Delhi High Court

Coca Cola Export Corpn. vs Income Tax Officer Coca Cola ... on 20 November, 1998

Equivalent citations: 2000 70 ITD 498 Delhi

ORDER

B.M. Kothari, A. M.

This appeal by the assessee is directed against the order dated 14-4-1988 passed by the Commissioner (Appeals)-II, New Delhi, for assessment year 1970-71. The assessee submitted long and argumentative grounds along with the appeal and, therefore, they were required to submit precise and brief grounds in conformity with the rule 8 of Appellate Tribunal Rules, 1963. The assessee accordingly filed revised grounds of appeal along with letter dated 22-9-1998. The grounds of appeal submitted alongwith said letter are reproduced hereunder:-

"1. The Commissioner (Appeals) has erred in rejecting the contention of the appellant that the Income Tax Officer's assessment order dated 8-3-1979 was barred by limitation without dealing with any of these following grounds on which the said contention was based.

The Commissioner (Appeals) has erred in upholding the notice under section 148 and initiation of the re-assessment proceedings on the ground of' appellants ommission and failure to disclose fully and truly all material facts necessary for assessment, even in absence of any such reason mentioned by the Income Tax Officer in the reasons recorded by him for issuing notice under section 148.

The Commissioner (Appeals) has erred in upholding the validity of section 148 notice by referring to and relying upon reasons and material extraneous to the contents of section 148 notice.

The Commissioner (Appeals) even otherwise erred in holding that the appellant had failed or omitted to disclose fully and truly all the material facts necessary for assessment when all the primary facts relating to the deduction of gratuity liability were duly placed before the Income Tax Officer.

The Commissioner (Appeals) has erred in observing that there was no specific scheme for gratuity and only an estimated amount was claimed by the appellant when the gratuity scheme was explained to the Income Tax Officer and a statement showing each employee-wise calculation of gratuity liability was produced before him which was critically examined by him before accepting the same.

The Commissioner (Appeals) has erred in observing that the appellant did not inform the Income Tax Officer that the gratuity liability was not based on actuarial working, when the method of calculating the gratuity liability by the appellant was self-evident from the calculation statement produced before the Income Tax Officer and explained to him.

The Commissioner (Appeals) has erred in assuming that only gratuity liability determined on actuarial basis can be allowed to be deducted, when no such rigid requirement has been laid down by Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC)

The Commissioner (Appeals) has erred in holding that section 36(1)(v) is a specific provision covering deduction of gratuity liability in all situations and that it excludes the operation of section 37(1) of the Act.

The Commissioner (Appeals) has grossly erred in not following the decisions of the Supreme Court in Metal Box Co. of India Ltd v. Their Workmen(1969) 73 ITR 53 (SC), Standard Mills Co. Ltd v. CWT (1967) 63 ITR 470 (SC), and Bombay Dyeing Manufacturing Co. Ltd v. CWT (93 ITR 603) on the question of deduction of gratuity liability.

The Commissioner (Appeals) has erred in rejecting the stand of the appellant that it was only a case of change of opinion by the Income Tax Officer on the same set of facts on which he was not entitled to reinitiate assessment proceedings under section 147(a) of the Act. The Income Tax Officer could not have taken any section under section 147(b), as limitation for doing so had long back expired,

The Commissioner (Appeals) has erred in not restricting the disallowance out of pro-rated home office expenses only to 5 per cent thereof as in the regular assessment.

The Commissioner (Appeals) has erred in not restricting the disallowance out of service charges only to 3 per cent thereof as in the regular assessment.

The Commissioner (Appeals) has erred in conveniently avoiding the question raised by the appellant before him that neither the Reserve Bank of India nor any authority could legally abrogate or amend any provision in the Income Tax Act, 1961.

The Commissioner (Appeals) has further erred in avoiding the question raised by the appellant before him that even the purpose and object of the letters dated 4-5-1973 and 6-11-1974, was not to abrogate or override the provision of Income Tax Act, 1961, but only to regulate the facility for remission of money out of India."

2. The assessee is the Indian branch of the Coca Cola Export Corporation, which is incorporated in USA. It is assessed in the status of "Non-Resident Company", being a company declared by the Central Board of Direct Taxes, as a company as per section 2(17)(iv) of Income Tax Act, 1961 since assessment year 1958-59. The appellant company filed a return declaring total income of Rs. 2,24,36,049 on 30-6-1970.

