2000 (7) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reassessment under section 147 of the Income-tax Act, 1961.
2. Whether the audit objection can be considered as "information" under section 147(b) of the Income-tax Act.
3. Whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts.

Issue-wise Detailed Analysis:

1. Validity of reassessment under section 147 of the Income-tax Act, 1961:

The petitioner challenged the reassessment order under section 147 of the Income-tax Act, 1961, arguing that there was no omission or failure on their part to make a return for the relevant assessment year, nor had any income chargeable to tax escaped assessment. The respondents countered that the reassessment was initiated based on an audit objection, which pointed out that certain payments made by the petitioner to another company were for extra commercial considerations, thus leading to income escaping assessment.

2. Whether the audit objection can be considered as "information" under section 147(b) of the Income-tax Act:

The petitioner argued that the communication from the Revenue audit did not constitute "information" under section 147(b) but was merely an opinion. They relied on the Supreme Court judgment in *Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996*, which held that the opinion of an internal audit party on a point of law could not be regarded as information enabling the Income-tax Officer to initiate reassessment proceedings under section 147(b). The respondents cited the case of *CIT v. P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13*, where it was held that reopening a case based on a factual error pointed out by the audit party is permissible.

3. Whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts:

The petitioner contended that all primary facts were disclosed during the original assessment, including the agreements and payments made to the other company. They argued that the reassessment was based on a different conclusion drawn by the Revenue audit on the same set of facts, which amounted to a mere change of opinion and not new information. The court noted that there was no omission or failure on the part of the petitioner to disclose material facts and that the reasons for reassessment provided by the Income-tax Officer were not substantial but rather formal and mechanical.

Judgment Analysis:

The court held that the bare statement in the notice for reassessment did not constitute valid reasons to believe that income had escaped assessment. The court emphasized that reasons for reassessment must be substantial and not merely formal or mechanical, especially when there is no omission or failure on the part of the assessee. The court found that the reassessment was based on the opinion of the internal audit party, which is not permissible under the law as per the judgment in *Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC)*.

The court further distinguished the case from *CIT v. P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13 (SC)*, stating that the latter involved a factual error pointed out by the audit party, whereas the present case involved a legal opinion by the audit party, which cannot be the basis for reassessment.

Conclusion:

The writ application was allowed, and the reassessment proceedings were quashed. The court ruled that the notice issued under section 147(b) was not tenable in law as it was based on an opinion of the internal audit party, which is not considered valid information for initiating reassessment proceedings. The interim order was confirmed, and no costs were awarded.