R.S. Syal, Accountant Member. - These two cross appeals—one by the assessee and the other by the revenue emanate from the order passed by the Commissioner of income-tax (Appeals) on 17-11-2004 in relation to the assessment year 1997-98.

2. The first grievance of the assessee is against the initiation of reassessment. Briefly stated the facts of the case are that the original assessment was completed under section 143(3) on 25-2-2000. A search action was taken upon the assessee and M/s. Jyothy Laboratories Ltd. on 3-11-2000. The Assessing Officer recorded reasons for escapement of income on 21-3-2003 and issued notice under section 148 dated 26-3-2003 which was served on the assessee on 31-3-2003. In response to that the assessee filed return declaring the same income of Rs. 21,51,960 which was declared in the original return with the remarks that such return was filed under protest. After filing the return the assessee requested for a copy of the reasons recorded for the reopening of the assessment and the same was provided to the assessee. The assessee objected to the initiation of reassessment vide its letter dated 7-11-2003 stating that all the relevant information and documents were filed with the Assessing Officer during the course of original assessment proceedings in which an addition of Rs. 10,84,523 was made. It was claimed that there was no failure on the part of the assessee to disclose all the relevant facts and hence the reassessment be not made. Considering the provisions of section 147 and other relevant sections, the Assessing Officer came to the conclusion that his action was valid. One of the issues which weighed heavily with the Assessing Officer for issuing notice under section 148 was that the assessee had claimed expenditure on advertisement and publicity to the tune of Rs. 99.46 lakhs and as per the agreement entered into between the assessee and Jyothy Laboratories Limited (hereinafter referred to as "JLL"), the assessee was entitled to the reimbursement of the advertisement expenses incurred by it from the company. It was noted from the analysis of the advertisement expenditure that the maximum amount was debited by the assessee in his books of account, whereas JLL had debited only the barest minimum amount. The Assessing Officer noted in the reasons that this issue was also taken up during the block assessment proceedings and it was found that the assessee was actually incurring huge expenditure on advertisement and publicity and only a part of it was reimbursed by JLL resulting into lower income in the hands of the assessee. During the previous year relevant to the assessment year under consideration, the assessee got a reimbursement of Rs. 55.86 lakhs from the company. The assessee did not furnish the basis of reimbursement of expenses. The Assessing Officer compared advertisement expenses claimed by the assessee in his personal books of account and JLL. After a detailed analysis the Assessing Officer observed that the assessee had debited Rs. 583.71 lakhs as expenditure relatable to JLL whereas only reimbursement to the tune of Rs. 55.86 lakhs was made leaving a balance of Rs. 527.85 lakhs which was not reimbursed. It was held that the advertisement expenditure to this extent was not related wholly and exclusively for the business activities of the assessee. He, therefore, disallowed such expenditure and made addition of Rs. 527.85 lakhs in the order passed under section 147 on protective basis. The Assessing Officer further observed on page 12 of the assessment order that the block assessment was completed for the block period from 1-4-1990 to 3-11-2000 vide order dated 30-11-2002 in the case of the assessee in which the similar addition of Rs. 527.85 lakhs was also made. The said addition was deleted by the learned CIT(A) on the ground that such disallowance of expenditure was not covered within the ambit of Chapter XIV-B of the Act. The Assessing Officer opined that since this substantive addition was made in the block assessment which was deleted by the learned first appellate authority and the appeal was yet to be decided by the Tribunal, the addition in the present assessment order was also called for on protective measure. Apart from that one of the reasons for reassessment was that the assessee had purchased a land for Rs. 53,000 in the previous year relevant to the assessment year 1990-91 and had built a building on the same land for which construction cost was paid at Rs. 4,80,015. Depreciation was found to have been claimed on the composite cost including the land, which was not permissible. During the assessment proceedings, the assessee was called upon to file the bifurcation of the land cost and building cost which was not furnished. The assessee placed reliance on the judgment of the Hon’ble Supreme Court in the case of CIT v. Alps Theatre [1967] 65 ITR 377 as per which the assessee was entitled to depreciation on building and land appurtenant to it. The Assessing Officer noted that the assessee had not furnished the area of land which was purchased in 1990 and the area on which building was constructed. He, therefore, estimated the depreciation claimed on the excess land held by the assessee at 50 per cent of the regular rate of depreciation of 10 per cent. Disallowance of Rs. 2,650 was made on this count and added to the total income. Another reason recorded by the Assessing Officer for reassessment, was that a sum of Rs. 5,057 was the amount of interest on refund received by the assessee from the Income-tax department on 21-6-1996, which was not offered for taxation in the return filed by the assessee. The Assessing Officer made addition for this sum also with a narration "Previous year expenditure debited to Profit & Loss Account". Resultantly the total income was computed at Rs. 5.60 crores and odd as against the originally computed income at Rs. 32.36 lakhs.

3. From the copy of Form No. 35, being the appeal memo filed before the ld. CIT(A), it transpires that the assessee challenged initiation of reassessment before the learned CIT(A) and also the addition of Rs. 5,27,85,000 made by the Assessing Officer out of advertisement expenses. However, no ground was taken against the disallowance of addition of depreciation on land and Income-tax refund. The learned CIT(A) upheld the assessment order on the question of legality of the initiation of reassessment proceedings. However, as regards the addition of Rs. 5.27 crores made by the Assessing Officer towards advertisement expenses, the learned CIT(A) reduced it to Rs. 2,82,53,109 thereby allowing relief of Rs. 2,45,31,891. Both the sides are in appeal against their respective stands.