2.1 Thereafter the assessee submitted a revised return of income for the said year on 27-2-1971 declaring an income of Rs. 2,23,45,299 after deducting the estimated liability of Rs. 90,760 for gratuity for the said year. The relevant extracts from letter dated 27-2-1971 explaining the reasons for submitting the revised return are reproduced hereunder:

"We are sending herewith a revised Income Tax Return of our above clients for the assessment year 1970-71. The only difference between the Return filed earlier and the present one is on account of claim for gratuity to staff members. This being an ascertained liability is admissible according to the recent decision of the Supreme Court in the case of Metal Box Company of India Ltd. and as per Circular of the Central Board of Direct Taxes."

2.2 It appears that during the course of hearing fixed for 5-8-1971 relating to the assessment proceedings for the year under consideration viz. 1970-71, a query was raised with regard to the deduction claimed by the assessee in respect of provision of gratuity payable to the members of the staff. The assessee submitted the following explanation before the assessing officer vide letter dated 11-8-1971:

"Provisions on account of Gratuity to members of the staff had been added back in the original return. However, since the amount in question, is an allowable deduction a revised return claiming such provisions was submitted. Having regard to the accepted Commercial Practice and Trading Principles and the fact that the company maintains its accounts on mercantile basis, such provision on account of gratuity payable to the employees is clearly an admissible deduction. It cannot be said that such a deduction is allowable only in cases of amounts actually expended or paid. The expenses do include liabilities accrued and before the profits and gains of a business are worked out, deduction on that account has to be made. In this connection, we have to draw your kind attention to the decision of the Supreme Court in the case of Metal Box Co. of India Ltd v. Their Workmen (1969) 73 ITR 53 (SC) at pages 61 to 69. We have, therefore, to request you to kindly allow the claim for 'Gratuity' made in the revised return."

2.3 The employee-wise details of provisions for gratuity liability made in the year 1969 was also furnished before the assessing officer. Copies of such details have been furnished at pages 47 to 53 of the Paper Book.

2.4 The assessing officer completed the regular assessment on 21-3-1972 in which he had allowed the deduction in respect of provisions for gratuity as claimed by the assessee.

2.5 The Income Tax Officer reopened the assessment under section 147(a) of Income Tax Act, 1961 (hereinafter referred to as "the Act") and issued a notice under section 148 on 23-3-1974 which was served on the assessee on 27-3-1974.

2.6 A copy of the reasons recorded by the assessing officer for formation of the reasonable belief as required under section 147(a) has been placed at page 131 of the Paper Book, which is reproduced hereunder:

"M/s. Coca-Cola Export Corporation, New Delhi.

Assessment Year : 1970-71

Reasons for the belief that income has escaped assessment.

From the records it appears that deduction on account of provision for gratuity payable amounting to Rs. 90,760 has been allowed as deduction. Having regard to the accepted commercial principles the provision for gratuity is not an ascertained liability; as the amount has neither been paid to employees nor it became payable during the previous year. The assessee has accepted this principle in subsequent year also.

I have, therefore, reasons to believe that income chargeable to tax has escaped assessment.

Start proceedings under section 147(a) and issue notice under section 148.

23-3-1974

Sd/- A.K. Chakravorty

Income Tax Officer

Company Circle-I,

New Delhi."

2.7 The appellant company filed a return of income declaring total income of Rs. 2,25,61,646 on 26-4-1974. The income originally assessed by the assessing officer at Rs. 2,26,01,039 was reduced as a result of the order passed by the Income Tax Appellate Tribunal on 25-4-1975 and the income finally assessed in the original assessment proceedings was Rs. 2,25,61,646. The return of income filed by the assessee pursuant to notice under section 148 was at the same figure of income as had been originally assessed after giving effect of the order of the Income Tax Appellate Tribunal given in relation to the original assessment proceedings.

2.8 Thereafter an assessment under section 144 was made on 19-3-1977. The assessee filed an application under section 146 of the Act on 23-3-1977. The assessment was re-opened vide order under section 146 on 28-3-1977. Thereafter the Income Tax Officer issued notices from time to time under sections 142(1) and 143(2).

