DELHI FARMING AND CONSTRUCTION (PVT.) LTD. VS ASSISTANT COMMISSIONER OF INCOME-TAX
2001 P T D 3054
[240 I T R 127]
[Delhi High Court (India)]
Before Arun Kumar and D.K. Jain, JJ
DELHI FARMING AND CONSTRUCTION (PVT.) LTD
Versus
ASSISTANT COMMISSIONER OF
INCOME‑TAX and others
C.W.P. No.3052 and 3053 of 1989 and 681 of 1992, decided on 30/08/1999.
Income‑tax‑‑‑
‑‑‑‑Re‑assessment‑‑‑Failure to disclose material facts necessary for assessment‑‑Duty of assessee is to disclose primary facts‑‑‑Interest on enhanced compensation on compulsory acquisition of land‑‑‑Facts regarding compulsory acquisition, litigation regarding it and amounts received disclosed to AO‑‑No failure to disclose material facts necessary for assessment‑‑‑Re‑assessment proceedings to assess interest on enhanced compensation were not valid‑‑‑Indian Income Tax Act, 1961, 5.147.
It is evident that before proceedings under section 147(a) of the Income Tax Act, 1961, could be initiated, the twin conditions, namely; (i) the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, and (ii)' such escapement was again by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, which have been held to be cumulative, must be satisfied. The fulfilment of both the conditions is thus sine qua non for taking action under section 147(a) and this alone could, confer jurisdiction on the Assessing Officer to re‑open a completed assessment and make a re‑assessment. The obligation of the assessee is to disclose only primary facts and not inferential facts. The primary facts are those which are material in that if taken into account they would have an adverse effect on the assessee for the assessment of greater "income than what has been actually assessed. What facts are material and necessary for assessment differ from case to case. It is not for somebody else, far less the assessee, to tell the Assessing Officer what inferences, whether on facts or law, should be drawn from the primary facts placed before him by an assessee. If the income declared is not acceptable to the Assessing Officer, he is obliged to investigate and bring to tax the correct income. Even the object of Explanation 2 to section 147, casting an obligation on the assessee to bring to the notice of the Assessing Officer the entire material which may be lying embedded in the evidence, cannot be construed to mean that the assessee is also required to advise the Assessing Officer as to what inference he should draw on the facts pointed out to him. If all the material facts are before the Assessing Officer at the time of original assessment, he cannot later on take recourse to section 147(a) of the Act to remedy the error resulting from his own negligence, lack of knowledge or even oversight. Merely because an Assessing officer fails to apply correct principles of law because of his ignorance or casual attitude at the time of original assessment, he, cannot be permitted to later take recourse to section 147(a) to correct his inaction.
Notice of re‑assessment was issued to the assessee on the grounds that (i) the facts regarding the filing of appeals for enhancement of compensation with interest thereon were not disclosed by tire petitioner/assessee in its returns filed prior to the date of order by the Additional District Judge on January 31, 1981 (assessment years 1972‑73 to 1982‑83); (ii) the interest received on January 21, 1982, was not declared in the returns even on accrual basis either with reference to the date of order by the Additional District Judge or from the date of receipt of the amount; and (iii) the interest amount of Rs.1,31,41,287, accrued on August 27, 1984; when the High Court decided the matter in the assessee's favour, was not declared in the return filed. On a writ petition challenging the notice:
Held, that it was not in dispute that the annual accounts were filed with the returns of income for the relevant assessment years. From the assessment orders placed on record; we find that in the order for the assessment year 1971‑72, after recording the facts regarding acquisition, litigation with regard to the title of the lands, and the amount of interest received, the Assessing Officer held that though the assessee had apportioned the income to various previous years but since the amount was actually received by the assessee in February, 1973, the entire amount, was taxable in the assessment year 1974‑75 on receipt basis and he accordingly taxed the same in the said year. The petitioner was claiming as part of establishment expenses, the expenses incurred by it of the litigation with regard to enhancement of compensation but the same was being disallowed as not incidental to earning of interest income. The fact with regard to the acquisition of its lands; the amount(s) and the time when compensation/additional compensation was received and all these facts having been noticed by the Assessing Officers in the assessment orders for the years under consideration, it cannot be said that still the petitioner failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment years. The Legislature amended section 150 of the Act by the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1, 1989, i.e., subsequent to issue of the impugned notice on March 30, 1989. The amendment was not retrospective. The question of taxability of interest on compensation on accrual basis having been settled in CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi), the Assessing Officer was obliged to apply the principles enunciated therein. In the present case, the petitioner‑assessee had disclosed fully and truly all material and relevant facts which were necessary, for its assessment for the relevant assessment years and there was no omission on its part in that behalf. The notices of re?assessment were not valid and were liable to be quashed.
CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi) and Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) ref.
G. C. Sharma, Senior Advocate with Pramod B. Aggarwala, Ms. Paraveena Gautam and Ms. Rachna Katyal for Petitioner.
R.D. Jolly with Mrs. Prem Lata Bansal for Respondent. .
JUDGMENT
D.K. JAIN, J.‑‑‑‑These three writ petitions under Article 226 of the Constitution impugn the validity of notices, all, dated March 30, 1989, issued by the Assistant Commissioner of Income‑tax, Investigation Circle 1(1), New Delhi, under section 148 of the Income Tax Act, 1961 (for short "the Act"), proposing to re‑assess the petitioner in respect of the assessment years 1972‑73 to 1983‑84 to include the amount of interest received by the petitioner on the compensation for acquisition of their lands. All the writ petitions raise common questions of law and even the relief sought being the same, these are dealt with under a common judgment.
To appreciate the controversy involved, it would be necessary to notice the facts in a little greater detail.
The petitioner, earlier known as Delhi Cattle Breeding Farm (P.) Ltd. till February, 1983, was assessed to income‑tax in the status of a company and its accounting period ended on June 30 of each of the relevant year. Certain agricultural lands, in which it was granted bhumidari rights in the year 1959 were acquired under the Land Acquisition Act, 1894, under three awards made by the Land Acquisition Collector on December 19, 1962, March 21, 1963, and February 20, 1984, and possession of pieces of land covered under these awards was taken on January 10, 1963, April 20, 1963, and May 1, 1964, respectively.
Certain disputes arose between the original landowners, the first lessee and the predecessor of the petitioner‑company, claiming ownership of the said agricultural lands and the question was as to who was/were entitled to receive the compensation. The said disputes were finally settled by an order passed by the Supreme Court of India, whereunder the petitioner's predecessor company became entitled to receive 64 per cent. of the 2/3rds of the total compensation and the interest thereon. Consequently, in February, 1973, the predecessor company received a sum of Rs.7,64,787.28 as compensation and another sum of Rs.2,99,844.38 as interest on the said sum. The amount of compensation and interest so received fell in the accounting period ended on June 30, 1973, relevant to the assessment year 1974‑75. Out of the said sum of Rs.2,99,844.38 and Rs.40,948.54 were declared by the predecessor company as income from interest on accrual basis in respect of the assessment year 1971‑72; Rs.37,169.14 in the assessment year 1972‑73; Rs.52,738.81 in the assessment year 1973‑74 and the balance Rs.20,357.91 in the assessment y5gr 1974‑75. In the assessments for the assessment years 1971‑72 to 1973‑74 the amount of interest, declared on accrual basis in respect of the said year, was assessed on protective basis as the whole amount of interest, being Rs.2,99,844.38 was taxed as income for the assessment year 1974‑75 on receipt basis. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) purportedly for concealment of income because the whole of the interest amount of Rs. 2,99,844.38 has been added as income on receipt basis in that year. According to the petitioner, on September 16, 1975, the predecessor of the petitioner compromised the matter with the Income‑tax Department, accepting the assessment of the whole of the interest income in the assessment year 1974‑75 and the Department dropped the said penalty proceedings.
