K.S. Paripoornan, J.@mdashAt the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following two questions for the
decision of this court :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of the assessment was not
valid ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the payment to the Group Gratuity Scheme
which was not recognised by the Commissioner is an allowable deduction ?
2. The respondent is an assessee to Income Tax. The assessee is a Hindu undivided family running business of manufacture and export of cashew
kernels. We are concerned with the assessment year 1977-78 for which the accounting period ended on March 31, 1977. The original assessment
for the year 1977-78 was completed on December 9, 1980. It was so done on a total income of Rs. 97,350. It was reopened u/s 147(b) of the
Income Tax Act. The reason for reopening the assessment was that purchase tax is not payable for imported raw nuts after September 6, 1976, in
view of the amendment effected in the Central Sales Tax Act and the provision made by the assessee for the period subsequent to September 6,
1976, in the sum of Rs. 1 lakh was not allowable as a deduction. But it was allowed in the original assessment. The Income Tax Officer proposed
to reopen the assessment to disallow the provision so made by the assessee for the period subsequent to September 6, 1976. The Income Tax
Officer also disallowed the payment made to an unrecognised gratuity fund amounting to Rs. 84,559 since the Group Gratuity Scheme was not
recognised by the Commissioner. The Income Tax Appellate Tribunal accepted the plea of the assessee that the assessment was sought to be
reopened only to add back the purchase tax liability and, when that plea did not survive, the question regarding the payment to. the Group Gratuity
Scheme could not have been made the subject-matter of assessment u/s 147(b) of the Act. In other words, the Income Tax Appellate Tribunal
held that the reopening of the assessment was not valid. Since the sole ground on which the notice u/s 147(b) of the Act was issued did not survive
due to the direction of the Inspecting Assistant Commissioner not to add back the purchase tax liability, the Appellate Tribunal further held that, in
view of the decision in Commissioner of Income Tax Vs. High Land Produce Co. Ltd., he assessee is entitled to deduction of the gratuity amount.
It is thereafter that the two questions of law formulated hereinabove have been referred to this court for decision.
3. We heard counsel for the Revenue and also counsel for the assessee. It is true that the assessment was sought to be reopened to add back the
purchase tax liability. The Inspecting Assistant Commissioner directed the Income Tax Officer not to add back the purchase tax liability. However,
in the reassessment, the Income Tax Officer disallowed the amount of Rs. 84,559 being contribution to the Group Gratuity Scheme which was
allowed in the original assessment. The Appellate Tribunal was of the view that the basis for reopening the assessment being only the addition of
purchase tax liability, the Income Tax Officer was not justified in disallowing the gratuity provision in the reopened assessment. We are of the view
that the Appellate Tribunal was in error in holding that the assessing authority cannot bring to charge items of income which had escaped
assessment other than or in addition to that item which had led to the issue of the notice. Once a reassessment proceeding was initiated under the
prevailing law, the reassessment need not be confined to the particular item of income which alerted the Income Tax Officer to reopen the
assessment. In this view of the matter, we answer question No. 1 referred to us in the negative, against the assessee and in favour of the Revenue.
We hold the reopening of the assessment as valid.
4. The Appellate Tribunal relied on Commissioner of Income Tax Vs. High Land Produce Co. Ltd., to hold that the provision for gratuity is
allowable. In that case, this court was concerned with the assessment year 1970-71. We are now concerned with the assessment year 1977-78
for which the accounting period is April 1, 1976, to March 31, 1977. In view of the later statutory provision made in Section 40A(7) of the
Income Tax Act with retrospective effect by the Finance Act of 1975, the decision in Commissioner of Income Tax Vs. High Land Produce Co.
Ltd., may not be applicable to the case on hand. The question whether the payment to the Group Gratuity Scheme is allowable should be decided
in the light of Section 40A(7)(b)(i) of the Income Tax Act. The Appellate Tribunal has not considered that aspect. We, therefore, hold that the
decision of the Appellate Tribunal holding that the payment to the Group Gratuity Scheme is an allowable deduction is an error. We decline to
answer question No. 2 referred to us, but we direct the Income Tax Appellate Tribunal to restore the appeal to file and decide the matter afresh in
accordance with law and in the light of Section 40A(7)(b)(i) of the Income Tax Act.
5. The reference is answered as above.
6. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal,
Cochin Bench.