2.9 The assessee filed Civil Writ Petition No. 308 of 1979 for cancelling notice under section 148 of Income Tax Act, 1961 on 7-3-1979.

2.10 The assessing officer completed the reassessment order under sections 144/147 on 8-3-1979 on a total income of Rs. 2,67,41,105. In the said ex parte assessment order made under section 144 read with section 147(a), the assessing officer disallowed the following expenses :

Rs.

(a) Gratuity

90,760.00

(b) Head Office Expenses and Service Charges allowed in the original assessment was disallowed in the reassessment order.

45,18,082.00

67,788.00

2.11 The appellant filed Civil Writ Petition No. 377 of 1979 in the Hon'ble Delhi High Court on 22-3-1979 for cancellation of the ex parte reassessment order dated 8-3-1979.

2.12 The Hon'ble High Court vide order dated 18-12-1984 dismissed the Writ Petition Nos. 308 and 377 of 1979 on the ground of delay and in view of the fact that in the meantime a fresh reassessment order has been passed and the assessee has already availed of the remedy of appeal. Thus the petitioner will be in a position to raise all the objections in those proceedings. Copy of the judgment of the Hon'ble High Court has been placed at pages 100 to 128 of the Paper Book.

2.13 The Hon'ble Supreme Court granted special leave petition against the said order of the Hon'ble High Court vide order dated 25-3-1985. The Hon'ble Supreme Court decided the aforesaid matter vide its judgment dated 30-3-1998 in Coca- Cola Export Corpn. v. IT0 (1998) 231 ITR 200 (SC) At pages 206 and 207, the Hon'ble Supreme Court has observed as under :

"For the assessment year 1970-71, the two writ petitions filed by, the appellant were dismissed by the High Court on the ground of leaches as the notice issued under section 148 of the Act was being challenged in the year 1979. The High Court also noticed that the reassessment had been made and the appellant had already availed of the remedy of appeal under the Act. Mr. Salve, learned counsel of the appellant, submitted that the appeals were pending before the Income Tax Appellate Tribunal for the assessment year 1970-71 and that he would not press the present appeals, i.e. Civil Appeal Nos. 1090 of 1985 and 1091 of 1985, pertaining to the assessment year 1970-71 and he would like to withdraw the same having all the questions open for the Appellate Tribunal to decide. We need not, therefore, go into the merits of the dispute in these two appeals and, as proved, would dismiss the same as withdrawn."

3. Shri S. Ganesh, the learned Advocate appearing on behalf of the assessee submitted his arguments mainly in relation to invalidity of the procedings initiated under section 147/148 of Income Tax Act, 1961. He submitted that for assuming jurisdiction under section 147(a) of the Act and to issue notice under section 148, it is necessary on the part of the assessing officer to record his satisfaction about the fulfillment of twin conditions prescribed in section 147(a), namely, (i) that he should have reasons to believe that the income liable to tax has escaped assessment; and (ii) that such income has escaped assessment on account of failure on the part of the assessee to make a full and true disclosure of the material fact at the time of original assessment. In the present case, a perusal of the reasons recorded by the assessing officer clearly indicates that the assessing officer did not record any satisfaction that the alleged escapement of income by way of deduction granted on account of the provisions for gratuity payable amounting to Rs. 90,760 had occurred on account of any omission or failure on the part of the assessee. There is not even a whisper about any alleged failure on the part of the assessee to fully and truly disclosing the material facts relating to the claim for deduction in respect of gratuity payable by the assessee. He drew our attention towards the judgments in Ganga Saran & Sons (P) Ltd. v. ITO (1981) 130 ITR 1 (SC), Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC), Modi Spg. & Wvg. Mills Co. Ltd. v. ITO (1970) 75 ITR 367 (SC) and ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). He further submitted that the facts of the aforesaid case as discussed above, clearly indicate that there was no failure on the part of the assessee to disclose all the material facts in relation to its claim for deduction in respect of gratuity liability. The assessee had made a claim for deduction in respect of said liability by furnishing a revised return alongwith letter dated 27-2-1971 in which full facts and the basis of making such a claim based on the judgment of the Hon'ble Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) and the Circular of the Central Board of Direct Taxes were duly stated. Complete details of the amount payable to each employee were duly furnished in the course of the original assessment proceedings. The assessing officer had raised a query relating to the aforesaid claim on 5-8-1971. The assessee had duly furnished reply during the course of assessment proceedings vide letter dated 11-8-1971. The assessing officer after considering the entire relevant facts and material had granted deduction in respect of gratuity liability. It cannot, therefore, be said that there was any failure on the part of the assessee to disclose truly and fully all the material facts relating to the aforesaid claim for deduction. He, therefore, strongly urged that the proceedings initiated under section 147(a) should be quashed.