The awards were challenged by the petitioner. The Additional District Judge decided the appeals preferred by the petitioner on January 31, 1981, in their favour and higher compensation with interest thereon was directed to be paid. Not being satisfied, the predecessor of the petitioner filed further appeals against the orders of the Additional District Judge in the High Court on May 29, 1981. The Government of India also filed appeals against the said judgment on July 9, 1981.
In February, 1982, the petitioner's predecessor received the enhanced compensation with interest thereon amounting to Rs.32,63,452.58 which was received by the petitioner unconditionally without any security. During the course of assessment proceedings for the assessment year 1983‑84, the petitioner claims to have informed the Assessing Officer by means of a letter that its predecessor had received the aforenoted amount as interest and enhanced compensation. However, it was pleaded that since the Government was in appeal against the enhancement, the aforesaid amount of interest may not be taxed. The Assessing Officer passed the assessment order in respect of the said year and the amount of interest was not added to the income of the petitioner. By judgment and order, dated August 27, 1984, the High Court accepted the appeal filed by the petitioner and ordered further enhancement of compensation and interest payable thereon. The cross? appeals of the Government of India were dismissed. It is claimed by the petitioner that the fact of the appeal having been decided in favour of the petitioner by the High Court was brought to the notice of the Assessing Officer vide the petitioner's letter, dated August 6, 1986, during the course of assessment proceedings for the assessment year 1 984‑85. In the said letter receipt of Rs.z2,63,452.58 was disclosed. The Assessing Officer passed the assessment order in respect of the assessment year 1984‑85 on September 3C, 1986, noticing therein the receipt of compensation and interest but no part of interest on the compensation was brought to tax in the said assessment year. During the course of assessment proceedings for the assessment year 1985‑86, the petitioner claims to have informed the Assessing Officer again' about the receipt of the aforesaid amount of Rs.32,63,452.58. The Assessing. Officer passed the assessment order in respect of the assessment year 1985‑86 on March 29, 1988, without including therein any part of the interest on compensation for the lands acquired.
On June 26, 1986, the petitioner filed its return of income for the assessment year 198687, inter alia, declaring therein the sum of Rs.32,63,452.58, being the amount of interest received in February, 1982. On September 13, 1988, the Additional District Judge determined the amount of additional enhanced compensation and interest payable thereon, pursuant to the orders passed by the High Court and accordingly on September 27, 1988, additional compensation and interest amounting to, Rs.23,77,042.45 and Rs.1,31;z11,286.80, respectively, were received by the petitioner. On January 6, 1989, the petitioner revised its return for the assessment year 1986‑87, deleting therefrom the aforesaid amount of interest and including therein Rs.3,56,554, being the interest on accrual basis pertaining to the said assessment year, from out of the total sum of Rs.1,31,41,286.80, which had been received by the petitioner in September, 1988, as aforesaid.
The assessment order for the assessment year 1986‑87 was passed on March 3, 1989, accepting the stand of the petitioner in deleting the sum of Rs.32,63,452.58 and including the interest on accrual basis in respect of the said assessment year. Consequently only the amount of interest which had accrued for the relevant previous year was assessed in the assessment year 1986‑87. It may be noticed here that though by that time assessments for the assessment years 1984‑85 and 1985‑86 had been completed, yet the petitioner filed revised returns of income for the assessment years 1984‑85 and 1985‑86 on March 23, 1989, including therein Rs.3,56,556 in each of the two years, being the amounts of interest accrued in respect of the said assessment years.