4. Before us the learned Senior counsel for the assessee assailed the action of the authorities below on the initiation of reassessment proceedings. He stated that the Assessing Officer had passed block assessment order on 30-11-2002 inter alia making addition of Rs. 5.27 crores and odd on substantive basis. He contended that the learned CIT(A) deleted the said addition in the appeal against the block assessment order by observing that the disallowance of expenditure was not within the purview of the block assessment and the order passed by the learned CIT(A) was upheld by the Tribunal vide its order dated 17-12-2007. It was contended that the initiation of reassessment proceedings on the same issue, being the disallowance of advertisement expenses, was not valid since such action did not amount to "reason to believe" as envisaged under section 147. He relied on the judgment of the Hon’ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 to bring home the point that the expression "reason to believe" postulates belief and the existence for belief. He emphasized that the expression used in section 147 did not refer to a purely subjective satisfaction of the Assessing Officer. For the same proposition he also relied on the judgments of the Hon’ble Supreme Court in the cases of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 ¹. His second contention was that having originally made the addition in the block assessment, the Assessing Officer was precluded from making the same addition in the reassessment proceedings. He referred to the judgment of the Hon’ble Bombay High Court in the case of Commissioner Of Income-Tax, Poona v. H.N Shindore [1978] 113 ITR 679 which in his opinion was relevant to the issue. He also cited another judgment of the Hon’ble Bombay High Court in the case of Smt. Mira Ananta Naik v. Dy. CIT (Inv.) [2008] 15 DTR (Bom.) 8 to contend that where a block assessment was made pursuant to the search and seizure proceedings which was quashed by the Tribunal, the notice issued under section 148 in respect of the same income was not valid. He also pressed into service the case of Commissioner Of Income-Tax v. Wipro Finance Limited [2008] 10 DTR (Kar.) 281² for contending that the income which was assessed as undisclosed income for the block period could not be assessed even on protective basis in the regular assessment under section 143 for those years. By the reason of these judicial precedents, the learned Senior A.R. contended that the Assessing Officer was not justified in his action in issuing notice under section 148 in respect of the same income which was assessed in the block assessment on substantive basis but deleted by the Tribunal. He stated the assailing of the Tribunal’s order before the Hon’ble High Court by the Department, implied that the revenue was contending that the addition made in the block assessment was in order. It was put forth that in such a situation there could not be any ‘reason to believe’ that income chargeable to tax has escaped assessment for the relevant year.

5. The learned Senior A.R. took us through the copy of reasons recorded by the Assessing Officer for initiating the reassessment proceedings, which are available at page 1 onwards of the paper book. He stated that the Assessing Officer has not made any addition in respect of discussion made by him in paras up to serial number 4. While taking us through para 5 of the reasons, the learned Senior A.R. stated that the return of income for assessment year 1994-95 was processed under section 143(1)(a),by which the refund of Rs. 28,045 was determined and issued vide refund order No. 1653487 dated 21-6-1996. He submitted that the said refund also included interest allowed to the assessee at Rs. 5,057 which was not offered for taxation and that led to escapement of income in the opinion of the Assessing Officer. Referring to page 180 of the paper book, the learned Senior A.R. contended that though the intimation under section 143(1) is dated 31-1-1996 but the cheque which was issued to the assessee towards refund inclusive of interest was dated 21-6-1996. He submitted that the assessee was following mercantile system of accounting and hence such income could have been accrued only on 31-1-1996 which was relevant to the assessment year 1996-97 and not assessment year 1997-98, that was under consideration. As regards depreciation on land which was disallowed by the Assessing Officer, the learned Senior A.R. contended that the land and building was acquired in the period relevant to the assessment year 1990-91 in which the assessee had claimed depreciation on the total cost of land and building which was allowed by the Assessing Officer through assessment order passed under section 143(3). He invited our attention towards the assessment order for assessment year 1990-91, a copy of which is available at page 194 of the paper book. Referring to the provisions of section 32(1) the learned Senior counsel contended that the assessee had claimed depreciation on the written down value of the block of building. He also referred to section 43(6) in which the "written down value" has been defined in the case of block of assets to mean the aggregate of the written down value of all the assets falling within the block of assets at the beginning of the previous year commencing on 1-4-1988 and as adjusted by the increase in the actual cost of any assets falling within the block acquired during the previous year and as reduced inter alia by the amount of depreciation actually allowed on year-to-year basis. He stated that in the scheme of block of assets, once the written down value of a particular block of assets was determined, no change could be made in the subsequent year unless the figure of the first year was altered. While making reference to the judgment of the Hon’ble jurisdictional High Court in the case of Commissioner Of Income-Tax v. Paul Brothers. [1995] 216 ITR 548 ¹ (Bom.), the learned Senior A.R. contended that in this case deduction was allowed under section 80HH in an earlier year and when the revenue sought to reject the claim of deduction in subsequent year, the Hon’ble High Court held that there was no provision for withdrawal of special deduction for the subsequent year unless the relief granted for the original year was withdrawn. He submitted that since the depreciation on building for assessment year 1990-91 onwards has not been disturbed, the Assessing Officer was not entitled to disallow the depreciation in the proceedings under section 147. On a specific query from the Bench the learned Senior A.R. fairly admitted that insofar as the additions on account of depreciation on land amounting to Rs. 2,650 and interest on refund of Rs. 5,057 were concerned, those were not the subject-matter of block assessment. Only the addition on account of advertisement expenditure of Rs. 5.27 crores was the one which was made in the block assessment on substantive basis and in the reassessment on protective basis.

6. The learned Senior A.R. further contended that the notice issued under section 148 was also time barred as per section 149(1)(a) inasmuch as apart from the advertisement expenditure disallowed, the other two items for which addition was made in the present assessment order amounted only to Rs. 7,707, which was less than rupees one lakh. Going by section 149(1)(a), the ld. Senior counsel stated that notice under section 148 could not have been issued after four years from the end of the relevant assessment year. As the notice under section 148 was dated 26-3-2003, he contended that the period of four years expired on 31-3-2002 and hence the notice was barred by limitation.

7. In the opposition the learned Departmental Representative submitted that there was no infirmity in the impugned order by which the initiation of reassessment proceedings has been upheld. He contended that the search action taken upon the assessee conclusively proved that the assessee had not disclosed his income properly in the return filed with the Department. It was stated that the mere fact that the addition was deleted from the block assessment on the technical ground of such addition not sustainable within the scheme of Chapter XIV-B, could not clip the wings of the Assessing Officer from taking a remedial action for bringing to tax an income which was otherwise chargeable to tax and had escaped assessment. He stated that the Assessing Officer was justified in invoking the provisions of section 147 and making the addition on protective basis. He submitted that the protective addition was made with a view to protect the interest of the revenue. He further contended that the block assess- ment proceedings were distinct from the regular assessment. It was further pointed out that the Assessing Officer had prima facie view at the time of initiation of reassessment proceedings that the assessee had claimed deduction for advertisement expenses which was not available to him as per law and hence the learned CIT(A) was justified in holding that the initiation of reassessment was valid. Referring to the interest on refund amounting to Rs. 5,057 which also led to the initiation of reassessment proceedings, the learned Departmental Representative stated that the said amount was chargeable to tax when it was actually granted to the assessee and that event took place on 21-6-1996 when the cheque was issued towards interest on refund. He also supported the action of the Assessing Officer in initiating the reassessment proceedings on the question of depreciation on land amounting to Rs. 2,650 which was wrongly claimed by the assessee. It was stated that the Assessing Officer had made three additions in total out of which the assessee only challenged the first addition, being the disallowance of advertisement expenditure of Rs. 527.85 lakhs before the learned CIT(A). As regards the other two additions, viz., depreciation on land and interest on income-tax refund, the learned D.R. stated that these additions were not made in the block assessment and the assessee had accepted the same and no ground was raised assailing these additions either before the learned CIT(A) or the Tribunal. It was, therefore, contended that the learned CIT(A) was justified in holding that the initiation of reassessment was valid.