3.1 On merits of the claim for deduction in respect of gratuity liability, the learned counsel relied upon the explanation submitted during the course of original assessment proceedings and also the facts and decision stated in letter dated 27-2-1971 and dated 11-8-1971 submitted before the assessing officer alongwith details of such gratuity claim furnished at pages 47 to 53 of the Paper Book.

3.2 The learned counsel submitted that all the aforesaid submissions have been made by him in respect of Ground No. 1 to Ground No. 10 of the summarised grounds of appeals submitted alongwith letter dated 27-9-1998.

3.3 As regards ground Nos. 11 to 14 relating to disallowance out of prorated home expenses and disallowances out of service charges, the learned counsel submitted that these grounds are squarely covered by the judgment of Hon'ble Supreme Court in assessee's own case in Coca-Cola Export Corpn. (supra).

4. The learned Senior Departmental Representative strongly supported the order of the Commissioner (Appeals). He submitted that this case has a chaqued history. The assessee had challenged the validity of proceedings initiated under section 147(a) and issue of notice under section 148 before the Hon'ble High Court and the Hon'ble Apex Court. The Writ Petitions have been finally dismissed by the Hon'ble High Court as well as by the Hon'ble Supreme Court. The assessing officer is not required to elaborately record the reasons. He has clearly recorded his belief in the reasons recorded by him as contemplated in section 147(a). The Tribunal cannot go into the sufficiency of the reasons.

4.1 The learned Senior Departmental Representative also drew our attention towards the order of the Commissioner (Appeals), wherein he has quoted the extracts from the judgment of the Hon'ble High Court at pages 11 to 13 of the order passed by him to support his contention that the proceedings under section 147(a) had been validly initiated.

4.2 On merits of the assessee's claim for grant of deduction in respect of gratuity provisions, the learned Senior Departmental Representative pointed out that in Ground Nos. 5,6 and 7, the assessee has stated that there was a gratuity scheme which is factually incorrect. No Gratuity Scheme existed in the case of the assessee. There was no specific scheme of gratuity payable by the assessee-company. No precise quantification can be made without a proper Gratuity Scheme. He relied upon the judgment in Official Liquidator of the Sakseria Cotton Mills Ltd. v. CIT (I971) 81 ITR 528 (Bom). In that case it was held that provisions for gratuity made in the accounts which were not based on any legal or scientific basis, cannot be allowed as deduction. In the absence of any scheme for payment of gratuity to the employees, any provision made by the assessee cannot be said to have been made on the basis of any legal or scientific basis. It would be only in the nature of a uncertain and contingent liability. He, therefore, strongly supported the order of the Commissioner (Appeals) with regard to the validity of initiating proceedings for reassessment under section 147(a) and also in relation to the confirmation of the disallowance of gratuity provision.

5. As regards Ground Nos. 11 to 14, the learned Departmental Representative submitted that the assessing officer maybe directed to consider the allowability of prorated home expenses and service charges in accordance with the judgment of Hon'ble Supreme Court in Coca-Cola Export Corpn.'s case (supra) in assessee's own case.

6. We have carefully considered the submissions made by the learned representatives of the parties and have gone through all the documents to which our attention was drawn during the course of hearing.

7. We will first like to examine the issue relating to validity of initiation of reassessment proceedings under section 147(a) of Income Tax Act, 1961.

