1. This appeal by the assessee is directed against the order dated 17-2-2003 of the Commissioner (Appeals)-III, Chennai and relates to the assessment year 1990-91.
2. In this appeal the assessee assailed the reopening of the assessment originally made under Section 143(3) of the Income-tax Act, 1961 (hereinafter called 'the Act') on the ground of limitation.
3. We have heard the rival submissions in the light of the materials placed before us and the precedents relied upon. The original assessment was completed under Section 143(3) on 27-3-1992 on 'nil' income. In the computation of total income first the deduction under Section 80HHC was allowed to the extent of Rs. 12,45,994. The balance of Rs. 2,32,758 was set off against the business losses. Total income was computed as 'nil'. The assessment was reopened by the Assessing Officer on 19-8-1998, on the basis of Apex Court decision in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. . In this case, it; was held that the unabsorbed losses of earlier years are to be set off before allowing the deduction under Chapter VI-A. This decision is dated 5-3-1997. It was not available at the time of completion of the assessment. The question posed before the Tribunal is whether the different interpretation given by the Apex Court could be said to be reason for the failure on the part of the assessee so as to bring the case within the ambit of the proviso to Section 147 of the Act.
4. The general conspectus of the main plank of the arguments of the learned counsel for the assessee relates to the fact that there was no failure on the part of the assessee. The limitation for reopening the case has expired on 31 -3-1995. As such the reopening of the case on 19-8-1998 is beyond limitation. As per the mandate of proviso appended to Section 147 no action could be taken under this section after the expiry of four years from the end of the relevant assessment year, unless income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make the return under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year. In the case of Parashuram Pottery Works Co. Ltd. v.ITO , the Apex Court has held that where there has been no omission or failure on the part of the assessee to submit the return or to disclose fully and truly all material facts necessary for assessment, but the Assessing Officer has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment, a notice under Section 148 may be issued by him at any time within four years from the end of the assessment year for which the reassessment is to be made.
5. In the case of Fenner (India) Ltd. v. Dy. CIT , it was held that mere escapement of income is insufficient to justify initiation of action under Section 147 of the Act after the expiry of four years from the end of the assessment year. Such escapment must be by reason of failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Similar view was taken in the case of Revathy CP Equipment Ltd. v. Dy. CIT .
6. It is pertinent to note that at the time of original assessment, deduction under Section 80HHC was allowed to the assessee on the basis of the decision of the Hon'ble Orissa High Court rendered in the case of CIT v. Tarun Udyog . In this case, it was held that the special deduction under Section 80HH is to be allowed on profits of industrial undertaking before deducting the investment allowance under Section 32A of the Act. Following this reasoning, deduction under Section 80HHC was computed by the Assessing Officer. The case was reopened because the Hon'ble Apex Court gave a different interpretation. It was vehemently argued that the change made because of the interpretation of the Apex Court cannot be construed to be reason for the failure on the part of the assessee.
7. The learned departmental representative relied on the decision of the Hon'ble Apex Court in the case of Maharaj Kumar Kamal Singh v. CIT . In this case, it was held that the word 'information' in Section 34(1)(b) of the Indian Income-tax Act, 1922 included information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. Therefore, the decision of the Privy Council was 'information' within the meaning of Section 34(1)(b) and that their decision justified the belief of the Income-tax Officer that part of the appellant's income had escaped assessment for the relevant year.
8. Further he relied on the decision of the Hon'ble jurisdictional High Court in the case of Beverley Estates Ltd. v. CIT . In this case the, assessee owning coffee estates sold certain trees which had been planted and nurtured by it for providing shade to the coffee plants, as standing trees though they had fallen down due to natural causes. The claim of the assessee that the sale proceeds shown in the accounts as 'miscellaneous sales and receipts', were not taxable was accepted by the Assessing Officer. However, later, the Assessing Officer reopened the assessment and assessed the amount to capital gains tax on the basis of the decision of the Hon'ble Supreme Court.
This was confirmed by the Appellate Assistant Commissioner and the Tribunal. On a reference it was held that the Assessing Officer had information only when he came to know that the amount in question represented sale proceeds on the shade trees and as this was after the date of completion of the original assessment, the reopening was valid and the gains arising by the sale of such shade trees was assessable as capital gains.
9. In our opinion these decisions are not relevant to decide the issue.
It is relevant to see the text and context of the judgments before applying it to the facts of the case. These judgments were rendered in the context of information. The law adjudicated by the higher forum could constitute information. But whether the change effected by the higher judicial forum on a particular question of law would amount to reason of the failure on the part of the assessee was not the issue in those judgments. For the present we are concerned with the question as to whether the change effected by the judgment of the Hon'ble Supreme Court could be attributed as of failure on the part of the assessee in the context of escapement of income.
10. The learned departmental representative invited our attention to the decision of the Hon'ble jurisdictional High Court in the case of Precot Mills Ltd. v. CIT . In this case it was held that Explanation 2 to Section 147 of the Act makes it clear that where an assessment has been made and income chargeable to tax has been under assessed or such income has been made the subject of excessive relief or excessive loss or depreciation allowance computed, it could be deemed to be a case where income chargeable to tax has escaped assessment. There is absolutely no dispute on this aspect. The learned counsel for the assessee conceded that this could be treated as escaped assessment. But whether recourse to Section 147 could be made beyond four years is 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 under Section 147 is bad. In the case of CIT v. Foramer France , it was held that if there is no failure to file return or to disclose fully and truly all material facts, issuance of notice beyond the period of four years is barred by limitation. In the case of CIT v. Annamalai Finance Ltd. it was held that Section 147 of the Act does not postulate conferment 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 failure to disclose material facts necessary for the assessment for the issuance of notice beyond the period of four years.
11. 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 Gravabit (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 admired, 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 times, 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 nonexistent. 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 round. 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 147 proceedings were initiated, was not there until the Supreme Court says 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. The assessee followed the law as per the interpretation given at that point of time. His inability to predict a future event cannot constitute as failure so as to put the case within the ken of the proviso to Section 147. We, therefore, reverse the order of the Commissioner (Appeals) on this count and decide the appeal in favour of the assessee.