It is thereafter that the impugned notices were issued under section 148 of the Act in respect of the assessment years 1972‑73 to 1983‑84, on the ground that the petitioner/assessee had failed to disclose to the Assessing Officer the information that it was fighting for enhancement of compensation with interest thereon and also the information with regard to the decision of the High Court in favour of the petitioner. Copies of the reasons recorded by the Assessing Officer for re‑opening the assessments under section 147(a) have been placed on record by the petitioner. The reasons for all the years involved are the same and the relevant portion thereof reads as under:
"The assessee‑company became entitled to interest on enhancement first in January, 1981, as the Additional District Judge had given his award on January 31, 1981. Prior to this order, the assessee? company had been fighting for enhanced compensation with interest thereon. The assessee failed to disclose this information in the return filed for earlier years. The interest was received on January 25, 1982, but still the income so received was not included in the return even on accrual basis either with reference to the date of the order of the Additional District Judge, Delhi, or the date of receipt of the amount. Again the interest of Rs.1,31,41,287 had accrued to the assessee on June 8, 1984, when the High Court decided the matter in the assessee's favour but still the assessee failed to disclose this income in his return."
The action of the Assessing Officer in issuing notices under section 148 of the Act challenged on the ground that the petitioner had made a true and full disclosure of all the primary facts necessary for assessment or the relevant assessment years, inasmuch as all the requisite details regarding the petitioner's filing appeals against the awards and their having challenged the order of the Additional District Judge in further appeal to the High Court for enhancement of compensation had been furnished to the Assessing Officer not only in the accounts for the relevant accounting periods but also during the course of assessment proceedings right from the assessment years 1971‑72 to 1986‑87 and, therefore, the Assessing Officer could possibly have no "reason to believe" that income chargeable to tax for the relevant assessment years had escaped assessment "by reason of omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that year" and thus in the absence of this vital ingredient, a condition precedent for exercising jurisdiction under section 147(a) of the Act, notices issued under section 148 were illegal and without jurisdiction.
On the merits, it is claimed that during the course, of assessment proceedings for the assessment years 1971‑72 and 1972‑73, vide letter, dated July 4, 1974, a specific and categorical stand was taken by the petitioner that the amount of interest on compensation should and could be taxed on accrual basis only. It is also claimed that during the course of assessment proceedings for the assessment year 1971‑72 onwards, the predecessor of the petitioner had placed on record copies of the awards of the Land Acquisition Collector; copies of the orders of the Additional District Judge, enhancing the amount of compensation and the interest were filed during the course of assessment proceedings for the assessment years 1982‑83 and 1983‑84 and the copies of the judgment and order of the High Court, dated August 27, 1984, as amended on December 18,1984, were also filed before the Assessing Officer during the course of assessment proceedings for the assessment year 1984‑85 and onwards. It is asserted that during the course of assessment proceedings for the assessment year 1986‑87 a detailed statement was filed before the Assessing Officer on February 15, 1989, showing therein the break‑up of the amounts of interest in respect of the compensation covered under the three awards, amounting to Rs.1,31,41,286.80 which was received by the petitioner in September, 1988.
In the affidavit in opposition field on behalf of the Assessing Officer it is stated that; (i) in the assessment years 1972‑73 to 1982‑83, the petitioner did not disclose the material fact that it had gone in appeal against the order of the Land Acquisition Collector and had claimed higher compensation and interest, (ii) the interest of Rs.32,63,453 was received by the petitioner on January 31, 1982, as a result of the Additional District Judge?s order and the said interest was assessable on receipt basis in the previous year ended June 30, 1982, i.e., assessment year 1983‑84, but the assessee did not declare any such interest income in its return for the said assessment year and instead in its letter, dated June 27, 1983, claimed that the interest received on the said compensation had not been shown as income during the year since the Government of India had appealed against the award in totality, and (iii) in its balance‑sheet as on June 30, 1982, the petitioner had appended the following note:
"(1)????? During the year, the company had received Rs.62,16,113.39 on account of its share of interest of Rs.32,63,453.10 and compensation of Rs. 29,52,660.29 for agricultural land acquired in the past by the Delhi Administration awarded by the Additional District Judge, Delhi. The company being aggrieved, filed appeal against the award given before the Delhi High Court, the Delhi Administration has also preferred appeal against the part of the award and disputed the award for compensation and interest affecting the company's share amounting Rs.12,08,297.62 and Rs.32,63,453.10 respective No adjustment in respect of the above disputed or non‑disputed receipts has been made. Pending adjustment of the receipts the same has been credited to the compensation suspense account. Necessary adjustment will be made on the decision of appeals. "(emphasis supplied).
