2002 (10) TMI 12 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that any action taken by the Assessing Officer under section 147(b) of the Income-tax Act, 1961, on the basis of an audit report does tantamount to change of opinion and, therefore, action under section 147(b) was not justified? - There is no dispute that at the time of completing the original assessment, the position of the valuation of closing stock was examined by the Assessing Officer. The Assessing Officer could have taken one view or the other. Simply because, there can be another view of the matter, this cannot be a ground for reopening of assessment Held that no referable question of law arises from the order of the Income-tax Appellate Tribunal.

Summary

Issues:
1. Validity of reassessment proceedings under section 147(b) of the Income-tax Act, 1961 based on an audit report.
2. Justification of the Income-tax Appellate Tribunal's decision regarding change of opinion and sustainability of reassessment proceedings.
3. Interpretation of the apex court's decision in Indian and Eastern Newspaper Society's case and its applicability to the present case.
4. Consideration of the decision in A.L.A. Firm v. CIT [1991] 189 ITR 285 in the context of the reassessment proceedings.

Issue 1: Validity of Reassessment Proceedings
The case involved an application under section 256(2) of the Income-tax Act, 1961, seeking direction to the Income-tax Appellate Tribunal to refer a question of law. The assessee partnership firm was dissolved, and the business was taken over by a new firm. The Assessing Officer completed two separate assessments for different periods. The Revenue audit noted a valuation discrepancy in the closing stock at the time of dissolution, leading to the initiation of proceedings under section 147(b) of the Act. The reassessment was completed with an addition to the closing stock value, which was challenged by the assessee.

Issue 2: Tribunal's Decision on Change of Opinion
The Commissioner of Income-tax (Appeals) held the reassessment against the earlier firm as invalid due to improper proceedings initiation. The Department appealed before the Tribunal, which deemed it a case of change of opinion based on the audit note. Citing the apex court's decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, the Tribunal found the reassessment unsustainable. It also acknowledged that the assessee had disclosed all primary facts for assessment completion, ultimately dismissing the Departmental appeal.

Issue 3: Interpretation of Legal Precedents
The Revenue contended that the Tribunal misinterpreted the Indian and Eastern Newspaper Society case, arguing that the audit note merely communicated the application of law on stock valuation. Reference to the A.L.A. Firm v. CIT [1991] 189 ITR 285 was made. However, the court found no referable question of law arising from the Tribunal's order. The court emphasized that the Assessing Officer had considered all relevant material during the original assessment, and the mere existence of an alternative view did not justify reassessment.

Conclusion:
The court rejected the reference application, stating that the position of law on valuing closing stock at cost was well settled. It highlighted that the original assessment had considered the valuation issue, and the Commissioner of Income-tax (Appeals) had already ruled against the reassessment due to jurisdictional flaws. Therefore, no question of law arose from the Tribunal's order, leading to the rejection of the reference application.