8. We have heard the rival submissions in the light of material placed before us and the precedents relied upon. From the facts recorded above it is clear that while finalizing the block assessment, the Assessing Officer made addition of Rs. 527.85 lakhs towards advertisement expenses, which action was finally reversed by the Tribunal allowing relief to the assessee and the department is in appeal before the Hon’ble High Court against the order of the Tribunal. The Assessing Officer initiated the reassessment proceedings even prior to the disposal of appeal by the ld. first appellate authority, by recording the reasons that the deduction of Rs. 527.85 lakhs towards advertisement expenditure was not allowable. Apart from that, the reasons for the initiation of reassessment proceedings also referred to the excess depreciation claimed by the assessee on land and not offering interest on income-tax refund. Here it is pertinent to mention that the Assessing Officer had not passed the present order on protective basis. Rather the order is on substantive basis except for the addition of Rs. 527.85 lakhs only, which has been made on protective basis. Insofar as the initiation of the reassessment proceedings are concerned, which is the subject-matter of the instant adjudication, we find that there is a lot of difference in passing the order on protective basis and passing the order on substantive basis but making one or more additions on protective basis. The Assessing Officer made additions towards depreciation and interest on income-tax refund on substantive basis in the present order and both these additions have been accepted by the assessee as having not been challenged either before the learned CIT(A) or the Tribunal. In this backdrop of facts we have to decide whether the initiation of reassessment proceedings can be held to be valid or not.

9. Before we proceed further to decide about the legality or otherwise of the initiation of reassessment proceedings, it will be apposite to consider the relevant portion of section 147, which is as under :—

"If the Assessing Officer has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year)."

After this main provision of section 147, there is a proviso. Then there are two Explanations, to which we shall refer at the appropriate stage.

10. The ld. Senior AR has objected to the observations of the Assessing Officer at page 1 of the assessment order to the effect that the provisions of section 147 have undergone change with effect from 1-4-1989 and after the amendment, the requirement of recording the reasons in writing prior to the initiation of reassessment was dispensed with. In our considered opinion, the Assessing Officer has not properly gone through the text of section 148. Sub-section (2) of section 148 clearly stipulates that the Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. The relevant provision which was hitherto finding place in section 147, was shifted as sub-section (2) of section 148. The net effect remains the same that the Assessing Officer is required to record his reasons before issuing any notice for reassessment. To this extent we do not approve the view taken by the learned Assessing Officer. However, in our considered opinion, these observations of the Assessing Officer are extraneous inasmuch as he had, in fact, recorded the reasons before initiating the reassessment and a copy of such reasons was also supplied to the assessee at the request of the latter, as is apparent from the assessment order, which fact has not been denied on behalf of the assessee.

11. A preliminary objection has been raised by the learned Senior A.R. about the time limitation. It was stated that on behalf of the assessee that section 149(1)(a) is applicable in the present case and as such notice issued under section 148 after four years from the end of the relevant assessment years was invalid. We are not agreeable with this contention for the obvious reason that the notice was served on the assessee on 31-3-2003 which is within a period of five years from the end of the relevant financial year. Clause (a) of section 149(1) provides that no notice under section 148 shall be issued for the relevant assessment year if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b). In order to decide whether a case falls within the four corners of clause (a), it has first to be ascertained if it falls within clause (b) or not. It is only where a particular case does not fall in clause (b) that it will be considered as falling in clause (a) of section 149(1). Clause (b) of section 149(1) provides that no notice under section 148 shall be issued for the relevant assessment year if four years but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Insofar as the facts of this case are concerned the Assessing Officer has made three additions, that is, one on the protective basis for the disallowance of advertisement expenses to the tune of Rs. 527.85 lakhs and the other two independent additions amounting to Rs. 7,707. If the amount of these three additions is totalled, it comes to much more than the limit of Rs. 1 lakh. However if the first addition is excluded, then the amount is less than Rs. 1 lakh. It is beyond our comprehension as to why the first addition of Rs 527.85 lakhs is liable to go out of the consideration zone in determining the amount of income likely to escape assessment. Here it is relevant to note that the time limit provided under section 149 is for issuance of notice under section 148. At that stage, the view of the Assessing Officer about the amount of income escaping assessment is to be considered. Further the crucial words used in this provision are "likely to amount to". These words are clear indicator of the prima facie view of the Assessing Officer about the amount of income escaping assessment. At the stage of the issuance of notice, the Assessing Officer cannot determine, with exactitude, the amount of the income that will finally result as having escaped assessment. It is only when the order is passed that the precise amount of income that escaped assessment comes to the surface. So in order to determine whether a case falls under clause (a) or (b) of section 149(1), what is relevant to be seen is the prima facie view of the Assessing Officer about the amount of likely income escaping assessment at the stage of the issuance of notice under section 148. Turning to the prevailing factual position we find, from the reasons recorded by the Assessing Officer vis-a-vis the additions actually made in the order in support of those reasons, that the amount of income ‘likely’ to escape assessment is much more than one lakh rupees. Under these circumstances we have no hesitation in holding that the case of the assessee falls under clause (b) of section 149(1). We, therefore, hold that the notice issued by the Assessing Officer under section 148 is not barred by time in terms of section 149(1).