It is thus alleged that in the assessment years 1984‑85 and 1985‑86 no interest income was shown in the return of income originally filed and the assessments were completed without including any interest in respect of the compensation though subsequently the petitioner filed revised returns for the said assessment years declaring interest income on accrual basis and further in the return for the assessment year 1986‑87 though the petitioner had originally offered the entire interest income of Rs.32,63,452.58 but subsequently it revised the said return and offered only interest accrued during the relevant accounting period. It is urged that it was incumbent upon the assessee to disclose the material fact that it has gone in appeal against the decision of the Land Acquisition Collector, claiming higher compensation and interest and which it failed to do and on account of the assessee's failure to disclose fully and truly these material facts, the interest income chargeable to tax in the assessment years 1972‑73 to 1983‑84 has escaped assessment.
We have heard Mr. G.C. Sharma, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the respondent‑Assessing Officer.
Since notices under section 148 of the Act were issued on March 30, 1989, undisputably old section 147, as it existed prior to its amendment by the Direct Tax Laws (Amendment) Act, 1987, would be applicable to the facts at hand. Section 147 material for our purpose, reads as follows:
" 147. If‑‑
(a)??????? the Income‑tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income‑tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, ‑income chargeable to tax has escaped assessment for that year, or
(b)??????? notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income‑tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,
he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).
Explanation 2.‑‑‑Production before the Income‑tax Officer of account books or other evidence from which material evidence could with due diligence, have been discovered by the Income‑tax Officer will not necessarily amount to disclosure within the meaning of this section. "
From the aforenoted provisions of law, it is evident that before proceedings under section 147(a) could be initiated, the twin conditions, namely: (i) the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, and (11) such escapement was again by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, which have been held to be cumulative, must be satisfied. The fulfilment of both the conditions is thus, the sine qua non for taking action under section 147(a) and this alone could confer jurisdiction on the Assessing Officer to re‑open a completed assessment and make a re‑assessment.
As noticed above, the main ground on which the proposed action under section 147 is challenged is that since the petitioner had placed before the Assessing Officer all the possible information with regard to acquisition of its lands; award of compensation by the Collector; the petitioner's filing further appeals; enhancement of compensation alongwith interest by the District Judge and the High Court, there was no failure on its part to disclose fully and truly all material facts necessary for assessment for the relevant assessment years, as alleged in the impugned notices and merely because the Assessing Officer overlooked and failed to apply the correct provisions of law, it could not be said that the assessee had failed to disclose fully and truly the material facts necessary for the assessment and as such the notice seeking to reopen the assessment were bad in law.
The question falling for consideration is whether the petitioner had furnished ail the information with regard to the receipt of compensation and interest thereon and whether such disclosure of information was sufficient to disable the Assessing Officer from issuing the impugned notices under section 148 of the Act.
In Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191, the locus classicus on the subject and heavily relied upon by Mr. Sharman, learned senior counsel for the petitioner, the Supreme Court held that the obligation of the assessee is to disclose only primary facts and not inferential facts. The primary facts are those which are material in that if taken into account they would have an adverse effect on the assessee for the assessment of greater income than what has been actually assessed. What facts are material and necessary for assessment differ from case to case. The question whether there is a disclosure or not within the meaning of section 147(a) also depends on the facts and circumstances of each case and is also required to be tested on the anvil of Explanation 2 to section 147, which provides that mere production of evidence before the Assessing Officer would not per se be enough and there may be an omission or failure on the part of the assessee to make full and true disclosure if some material evidence for the assessment lay embedded in the evidence produced, which on the due diligence the Assessing Officer could have discovered but did not. At the same time, as observed by the Supreme Court in Calcutta Discount Company's case (1961) 41 ITR 191, it is not for somebody else, far less the assessee, to tell the Assessing Officer what inferences, whether on facts or law, should be drawn from the primary facts placed before him by an assessee. If the income declared is not acceptable to the Assessing Officer, he is obliged to investigate and bring to tax the correct income. Even the object of Explanation 2 to section 147, casting an. obligation on the assessee to bring to the notice of the Assessing Officer the entire material which may be lying embedded in the evidence, cannot be construed to mean that the assessee is also required to advise the Assessing Officer as to what inference he should draw on the facts pointed out to him. If all the material facts are before the Assessing Officer at the time of original assessment, he cannot later on take recourse to section 147(a) of the Act to remedy the error resulting from his own negligence, lack of knowledge or even oversight. This is the settled position in law.
