2003 (4) TMI 93 - HC - Income Tax

Interest Tax Act 1974 - notices issued under section 10 of the Interest-tax Act 1974 seeking to reopen the assessment Held that the notices are bad because it is a clear case of change of opinion based on the opinion of the audit. Change of opinion does not authorise initiation of proceedings for reopening the assessment.

Summary

Issues Involved:
1. Validity of notices issued under section 10 of the Interest-tax Act, 1974, for reopening the assessment years 1993-94 and 1994-95.
2. Whether the audit objection can form the basis for reopening the assessment.
3. Whether the reopening of assessment constitutes a change of opinion.
4. Legality of the instructions issued by the Central Board of Direct Taxes.

Detailed Analysis:

1. Validity of Notices Issued Under Section 10 of the Interest-tax Act, 1974:
The writ petition challenges two notices dated February 12, 1999, issued under section 10 of the Interest-tax Act, 1974, for reopening the assessment of income for the assessment years 1993-94 and 1994-95. The Joint Commissioner of Income-tax believed that income from interest chargeable to tax had escaped assessment for these years. The court found that the notice for the assessment year 1993-94 was invalid as it was issued beyond the permissible time limit. However, the validity of the notice for the assessment year 1994-95 required further examination.

2. Whether the Audit Objection Can Form the Basis for Reopening the Assessment:
The petitioner argued that the audit objection could not justify the reopening of the assessment. The Revenue's affidavit, affirmed by Mr. Sikdar, stated that the audit had raised an objection, claiming that the assessee was liable to pay interest-tax under the Interest-tax Act, 1974. The court referred to the Supreme Court's ruling in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, which held that an audit party's opinion on the application or interpretation of the law does not constitute "information" for the purpose of reopening an assessment. The court concluded that the audit's legal opinion could not be the basis for issuing the impugned notices.

3. Whether the Reopening of Assessment Constitutes a Change of Opinion:
The court noted that the original assessments for the years 1993-94 and 1994-95 had considered the income from interest and determined that the petitioner was not an investment company. The reopening of the assessment based on the audit's opinion represented a change of opinion, which is not a valid ground for reopening. The court cited ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), emphasizing that a mere change of opinion does not authorize the initiation of proceedings for reopening the assessment.

4. Legality of the Instructions Issued by the Central Board of Direct Taxes:
The court expressed reservations about the legality of the Central Board of Direct Taxes' instructions, which mandated remedial action for all audit objections. However, since this issue was not raised by the petitioner, the court did not make a definitive ruling on it.

Conclusion:
For the reasons stated above, the court quashed the impugned notices. There was no order as to costs, and the prayer for a stay of the judgment's operation was rejected. Urgent xerox certified copies of the judgment were made available to the parties upon request.