12. Having held that the notice was issued within the permissible time, now it remains to be examined as to whether or not the Assessing Officer had rightly initiated the reassessment proceedings. Coming to the scope of section 147 we observe that the Legislature has employed the expression "reason to believe" about any income chargeable to tax which has escaped for any assessment year, in order to empower the Assessing Officer for resorting to the assessment under section 147, subject to the provisions of sections 148 to 153. As rightly pointed out by the learned Senior A.R., the Assessing Officer cannot assume power to initiate reassessment proceedings on his ipse dixit. In order to take recourse to the provisions of section 147, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The expression ‘reason to believe’ employed in the section, pre-supposes some objectivity of the Assessing Officer and not mere the subjective satisfaction or any suspicion about the escapement of income. We are in respectful agreement with the ratio decidendi of the judgments referred to by the ld. Senior AR, as have been noted in the former part of para 4 of this order. A mere suspicion of the Assessing Officer about the escapement of income cannot justify the action under this section. There is no dispute and there cannot be any that the Assessing Officer cannot reopen the assessment at his whims and fancies. There must be something positive to indicate that the income chargeable to tax has escaped assessment.

13. Explanation 2 to section 147 has widened the scope of assessment or reassessment by providing three clauses in which the income chargeable to tax shall be deemed to have escaped assessment. Clause (a) deals with the situation in which no return of income has been furnished by the assessee although the total income in respect of which he is assessable exceeded the maximum amount which is not chargeable to tax. Clause (b) deals with the situation in which the return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income. Clause (c), which is relevant for our purpose, deals with a situation in which an assessment has been made but income chargeable to tax has been under-assessed or such income has been assessed at too low a rate. Thus it is seen that even if original assessment was finalized under section 143(3) but later on it transpires to the Assessing Officer that some income chargeable to tax has escaped assessment, he can take recourse to the provisions of section 147. Here again there is a rider that the belief of the Assessing Officer about the escapement of income should not be based on the change of his opinion. In other words if while finalizing the original assessment he had applied his mind to a particular item of income or expenditure and accepted the claim of the assessee positively, then he cannot take the assistance of the section 147 for such items unless something new comes to his notice after the completion of assessment which belies the assessee’s claim on that item. Again it is pertinent to mention that there should be positive application of mind by the Assessing Officer on a particular item of income or expenditure so as to bar it from inclusion in the reassessment. Where the information was available before the Assessing Officer in the original assessment but it escaped his attention, then it cannot be said that the said item of income has attained finality so as to merit exclusion in reassessment. Explanation 1 to section 147 makes the things very clear, which provides that the production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure. When Explanation 2 is read in juxtaposition to Explanation 1 and the main provision of section 147, it becomes crystal clear that, subject to other provisions, in a case where the original assessment was framed under section 143(3) and subsequently it comes to the notice of the Assessing Officer that still some income chargeable to tax has escaped assessment, he can get the assistance of the provisions of section 147 provided it does not amount to the change of opinion.

14. From the copy of reasons placed before us we find that the Assessing Officer had inter alia referred to the disallowable depreciation wrongly claimed by the assessee on land along with the assessee not offering interest on income-tax refund for taxation. It has not been demonstrated that the Assessing Officer applied his mind to these two items in the course of original assessment under section 143(3). Further it is an admitted position that these two items were also not the subject-matter of inclusion in the undisclosed income in the block assessment. In our opinion the belief of the Assessing Officer about the escapement of income chargeable to tax, at the time of issuing notice under section 148, in respect of these two items cannot be disturbed. At this juncture it is pertinent to mention that the ld. Senior AR has also pressed into service the first proviso to section 147 as per which where an assessment has been made under section 143(3), then no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the opinion of the ld. Senior AR the assessee had disclosed all the relevant facts fully and truly and hence the notice issued after four years from the end of the relevant assessment year be held to be invalid. We are not convinced with this proposition for the reason that the assessee was allowed interest on the income-tax refund in this year which was not offered for taxation by the assessee. To that extent, it is clear that the assessee failed to disclose fully and truly all material facts necessary for assessment. On the argument of the ld. Senior AR that the assessee was following mercantile system of accounting and hence the interest was taxable in the earlier year, a pertinent query was raised from the Bench if the assessee had offered this interest for taxation in any year, either preceding or current or the succeeding. The ld. Senior AR replied it in the negative. Thus it is clear that the assessee did earn the interest income on income-tax refund, which is otherwise chargeable to tax but failed to offer it for taxation in any year. It is further noted that the Assessing Officer made additions in respect of interest on refund and depreciation on land in the order under section 147 and the assessee did not assail them in the appellate proceedings either before the ld. CIT(A) or us. It, therefore, shows that the assessee accepted that the additions were, in fact, called for. Now it cannot be allowed to turn around and claim that though the additions were rightly made but the initiation of reassessment proceedings was bad on these two counts also. This contention could have merited consideration if the assessee had challenged these additions also on merits simultaneous with the raising of objection against the initiation of reassessment proceedings on this count. The law does not permit a person to both approbate and reprobate.

15. Hardly any authority needs to be cited for the proposition that if the notice under section 148 is sustainable on any of the reasons taken by the Assessing Officer, the initiation of reassessment cannot be declared as invalid. Since the two additions/disallowances qua the depreciation on land the interest on income-tax refund, have been accepted by the assessee, we, therefore, hold that the initiation of reassessment proceedings is valid. The ground raised by the assessee in this behalf is dismissed.

16. The next ground is against the sustenance of the disallowance on account of advertisement expenses. The ld. Senior AR submitted that even if the initiation of reassessment was held to be valid for any other reason, the Assessing Officer was not entitled to consider this item in the reassessment. Before going into the merits of the addition, we will first examine as to whether the initiation of reassessment proceedings could have been done in respect of advertisement expenses added by the Assessing Officer in the block assessment amounting to Rs. 527.85 lakhs. Thereafter we will see that if the initiation of reassessment could not have been done on this issue, was the Assessing Officer still entitled to make disallowance in respect of these expenses while passing the reassessment order, legally as well as on merits.

