts with the following paragraph : "It is seen from the Income-tax records that assessee company is operating 'Interest suspense Account' to credit interest on 'sticky' loans. This head of account is not specifically mentioned in the printed accounts by the assessee bank but the operation of the account is discernible from the 'write off' orders of loans which became bad debts. This clearly shows that assessee bank debit the respective parties loan account with interest and credit the same to 'Interest suspense Account' without bringing this accrued interest to the credit of Profit & Loss account even though the assessee is following mercantile system of accounting." It is clear from above that the Assessing Officer was very much aware of the fact that the assessee was operating 'interest suspense account' to credit interest on 'sticky loans'. The Assessing Officer furthermore stated that although the printed accounts did not specifically mention the same, the operation of the account is discernible from the "write off" orders of loans which became bad debts. She furthermore stated that this clearly showed that the assessee-bank was debiting the respective particular loan account with interest and crediting the same to 'interest suspense account' without bringing the accrued interest to the credit of profit and loss account even though the assessee was following the mercantile system of accounting. It is thus clear that the basic facts that the assessee was crediting the interest on sticky loans to suspense account was well-known to the Department even at the stage of completing the original assessment. Merely because the figure was not supplied to the Assessing Officer, it cannot be said that the assessee did not come up with all relevant facts material for the assessment. Since the original assessment had been completed under section 143(3), the Assessing Officer could have very well asked for the relevant details during the course of the said original assessment proceedings. On the other hand, it appears that at the stage of the original assessment, the Assessing Officer was satisfied that the amount credited to interest suspense account was not taxable in view of the order of the Karnataka High Court for assessment year 1973-74 as referred to above. The judgment of the Supreme Court in the case of State Bank of Travancore (supra), therefore, can be considered merely to constitute an information to the Assessing Officer about assessability of such income. Hence, we are of the opinion that on account of the fact that the assessee had disclosed all the primary facts relevant for the assessment, the Assessing Officer did not have jurisdiction to reopen the assessment for assessment year 1982-83 under section 147(a). The reopening of the assessment as well as the re-assessment order is, therefore, to be considered as invalid and illegal.
7. The learned DR has come up with a very curious and interesting plea in this connection. He has relied on the following three decisions to claim that even before the ITAT, a new point of law can be raised for the first time : Thereafter, the learned DR contends that in accordance with the decision of the Supreme Court, interest credited to suspense account was liable to be assessed as income. He relies on the judgment of the Karnataka High Court in the case of Mysore Cements Ltd. v. Dy. CIT to argue that an order ignoring existing decision of Supreme Court or even a decision of the Supreme Court given subsequently, constitutes a mistake apparent from record. Hence, he argues that it was within the powers of the Assessing Officer to include the amount credited to the interest suspense account in the total income of the assessee in a rectification order passed under section 154. Thereafter, he argues that although the Assessing Officer had initiated proceeding under section 154, he however did not complete the said proceedings and instead resorted to a proceeding under section 147(a). The learned DR thereafter argues that since it was possible for the Assessing Officer to complete the rectification proceeding under section 154 within four years from the date of passing the original assessment order, the order actually passed by the Assessing Officer under section 147(a) can be considered to be an order passed under section 154. He relies on the following decisions in support of his claim that it is within the power of the ITAT to consider the order passed under one section as one passed under another if it was possible for the Assessing Officer to have passed the said order validly under the other section : (iii) VR. C. RM. Adaikkappa Chettiar v. CIT [1970] 78 ITR 285 at 302 (Mad.) The Supreme Court observed in the case of L. Hazari Mal Kuthiala's (supra) that the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory. The Madras High Court held in its decision as VR. C. RM. Adaikkappa Chettiar's case (supra) as below : "A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make an order of this nature. If the power is otherwise established, the fact that the source of power has been incorrectly described would not make the order invalid." However interesting the argument put forward by the learned DR may be, we are unable to agree with it. All the decisions as referred to by him relate to matters where the Assessing Officer has purported to exercise his powers under a particular section but has mentioned a wrong section. The Courts have never held that two powers of completely different nature are to be equated and that if the Assessing Officer patently acts under the powers granted to him under a particular section and if it be found that such powers are not available to him under that section, his order would be considered to have been passed under a different section which vests the Assessing Officer power of a completely varied nature. There cannot be any doubt about the fact that the powers of the Assessing Officer to rectify a mistake apparent from record as conferred upon him under section 154 and to reopen a proceeding under section 147(a) are completely of different nature. If the Assessing Officer tends to assume powers under one of these sections, it can never be said that he would have passed the order under the other section unless he actually passes the order by assuming the powers under the said other section. In the instant case, it is a fact that the Assessing Officer issued the notice under section 154 but did not ultimately pass any order under that section which means that he dropped the proceeding under that section. Thereafter only, initiated proceedings under section 147(a). If it be now found that the Assessing Officer did not have any jurisdiction under section 147(a), it is very difficult to hold that the illegal order passed by the Assessing Officer under section 147(a) would have to be considered as a valid order under section 154. The scheme of jurisprudence can never allow an Assessing Officer to have powers under two different provisions in alternative manner. We therefore, reject the contentions of the learned DR about considering the order passed by the Assessing Officer under section 147(a) as one under section 154.
8. So far as assessment year 1984-85 is concerned, the following additional grounds have been raised before us : "4. The Commissioner of Income-tax (Appeals) erred in not adjudicating the grounds of appeal numbered 4, 5 and 6 filed before him which read as under : 4(a) The Inspecting Assistant Commissioner of Income-tax, Assessment I, Bangalore erred in disallowing Rs. 50,000 on ad hoc basis under section 40A(5) of the Income-tax Act, 1961.
4(b) He should have found that at the time of original assessment no amount was disallowed as no amount was required to be disallowed under that section.
5(a) The Inspecting Assistant Commissioner erred in disallowing Rs. 59,14,241 being interest tax not paid as on 31-12-1983.
5(b) The appellant submits that the interest tax was paid within the due dates and hence should not be disallowed under section 43B. 6. The Inspecting Assistant Commissioner erred in disallowing Rs. 1,56,261 as excess depreciation originally allowed." It is stated that these grounds were also raised before the CIT (Appeals) but the CIT (Appeals) did not decide those grounds. We, therefore, remit the matter back to the file of the CIT (Appeals) and direct him to decide these grounds after affording the assessee reasonable opportunity of being heard.
9. In the result, the re-assessment order for assessment year 1982-83 is annulled and the assessee's appeal in this regard is being allowed.
For assessment year 1983-84, the assessee's appeal is dismissed, whereas for assessment year 1984-85, the appeal filed by the assessee is partially allowed to the abovementioned extent.