7.1 The copy of reasons recorded by the assessing officer on 23-3-1974 prior to issue of notice under section 148 for assessment year 1970-71 have been reproduced in the earlier part of this order. It is clear from the reasons so recorded by the assessing officer under section 147(a) of the Act that the proceedings for re-assessment had been started on account of the fact that the assessing officer, in the original assessment, had allowed deduction on account of the provision of gratuity payable amounting to Rs. 90,760. It has been observed in the reasons that the provisions for gratuity is not ascertained liability as the amount has neither been paid to employees nor it became payable during the previous year. The assessee has accepted this principle in subsequent year also. It is, however, pertinent to note that the assessing officer has nowhere recorded under section 147(a) that such income chargeable to tax had escaped assessment due to failure on the part of the assessee to disclose fully and truly the material facts relating to such gratuity claim. It is also apparent from the facts discussed hereinbefore that the assessee had made claim for grant of deduction in respect of the gratuity liability of Rs. 90,760 by filing a revised return of income alongwith the forwarding after dated 7-2-971. In the said letter, it was clearly indicated that the deduction in respect of gratuity payable to staff members which is an ascertained liability, is admissible according to the judgment of Hon'ble Supreme Court in the case of Metal Box Co. of India Ltd. (supra) at pages 61 to 69. These facts are clear from the letter dated 27-2-1971 as well as from the statement of assessable income submitted alongwith the revised return. During the course of original assessment proceedings, the assessing officer had raised a specific query in relation to grant of deduction in respect of provision for gratuity. The assessee submitted reply dated 11-8-1971. The assessee also furnished employee-wise complete details of provision for gratuity liability made in the year under consideration. The copies of such details have been furnished at pages 47 to 53 of the Paper Book. All these facts squarely indicate that the assessing officer before allowing deduction in respect of the gratuity liability in the original assessment, had applied his mind and arrived at a conscious decision thereafter for the grant of such deduction.

7.2 A plain reading of section 147(a) as it existed in the relevant year, clearly indicates that two conditions have to be satisfied before an Income Tax Officer can validly, acquire jurisdiction to issue notice under section 148. The first condition is that the Income Tax Officer must have reasons to believe that income chargeable to tax has escaped assessment; (ii) he must have reason to believe that such income has escaped assessment by reason of' the omission or failure on the part of the assessee (a) to make a return under section 139 for assessment year to the Income Tax Officer; or (b) to disclose fully and truly the material facts necessary for his assessment for that year'. Both these conditions must co-exist to confer jurisdiction on the Income Tax Officer. In the present case, the assessing officer while recording reasons under section 147(a) has observed that he has reason to believe that income chargeable to tax has escaped assessment in view of the fact that deduction of Rs. 90,760 on account of provision for gratuity payable has been allowed as deduction. He has nowhere recorded his satisfaction that such income has escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly material facts relating to gratuity claim in the course of original assessment proceedings. The reasons so recorded by the assessing officer on the other hand show that the proceedings under section 147(a) have been initiated in view of the fact that the assessing officer while passing the original assessment order, had allowed such deduction which according to the success or Income Tax Officer [who initiated such reassessment proceedings under section 147(a)], has resulted in escapement of income chargeable to tax from being assessed in the original assessment. It indicates that the successor Income Tax Officer was of the view that his predecessor had wrongly allowed the said deductions in the original assessment.

7.3 The validity of the reasons so recorded by the assessing officer have to be examined in the light of various judgments of the Hon'ble Apex Court. We will, therefore, like to reproduce herein the gist of some of the decisions cited by the learned counsel in the subsequent paras.

7.4 The Hon'ble Supreme Court in the case of Modi Spg. & Wvg. Mills Co. Ltd. (supra) has held as under :

"Section 34 confers jurisdiction upon the Income Tax Officer to issue a notice in respect of the assessment beyond the period of four years, but within a period of eight years, from the end of the relevant year, if two conditions exist - (i) that the Income Tax Officer has reason to believe that income, profits or gains chargeable to income tax had been under-assessed: and (ii) that he has also reason to believe that such 'under assessment' had occurred by reason of either (a) omission or failure on the part of an assessee to make a return of this income under section 22, or (b) omission on failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. These conditions are cumulative and precedent to the exercise of jurisdiction to issue a notice of reassessment ."