17. Here it would be relevant to mention the facts on this issue a little more elaborately. The assessee had claimed advertisement and publicity expenses amounting to Rs. 994.63 lakhs and in the order passed by the Assessing Officer under section 143(3) no disallowance was made out of such expenses. The Assessing Officer during the block assessment proceedings came to the conclusion that the entire advertisement expenses could not be allowed as deduction inasmuch as a part of these expenses was towards JLL, from whom it was to get the reimbursement. In his opinion the apportionment of such expenses between the assessee and JLL was called for. At this stage it will be relevant to note that the assessee is proprietor of trade mark "Ujala" in respect of liquid blue/liquid fabric whitener. By virtue of agreement entered into by the assessee with JLL on 23-12-1994 the assessee granted to the User (that is the JLL) a non-exclusive licence to use the said trade mark "Ujala". This licence was initially granted for a period of 10 years which could be renewed as per the terms mutually agreed upon between the parties. The Users were permitted to sell the goods bearing the said trade mark "Ujala" in whole of the Indian Union as also to export such goods as per the terms of clause 10 of the agreement. This use of the trade mark was permitted to JLL on non- exclusive basis as the assessee was also entitled to use this trade mark at his own and/or permit any other manufacturer or trader to use the aforesaid trade mark without any prior permission of JLL as per clause 13 of the agreement. In lieu of making available the trade mark to JLL, the assessee was to receive royalty as per clause 16 of the agreement. Further according to clause 19 the assessee was to ensure continuance of sufficient advertisement of the brand and trade mark. As per clause 16(iii) JLL was to reimburse to the assessee on demand the expenses with reference to the market covered by it and the said sum was to be determined from time-to-time with mutual deliberation and consent. It is an admitted position that apart from making available the trade mark to JLL, the assessee, in his individual capacity, also used the said trade mark. Charts have been prepared at page 12 of the assessment order showing that the assessee made sales in the States of Kerala/Tamil Nadu in his individual capacity at Rs. 2369.71 lakhs in the year in question and in the other areas at Rs. 480.83 lakhs. Thus the total sales effected by the assessee in this year amounted to Rs. 2850.54 lakhs. On the other hand JLL effected sales in the States of Kerala/Tamil Nadu at Rs. 406.25 lakhs by using the trade mark "Ujala" and in other areas at Rs. 805.76 lakhs, thereby making the total of sales at Rs. 1257.01 lakhs. The case of the Assessing Officer, during the block assessment proceedings was that the assessee had not got the reimbursement of expenses on advertisement as per clause 16 of the agreement. He determined a sum of Rs. 583.71 lakhs as having been incurred by the assessee towards JLL, which in his opinion was to be reimbursed to him. It was noticed by him that the assessee had shown reimbursement from JLL only to the tune of Rs. 55.86 lakhs, thereby leaving the balance of Rs. 527.85 lakhs which was not reimbursed to the assessee. The addition for this sum was made by the Assessing Officer in the block assessment order passed on 30-11-2002. When the assessee agitated the block assessment before the learned first appellate authority, the Assessing Officer issued notice dated 26-3-2003 under section 148 inter alia in respect of the advertisement expenditure added by him in the block assessment. It is a matter of record that the Commissioner of Income-tax (Appeals) decided the appeal against the block assessment order vide his order dated 31-3-2003 and deleted the addition of Rs. 527.85 lakhs. Thus it is seen that the Assessing Officer formed his opinion about the alleged escapement of income before passing of the appeal order by the learned CIT(A) against the block assessment. Even from the reasons recorded by the Assessing Officer it is seen from para 9.1 of the reasons that this item was taken up for consideration for reassessment not as per the Assessing Officer’s belief about the escapement of income but as noted by himself that "the assessee has consistently been of the opinion that such disallowance is not warranted in the block assessment being not within the purview of Chapter XIV-B of the Income-tax Act, 1961". Again in para 9.2 of the reasons, the Assessing Officer has noted that the assessee was consistently objecting to the addition made in the block assessment order and it was the opinion of the assessee that the same was not covered under Chapter XIV-B of the Act. From the above discussion it comes to the fore that the Assessing Officer, during the block assessment proceedings, formed his opinion that addition of Rs. 527.85 lakhs was warranted as undisclosed income in the block assessment and he actually made such addition. When the matter was pending before the learned CIT(A), the Assessing Officer changed his opinion and came to the conclusion, on the strength of the assessee’s view that the disallowance of advertisement expenditure was not called for in the block assessment proceedings. The learned Departmental Representative has fairly conceded that the Tribunal deleted the said addition from the block assessment and the Department has carried the matter before the Hon’ble High Court by assailing that the addition was to be made in the block assessment.

18. Under these circumstances it has to be determined whether the action of the Assessing Officer was justified in reopening the assessment on the ground that the advertisement expenditure was liable to be disallowed to the tune of Rs. 527.85 lakhs. We have reproduced the relevant part of section 147 in an earlier para. From the language of this provision it can be seen that the reopening can be done where the Assessing Officer has reason to believe that any income chargeable to tax has "escaped assessment" for any assessment year. Thus the essence of this provision is to arrest the income that has escaped assessment and then bring to tax. In other words the Assessing Officer should have belief about any income escaping assessment. An item of income is said to have escaped assessment if it is not charged to tax. If on the other hand an income has already been charged to tax in the hands of the same assessee and for the same period, albeit in the proceedings under some different section, it cannot be said that an income chargeable to tax has escaped assessment. It cannot be so more particularly when no decision has been given by any appellate authority reversing the addition made by the Assessing Officer. We are at loss to appreciate as to how the disallowance of Rs. 527.85 lakhs out of the advertisement expenses can be a reason to believe for the Assessing Officer that the income has escaped assessment, when he had himself taxed the same in the block assessment of this very assessee for the period which also covers the year in question. Further the taking up the appeal before the Hon’ble High Court against the order of the Tribunal deleting the addition in the block assessment clearly indicates that the department is still of the opinion that the income has been rightly put to tax in the block assessment. Once this is the view of the Department, then how can it entertain a diagonally opposite view that this income has escaped assessment. The Hon’ble Bombay High Court in Smt. Mira Ananta Naik’s case (supra), in almost similar situation, has held that : ‘There is much substance in the contentions of the assessees that the search having resulted in block assessment and the Department having resorted to section 158BA to section 158BC, it cannot be said that the income escaped assessment. In these proceedings the income was assessed and taxed after it was brought to the notice of the Assessing Officer. Merely because the block assessment was not upheld by the authorities under the Income-tax Act, it cannot be reason enough in this case to invoke section 147 of the same. The income has not escaped assessment in the admitted factual position’.

