1998 (1) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147(b) of the Income-tax Act.
2. Definition and scope of "information" under Section 147(b) for reopening assessments.
3. Relevance of information from subsequent assessment years.
4. Comparison of wastage claims with similar businesses.
5. Proper accounting for the sale of waste.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147(b) of the Income-tax Act:
The primary issue was whether reassessments made under Section 147(b) of the Income-tax Act were valid in law. The court analyzed whether the Assessing Officer (AO) had "reason to believe" that income chargeable to tax had escaped assessment based on "information" obtained after the original assessment. The court concluded that the reassessment was valid as the AO had gathered new information from both internal records and external sources, which provided a legitimate basis for reopening the assessments.

2. Definition and Scope of "Information" under Section 147(b) for Reopening Assessments:
The court examined various precedents to define "information" under Section 147(b). It referred to several cases, including Ramkrishna Ramnath v. ITO and CIT v. H. Holck Larsen, which established that "information" must be something new and not merely a reappraisal of existing data. The court emphasized that "information" could come from external sources or from a more careful investigation of existing records, as long as it provided a new basis for the AO's belief that income had escaped assessment.

3. Relevance of Information from Subsequent Assessment Years:
The court considered whether information from subsequent assessment years could be used to reopen assessments for earlier years. Citing Virudhunagar Co-operative Milk Supply Society Ltd. v. CIT, the court held that facts discovered during the assessment proceedings of a subsequent year could constitute "information" within the meaning of Section 147(b). The court noted that the modus operandi of the business remained the same across the years in question, making the information from the subsequent year relevant for earlier assessments.

4. Comparison of Wastage Claims with Similar Businesses:
The AO had received information from the Income-tax Officer, Tirunelveli, indicating that another newspaper, Dina Malar, had reported significantly lower wastage percentages for the same assessment years. The court found that this external information, combined with the internal stock book data showing lower actual wastage, provided a reasonable basis for the AO's belief that the assessee's wastage claims were excessive. This justified the reopening of the assessments.

5. Proper Accounting for the Sale of Waste:
The court noted that the assessee had not properly accounted for the sale of waste, leading to substantial understatement of income. This specific data gathered by the AO further supported the belief that income had escaped assessment. The court concluded that the reassessment was not merely a change of opinion but was based on new and relevant information, making the reassessment proceedings valid.

Conclusion:
The court answered the question referred to it in the affirmative, holding that the reassessments made under Section 147(b) of the Income-tax Act were valid in law. The AO had legitimate reasons, based on new information, to believe that income had escaped assessment for the relevant years. The court emphasized that the information could relate to subsequent assessment years and must provide a new basis for the AO's belief, which was satisfied in this case. There was no order as to costs.