As noticed above, the stand of the Assessing Officer is three‑fold namely, (i) the facts regarding the filing of appeals for enhancement of compensation with interest thereon were not disclosed by the petitioner/assessee in its returns filed prior to the date of order by the Additional District Judge on January 31, 1981 (assessment years 1972‑73 to 1982‑83). (ii) the interest received on January 21, 1982, was not declared in the returns even on accrual basis either with reference to the date of order by the Additional District Judge or from the date of receipt of the amount; and (iii) the interest amount‑of Rs.1,31,41,287, accrued on August 27, 1984, when the High Court decided the matter in the assessee's favour, was not declared in the return filed.
To controvert the stand of the Assessing Officer, the petitioner has filed rejoinder‑affidavit, annexing therewith the extracts of the directors' report, balance‑sheet and profit and loss account, stated to be forming part of the returns of income for the relevant assessment years. Copies of assessment orders for the assessment years 1971‑72 and 1974‑75 to 1984‑85 and 1986‑87 have also been placed on record. It will be useful to extract herein the relevant portion of the annual accounts for the year ended June 30, 1973:
"Extract of directors' report:
As you will have noticed from the profit and loss statement, the company has received Rs.7,45,109.62 paise on account of company's share in compensation for land acquired by the Delhi Administration which has been capitalised and Rs.2,99,844.38 paise as interest on the said amount of compensation. In view of uncertainly about the position of income‑tax liability on the interest income, which relates to several past years, no provision for tax has been made in the accounts for the year.
Extract of balance‑sheet:
Note: 1. The company has made reference petition under section 18 of the Land Acquisition Act for enhancement of compensation which is still pending for decision in the. Court of Additional District Judge, Delhi, and is undetermined (emphasis added by us).
Extract of profit and loss account:
Note: Interest on compensation for land for the accounting year ended on June 30, 1973, is Rs.20,357.91 while the balance Rs.2,79,486.47 is on account of interest for previous years from August 9, 1965 to June 30, 1972."
A similar note with regard to the pendency of reference under section 18 of the Land Acquisition Act appears in the annual report for the period ended June 30, 1980. In its annual accounts for the period ended June 30, 1981, the following note was appended:
"Note: On company's reference petition under section 18 of the Land Acquisition Act for enhancement of compensation the Court o1 Additional District Judge, Delhi, has given its judgment, but the company being aggrieved with the order, has preferred an appeal before the High Court at Delhi The extent of increase m compensation receivable in terms of judgment of the Additional District Judge Delhi, has not been worked out." (emphasis added) ‑‑
The amount of enhanced compensation with interest having been received by the petitioner in February, 1982, the following note was given in the balance‑sheet for the period ended June 30, 1982.
"Notes Forming part of Accounts:
During the year the company has received Rs.62,16,113.39 on account of its share interest of Rs.32,63,453.10 and compensation Rs.29,52,660.29 for agricultural land acquired in the past by the Delhi Administration awarded by the Additional District Judge, Delhi. The company being aggrieved, filed appeal against the award given before the Delhi High Court; The Delhi Administration has also preferred appeal against the part of the award and disputed award for compensation and interest affecting company's share amounting to Rs.12,08,297.62 and Rs.32,63,453.10, respectively. No adjustment in respect of the above disputed or non‑disputed receipts has been made. Pending adjustment of the receipts the same has been credited to compensation suspense account. Necessary adjustment will be made on decision of appeals."