19. From here it follows that there cannot be any initiation of reassessment proceedings on the basis of an item of income or disallowance which has been made in another proceedings of the same assessee for the same year. The ld. DR pleaded that there was one crucial difference in the present case inasmuch as the initiation of the reassessment proceedings on this issue was done by the Assessing Officer by way of abundant caution as it was a case of protective addition and not substantive addition. In simple words his view is that there cannot be any embargo on the power of the Assessing Officer on initiating reassessment proceedings on a protective basis, because that is simply to protect the interest of the revenue. Though from the reasons recorded by the Assessing Officer, it comes up from para 9.2 that he had taken the steps for including this amount in the reassessment with a view to protect the interest of revenue, but he had not specifically spelt out his mind that the addition was to be made on protective basis. It is another matter that while passing the order under section 143(3) read with section 147 addition of Rs. 527.85 lakhs was made on protective basis. Be that as it may, we shall proceed to decide the matter with the presumption that the Assessing Officer reopened the original assessment made under section 143(3) on this count for the purpose of making the disallowance of advertisement expenses on protective basis.

20. We have aforenoted that the fundamental nature of the proceedings under section 147 is to charge to tax an item of income which has escaped assessment. When regular assessment is made and later on it comes to the notice of the Assessing Officer that any income chargeable to tax has escaped assessment, he can take recourse to these provisions for taxing such income on substantive basis. As the very foundation of this provision is to charge to tax some income which has escaped assessment, it is sine qua non that the income now sought to be taxed should be one which earlier escaped assessment while determining the taxable income of the assessee. Once the said income has been put to tax in the hands of the assessee, either under the regular assessment or in the block assessment, the basic requisite condition of the income ‘escaping assessment’, will become wanting. Obviously that item of income or disallowance cannot be termed as income escaping assessment so as to be eligible for inclusion in the ambit of reassessment. Now we have to see to what extent there can be change, if any, in the legal position if the reassessment proceedings are initiated for that item of income on protective basis.

21. Here it will be relevant to note that what is meant by the protective assessment. It is an undisputed position that the protective assessment is not recognized by the Act. At the same time it cannot be said that it is a lien to the income-tax proceedings in as much as it has been widely recognized by the courts. The Hon’ble Supreme Court in the case of Lalji Haridas v. Income Tax Officer & Anothers [1961] 43 ITR 387 , while upholding the action of the Assessing Officer in issuing notice for making protective assessment held that : ‘In cases where it appears to the IT authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant Income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, the appellant would not be justified in resisting the enquiry which is proposed to be held by the respondent No. 1 in pursuance of the impugned notice issued by him against the appellant’. From the above observations of Their Lordships of the Hon’ble Supreme Court, it is apparent that where the Assessing Officer is not fully satisfied about the correct person to be taxed in respect of an income, he is competent to proceed against the other possible person(s) by way of protective measure, who in his opinion, might have earned that income. Thus it is an alternative assessment of another person subject to the finality of the decision in whose hands the assessment is substantively made. In our opinion the scope of the protective assessment cannot be cabined in case of two or more persons only. It may be possible that the Assessing Officer may be sure of only one person having earned an income, but he may be uncertain of the year in which the income was earned, that is year one or year two. In such a case, he can tax such income in both the years, of course subject to the other provisions, in one year on substantive basis and in the other year on the protective basis.

22. Coming back to our point we have to examine whether protective assessment/addition is possible under section 147 in respect of the same person and for the same period. When a regular assessment is made and later on it comes to the notice of the Assessing Officer that some income chargeable to tax has escaped assessment, he can resort to these provisions for reassessment. But if, as is the case under consideration, after the passing of the regular assessment order, the Assessing Officer has passed a block assessment order under section 158BC pursuant to search and seizure proceedings under section 132 and included one income in the block assessment, is he empowered to include the same income, on protective basis, in the reassessment of the original regular assessment for the year, which is included in the block period? Before answering this question, it will be relevant to see the effect of the answer in positive or negative. If the answer is given in affirmative it will mean that the Assessing Officer is empowered to include it in the reassessment on the protective basis. Thus there will be presumption that though the Assessing Officer had included such income in the block assessment, but he still has the reason to believe that this income is also taxable in the regular assessment. This presumption will belie the concept of reassessment which is always there to tax an income which is chargeable to tax but has escaped assessment. In order to give a different colour, the ld. DR. contended that this disallowance was made on protective basis only and hence cannot be equated with the substantive disallowance. We have noted above about the validity and presumption of the protective assessment in general. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables the Assessing Officer to make a protective assessment/addition. Substantive addition/assessment is made in the hands of the person in whose hands the Assessing Officer prima facie holds the opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the revenue, if the Assessing Officer is not sure that the person in whose hands he had made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the Assessing Officer as distinct from his belief which is there is the substantive assessment. Obviously there is no place for ‘doubt’ in the scheme of reassessment, as it has to be belief of the Assessing Officer about the escapement of income, which is the foundation for assessment or reassessment under section 147. Even if for a moment we agree with the ld. DR that the protective addition is different from substantive addition and hence the reassessment proceedings be upheld, we find that ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. In Wipro Finance Ltd.’s case (supra) there was search action on the assessee. Some income was assessed as undisclosed income for the block period. The Assessing Officer made addition for the same in regular assessment on protective basis. When the matter came up before the Hon’ble High Court, it was held that the same income which was assessed as the undisclosed income for the block period, could not have been assessed even on protective basis in regular assessments under section 143 for those years. In the instant case we are concerned with the reassessment, in which there are more restraints on the power of the Assessing Officer. We, therefore, hold that the initiation of reassessment proceedings on this count cannot be upheld.

23. Taking the controversy further, the learned Departmental Representative, contended that even though the Assessing Officer could not initiate reassessment proceedings for disallowance of advertisement expenditure but he was very much empowered to make such addition while finalizing the reassessment because of the language of section 147 as per which the Assessing Officer is also entitled to assessee or reassess "any other income chargeable to tax which has escaped assessment". On the strength of this part of the provision, the learned D.R. submitted that even if the action of the Assessing Officer in initiating the reassessment proceedings for the disallowance of advertisement expenditure was held to be erroneous, yet the Assessing Officer could make this addition as it was "any other income chargeable to tax which has escaped assessment".

24. We are not convinced with the view point of the learned D.R. on this score. Section 147 contemplates making of two types of additions. First are those which are the subject matter of his reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, which is a step anterior to the issuance of notice under section 148. The second type of additions are any other income chargeable to tax which has escaped assessment "and which comes to his notice subsequently in the course of proceedings under this section". So the second type of items of income always emerge posterior to the issuance of notice under section 148 and come to the notice of the Assessing Officer in the course of proceedings under section 147. In order to be covered in the second category, two conditions are required to be cumulatively satisfied—

(a)any other income chargeable to tax which has escaped assessment; and

(b)which comes to his notice subsequently in the course of proceedings under this section.