7.5 The Hon'ble Supreme Court in the case of Lakhmani Menal Das (Supra), has held as under :

"Two conditions have to be satisfied before an Income Tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond relevant year, viz., (i) the Income Tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income Tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the Income Tax Officer. It is also imperative for the Income Tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, that Commissioner should be satisfied on the reasons recorded by the Income Tax Officer that it is a fit case of the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer of the account books or other evidence from which material evidence could with due evidence have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If an Income Tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment."

7.6 The Hon'ble Supreme Court in the case of Ganga Saran & Sons (P) Ltd. (supra) at page 11 has held as under :

"It is well settled as a result of several decisions of this court that two distinct conditions must be satisfied before the, Income Tax Officer can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfillled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must based on reasons which are relevant and material."

7.7 It may also be imperative to refer to the judgment of the Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC). The Head Note appearing at pages 458 and 459 are also reproduced hereunder :

"An Income Tax Officer acquires jurisdiction to reopen an assessment under section 147(a) only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons - which he must record - to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed, or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but one of the acting on fresh information.

Since the belief is that of the Income Tax Officer, sufficiency of the reasons for forming the belief is not for the court to judge, but it is open to an assessee to establish that there in fact existed no belief or that the belief was not a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income tax Officer and further whether that material had any rational connection with or a live link for the formation of the requisite belief.

It would be immaterial whether the Income Tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation whether the transaction was genuine or not if, on the basis of subsequent information, the Income Tax Officer arrives at conclusion, after satisfying the twin conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment.

By the court: "One of the purposes of section 147 is to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of the original assessment and when that falsity comes to notice, to turn around and say : "You accepted my lie, now your hands are tied and you can do nothing." It would be a travesty of justice to allow the assessee that latitude."

7.8 It is clear from the aforesaid judgment that the assessing officer should record his satisfaction about the fulfillment of the twin conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure of the material fact at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. The satisfaction of both these conditions must be specifically recorded in the reasons recorded by the assessing officer under section 147(a) and only then he can validly start reassessment proceedings under section 147(a) of the Act. The assessing officer may also start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the falsity of the facts disclosed in the original assessment. No such fact has been recorded by the assessing officer in the reasons so recorded under section 147(a) indicating that the facts disclosed by the assessee relating to the gratuity claimed in the original assessment proceedings were false or untrue. The assessing officer has also not indicated anything that any fresh facts had come to light, which were not previously disclosed. The assessing officer has drawn an inference on the basis of material already existing on the records of the original assessment proceedings and has arrived at the conclusion that the deduction was erroneously allowed in the original assessment. This is merely a case of change of opinion of drawing of a different inference from the same facts as were earlier available during the course of original assessment proceedings. There is no material on records which can indicate that the assessee failed truly and fully disclose all the material facts relating to the claim for deduction for gratuity liability in the course of original assessment proceedings or the assessee had made any false or untrue statement at the time of the original assessment. In the light of the facts and circumstances of the aforesaid case, which clearly show that there was no failure on the part of the assessee to make a full and true disclosure of the material facts at the time of the original assessment and that is why it was quite natural that the successor Income Tax Officer who recorded the reasons under section 147(a) could not record his satisfaction about any such failure on the part of the assessee. He has simply recorded that the income chargeable to tax has escaped assessment as deduction in respect of gratuity payable had been allowed as deduction in the original assessment. The recording of such reasons without a specific satisfaction that such escapement of income had resulted on account of failure on the part of the assessee to make a full and true disclosure of the material facts cannot confer jurisdiction to the assessing officer to issue a notice under section 147(a) of the Act.

7.9 In view of the aforesaid facts and decisions, we are of the considered opinion that the proceedings for reassessment initiated by the Income Tax Officer under section 147(a) of the Act and issue of notice under section 148 of the Act are patently invalid and without any jurisdiction. The assessing officer is, therefore, directed to cancel the reassessment order.

8. Since we have quashed the reassessment proceedings initiated under section 147(a) of the Act, we do not consider it necessary to deal with the various other grounds raised in the present appeal. In case the decision on the question relating to invalidity of proceedings initiated under section 147(a) is reversed by the Hon'ble High Court or the Hon'ble Supreme Court, it will be open to the assessee to challenge the merits of various additions and disallowances.

9. In the result, the assessee's appeal is allowed.