It is not in dispute that the said annual accounts were filed with the returns of income for the relevant assessment years. From the assessment orders placed on record, we find that in the order for the assessment year 1971‑72, after recording the fact regarding acquisition, litigation with regard to the title of the lands, and the amount of interest received, the Assessing Officer held that though the assessee had apportioned the income to various previous years but since the amount was actually received by the assessee in February 1973, the entire amount was taxable in the assessment year 1974‑75 on receipt basis and he accordingly taxed the same in the said year. As noted above, this order was not challenged by the petitioner and has, therefore, attained finality. It appears that the petitioner was claiming as part of establishment expenses, the expenses incurred by it on the litigation with regard to enhancement of compensation but the same was being disallowed as not incidental to earning of interest income. In the assessment order for the assessment year 1975‑76, the Assessing Officer observed thus:
"It is on record that the assessee‑company has preferred an appeal against the award of compensation for agricultural lands owned by the company and acquired by the Government and it is vigorously pursuing the matter in the Courts. It is, therefore, obvious that the entire establishment expenses claimed cannot be incidental to earning of interest income." (emphasis' added)
Following this order similar disallowances were made consistently for the assessment years 1976‑77 to 1982‑83, which shows that the Assessing Officer was fully aware of the facts that the assessee is in litigation with respect to enhancement of compensation.
We find that having disclosed every material fact with regard to the acquisition of its land; the amount(s) and the time when compensation/additional compensation was received and all these facts having been noticed by the Assessing Officer in the assessment order for the years under consideration, it cannot be said that still the petitioner failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment years. For creating the present situation, the Department has to blame itself for the failure of its officers to apply the correct principles of law to the facts disclosed by the petitioners. It bears mention that conscious of this lacuna in the Act, the Legislature amended section 150 of the Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April. 1, 1989, i.e., subsequent to issue of impugned notice on March 30, 1989. We feel that the said amendment being substantive, the contention of learned counsel for the Revenue that it should be applied with retrospective effect is stated to be rejected.
The view we have taken finds support from Calcutta Discount Co.'s case (1961) 41 ITR 191 (SC), and other subsequent decisions on the issue, in the light of which it cannot be said that in the instant case the petitioner ?assessee has failed to disclose fully and truly all the relevant facts necessary for its assessment for the relevant assessment years. In fact the main ground on which the impugned notices are based, namely, the assessee had failed to disclose the information that "it had been fighting for enhanced compensation with interest thereon" is belied from the annual account admittedly forming part of the returns and the afore‑extracted observations in the assessment orders themselves. It is not only the right but the duty of an Assessing Officer to see each item of income and expenditure reflected in the accounts of an assessee and consider whether these disclose the true state of affairs and if not satisfied, he is not bound to accept the same and is required to bring to tax the correct income. We feel that merely because an Assessing Officer fails to apply the correct principles of law because of his ignorance or casual attitude at the time of original assessment, he cannot be permitted to later take recourse to section 147(a) to correct his inaction like in the present case. In so ar as this Court is concerned, the question of taxability of interest on compensation on accrual basis having been settled in CIT v. Deoki Nandan & Sons (1982) 138 ITR 225 (Delhi), the Assessing Officer was obliged to apply the principles enunciated therein.
Under the circumstances we are constrained to hold that the reasons assigned by the Assessing Officer to issue the impugned notices do not fulfil the aforenoted statutory pre‑conditions necessary for issuance of such notices. We are of the view that in the present case the petitioner‑assessee had disclosed fully and truly all material and relevant facts which were necessary for its assessment for the relevant assessment years and there was no omission on its part in that behalf. Having found so we have no option but to quash all the impugned notices issued under section 148 of the Act and we order accordingly.
Consequently all the petitioners are allowed and the rule is made absolute but with no order as to costs.
M.B.A./306/FC?????????????????????????????????????????????????????????????????????????????????? Petition allowed