Therefore it can be seen that the purview of later part of section 147, being any item other than those in respect of which the Assessing Officer had reason to believe that it had escaped assessment, should be such which have not only escaped assessment but which come to his notice subsequently in the course of proceedings under this section. If a particular income has already been charged to tax, it cannot be said that it had escaped assessment. Adverting to the facts of the instant case, we find that when the Assessing Officer included a sum of Rs. 527.85 lakhs in the undisclosed income of the assessee in the block assessment, it cannot be said that the same income escaped assessment for the purposes of section 147. The other necessary ingredient, for the second category of the items of income which can be brought to tax, is that they came to the notice of the Assessing Officer subsequently in the course of proceedings under this section. In other words, if an item of income is constituting one of the reasons for the initiation of the reassessment proceedings, that cannot be said to have come to his notice subsequently in the course of the proceed- ings under this section. We notice from the copy of the reasons that the disallowance of advertisement expenses was very much in the notice of the Assessing Officer when he initiated reassessment proceedings. A substantial part of the reasons for the belief that the income has escaped assessment has been devoted to the discussion on this aspect of the matter. Thus it cannot be said that this item of disallowance came to the notice of the Assessing Officer subsequently in the course of proceedings under this section. It is, therefore, held that both the conditions constituting the basis for roping in "any other income" in the assessment under section 147, are lacking insofar as the addition of Rs. 527.85 lakhs is concerned. Thus the view point of the learned D.R. for the sustenance of disallowance on this view of the matter, is sans merit. We, therefore, hold that the disallowance of Rs. 527.85 lakhs neither could have constituted the reasons for initiating the reassessment, nor have otherwise qualified for consideration in the reassessment.

25. In order to provide completeness to the issue before us we will examine the sustainability or otherwise of this addition on merits also. It has been noted above that the assessee incurred total expenditure on advertisement and publicity to the tune of Rs. 994.63 lakhs. The Assessing Officer bifurcated this expenditure in two parts, as relatable to the business of the assessee and JLL on the basis of sales made by these entities respectively in the States of Tamil Nadu/Kerala and in rest of the country. On that basis the Assessing Officer opined that a sum of Rs. 583.71 lakhs was the expenditure relatable to JLL and the remaining expenditure was incurred by the assessee for his own. The Assessing Officer has not made any addition in respect of the proportionate expenditure incurred by the assessee as relatable to his business. His view point was that a sum of Rs. 583.71 was incurred by the assessee on behalf of JLL, which should have been reimbursed in full. As the assessee got reimbursement of Rs. 55.86 lakhs only, the Assessing Officer made addition for the balance amount of Rs. 527.85 lakhs by holding it as amount relatable to JLL which was not reimbursed and which was not incurred wholly and exclusively for the business activities of the assessee. When the assessee challenged the addition before the learned CIT(A) the ld. first appellate authority came to hold the Assessing Officer was justified in making the addition in principle, but the apportionment of the expenditure towards the assessee’s business and JLL was not appropriately done by the Assessing Officer. In his opinion the apportionment should have been done on the basis of the total sales as a whole independent of particular territory/States. In this way he reduced the addition to Rs. 2.82 crores. Both the sides are in appeal against their respective stands.

26. The learned Senior counsel for the assessee contended that no addition at all was required to be made because the expenditure was incurred wholly and exclusively for the purpose of assessee’s business. In the opposition the learned Departmental Representative, in support of his appeal, contended that the Assessing Officer was reasonable in making the apportionment of the advertisement expenditure towards turnover effected by the assessee and JLL area-wise. He, therefore, prayed that the relief allowed by the learned CIT(A) be withdrawn and the assessment order be restored.

27. We observe from the assessment order that the protective disallowance under section 37(1) of the Act has been made for Rs. 527.85 lakhs primarily for the reason that the assessee was not adequately reimbursed by JLL and secondly this expenditure was not related wholly and exclusively for the business activities of the assessee. Thus this disallowance has two facades. First is the allowability of the expenditure incurred by the assessee on advertisement and second is the getting the reimbursement from JLL.

28. The logic behind the action of the authorities below is that the advertisement expenditure, which is proportional to the sales of JLL, has been incurred by the assessee on behalf of the company and is reimbursable in full and since the part of the such expenditure which is not reimbursed, cannot be considered as incurred wholly and exclusively for the purpose of the assessee’s business. In this process the authorities appear to have lost sight of a very significant factor. As noted above this trade mark was allowed to be used by JLL on non-exclusive basis in lieu of which the assessee was getting royalty income. Clause 19 of the Agreement, which is material for our purpose, states as under :—

"19. The proprietor shall ensure continuance of sufficient advertisement of the brand/the mark and the User shall abide by the quality control standards prescribed by the proprietor after time-to-time inspection by him or by his agents."

The former part of clause 19 of the agreement clearly sets out that the advertisement expenditure was to be incurred by the assessee. The assessee was receiving royalty from JLL at the rate of 25 paise per bottle of "Ujala" sold during the period. The royalty is the business income of the assessee. The proportionate part of the advertisement expenditure incurred by the assessee, which has been held to be relatable to JLL was, in fact, quid pro quo for that part of the royalty embedded within the composite payment, which was in lieu of the advertisement expenditure incurred by the assessee. Without incurring expenditure on the advertisement, as per the terms of the agreement, the User i.e., JLL would have disputed the payment of royalty. Further the rate of royalty is fixed on the basis of units sold. The more and more advertisement results in more and more sales and the resultant higher royalty to the assessee. Thus it can be seen that the earning of the business income in the shape of royalty was dependent upon the incurring of the advertisement expenditure. We fail to see as to how the part of advertisement expenditure, which in the opinion of the authorities below relates to the sales made by JLL, can be held as incurred not wholly and exclusively for business purpose. It is not possible to detach the advertisement expenditure from the royalty income as the latter depends mainly upon the former and the terms of the royalty agreement with JLL cast obligation on the assessee to advertise the brand. We, therefore, hold that the entire advertisement expenditure incurred by the assessee was wholly and exclusively for the purpose of assessee’s business.

