Law:

Section:

Section 147, read with section 148 of the Income-tax Act, 1961 - Income escaping assessment - General - Assessment years 1960-61 and 1961-62 - Assessee, following, mercantile system of accounting, made provision for payment of excise duty on last day of accounting year and claimed deduction - Assessing officer allowed said deduction in subsequent year - Subsequently, pursuant to AAC's order assessing officer allowed deduction in preceding year - Thereupon, Assessing Officer initiated reassessment for succeeding year and added back said amount - On appeal while AAC upheld reassessment, Tribunal held that reassessment was invalid - Whether income chargeable to tax can only be net income after deduction of expenditure properly allowable and that where any expenditure which is net properly allowable is allowed, not income assessable to tax is pro tanto underassessed and consequently escapes assessment - Held, yes - Whether, in view of aforesaid legal position, instant case squarely came within ambit of clause (a) of Explanation 1 to section 148, and consequently reassessment proceedings under section 147(b) for subsequent assessment year were valid - Held, yes FACTS The assessee was a firm engaged in manufacture of sugar. The original orders of assessment of its income for the assessment years 1960-61 and 1961-62 were made on. 31-3-1964. For the assessment year 1960-61, the assessee had claimed deduction of Rs. 4,49,704 and Rs. 4,18,291 as expenditure on excise duty on stocks of sugar held at its factories on the last day of the relevant previous year. The assessee who had adopted the mercantile system of accounting had made provision in its accounts for payment of such excise duty. The ITO had disallowed this claim for the assessment year 1960-61, but had allowed these two sums as expenditure for the assessment year 1961-62. On appeal the AAC held that these two sums should be allowed as expenditure towards excise duty for the assessment year 1960-61, since it (the assessee), who was following the mercantile system of accounting, had made provision for payment of these two sums towards excise duty in its accounts in the relevant previous year. Consequent on the…

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