29. The learned D.R. contended that the addition was rightly made for the reason that JLL had also taken advantage of the advertisement expenditure incurred by the assessee and hence it cannot be said that the advertisement expenditure was wholly and exclusively for the purpose of assessee’s business. We are not convinced with the submission made on behalf of the revenue for the reason that the advertisement expenditure was, in fact, incurred by the assessee wholly and exclusively for his business. The genuineness of this expenditure has not been doubted by the revenue authorities. Further it is not the case of the Assessing Officer that the agreement with JLL was sham or bogus. Their objection to the allowability in entirety is that JLL had also obtained advantage out of this expenditure and to that extent the character of wholly and exclusively is lost. In our considered opinion so long as the expenditure is incurred wholly and exclusively for the purpose of business, nothing should come in the way of allowing deduction even if some benefit from the expenditure has flown to anybody else. Our view is fortified by the judgment of the Hon’ble Supreme Court in Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261¹. We find that no part of the advertisement expenditure incurred by the assessee can be related to the non-business purpose of the assessee. Under these circumstances we are of the considered opinion that the entire advertisement expenditure incurred by the assessee was "wholly and exclusively" for the purpose of assessee’s business.

30. Now comes the second limb of this issue, by which the ld. CIT(A) has held that the assessee was entitled to reimbursement of advertisement expenses from JLL and to the extent of the non-reimbursement, there has resulted income to the assessee. From the titles of the assessment order, it can be noted that the assessee was following mercantile system of accounting. Under this system of accounting income is charged to tax when it accrues to the assessee. An income is said to accrue when absolute right to receive such income is acquired. The actual receipt of the amount at a later date cannot mar the character of income and escape taxation, if it has accrued. The Hon’ble Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 held that in order to determine whether the income accrued to the assessee it is necessary that he must have right to receive the same or that a right to the income, profits or gains should have become vested in him though its valuation may have been postponed. The learned D.R. cited the judgment of the Hon’ble Supreme Court in the case of Morvi Industries Ltd. v. Commissioner Of Income Tax (Central) Calcutta [1971] 82 ITR 835 to contend that the income had accrued to the assessee when he incurred the advertisement expenditure on behalf of JLL. Not receiving the requisite share from JLL, in the opinion of the ld. DR, resulted into unilateral relinquishment of income after becoming due which could not escape the liability to tax. We have absolutely no doubt in our mind that if a particular income has accrued to the assessee, that cannot go out of the purview of tax net, simply because of the reason that it was subsequently relinquished. It is the time of accrual of income, which attracts taxability and not the later events. Accrual of income takes place when the right to receive the income is finally vested in the assessee. There may be several factors, depending upon the situation to situation, for determining that when the right to receive income vests in the assessee. In order to find out the amount and the time at which the assessee acquired the right to such reimbursement of advertisement expenses, it is relevant to look in to the relevant clauses of the agreement. The authorities below have heavily relied on clause 16 of the agreement between the assessee and JLL for coming to the conclusion that the assessee was entitled to receive the reimbursement of expenses and the income had resulted. The relevant clause of the agreement is reproduced as under :—

"16. (i) The Users shall pay to the Proprietor in respect of this Agreement Technical know-how/Royalty of 25 paise per bottle of UJALA 75 ml. and proportionately higher or lower sum for various volumes of the product sold during each financial year commencing from the date of this Agreement.

(ii) The Users shall pay to the proprietor such advance as and when demanded by the letter which in any case shall not exceed 3 times of the technical know-how/royalty fee paid during the previous financial year in which the demand for advance has been made.

(iii) The Users shall reimburse the proprietor on demand the following expenses which have been specifically spent with reference to the market covered by the Users.

(i )local advertisement like TV/Radio/Printing Cost of POP material etc.

(ii )Marketing staff expenses.

(iii)Any other direct marketing expenses.

The sum shall be determined from time-to-time with mutual deliberation and consent and all the expense should be supported by proper evidence and vouchers."

31. On going through the above clause it is observed that JLL was to reimburse the advertisement expenses on demand by the assessee which were specifically spent with reference to the market covered by JLL. It is further important to mention that the sum to be reimbursed was to be determined from time-to-time with mutual deliberation and consent. From here two things can be seen. The first is the determination of the amount which will be reimbursed to the assessee i.e., with mutual deliberation and consent and second is the timing of making reimbursement of the expenses by JLL to the assessee, which is on demand. It is only when the amount is actually determined by both the sides as reimbursable to the assessee that the assessee’s right to receive such reimbursement will accrue. The event of the accrual of income is not the incurring of expenditure but the determination of the amount with mutual consent and not prior to that. The Assessing Officer has referred to the amount actually received by the assessee towards reimbursement of advertisement expenses at Rs. 55.86 lakhs. Then he proceeded to work out the amount on a proportionate basis which, in his opinion, was incurred by the assessee towards advertisement expenses as relatable to the "Ujala" trade mark. It is not the case of the Assessing Officer that the sum of Rs. 583.71 lakhs was actually determined to be payable by both the sides and had become payable to the assessee, which was not accounted for in the books of account. Unless the amount payable to the assessee is determined and that too with the mutual consent, there cannot be any question of relinquishing or not receiving the same. In our considered opinion the judgment relied upon by the learned D.R. in the case of Morvi Industries Ltd. (supra) does not advance the case of the revenue. We find that the said judgment in the case of Morvi Industries Ltd. (supra) was considered by the Hon’ble Supreme Court in CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 in which the assessee gave up commission after the end of the financial year. No due date was fixed for the payment of commission under the agreement. When the Assessing Officer put to tax the amount of managing commission, the Hon’ble Supreme Court held that the amount receivable could have been ascertained only after the managed company made up its account. It was further laid down that the mere fact that the assessee-company was maintaining its account on the basis of mercantile system could not lead to the conclusion that the commission had accrued to it by the end of the relevant accounting year. Coming back to the facts of the instant case we find that there is no material to suggest, even remotely, that any amount more than Rs. 55.86 lakhs was determined, which the assessee failed to account for. In the absence of determination of the alleged amount reimbursable by JLL to the assessee, no hypothetical exercise is permissible to hold that the amount of Rs. 527.85 lakhs accrued to the assessee as his income, which was not accounted for. We are of the considered opinion that the ld. CIT(A) erred in sustaining the partial addition. We, therefore, order for the deletion of this addition.

32. In the result the appeal of the assessee is partly allowed and that of the revenue is dismissed.