1996 (11) TMI 13 - HC - Income Tax

Summary

Issues:
Jurisdiction to reopen assessment under section 147(b) of the Income-tax Act.
Validity of cancellation of reassessment made for the assessment year 1974-75.

Analysis:
The judgment pertains to a case where the Income-tax Officer reopened the assessment for the assessment year 1974-75 under section 147(b) of the Income-tax Act, adding certain amounts under sections 40(c) and 35B. The Commissioner of Income-tax (Appeals) upheld the reopening jurisdiction but modified the additions. Subsequently, the Appellate Tribunal questioned the jurisdiction of the Income-tax Officer to reopen the assessment. The Tribunal found that the reopening was based on the earlier year's records, influenced by an audit note, and held the reopening under section 147(b) as invalid. However, the Tribunal did not express an opinion on the addition made under section 40(c).

The Department argued that the Income-tax Officer had the jurisdiction to reopen the assessment based on the present year's records, not solely on the audit note from the previous year. On the other hand, the assessee contended that the audit report from the earlier year could have influenced the Income-tax Officer in reopening the assessment for the current year. The court noted that the Income-tax Officer was influenced by the earlier year's records, which were reopened based on an audit objection pointing out non-application of section 40(c) and excessive weighted deduction under section 35B. The court opined that the Income-tax Officer might have been influenced by the audit note from the earlier year, even though there was no audit objection for the current assessment year.

Referring to the Indian and Eastern Newspaper Society case, the court emphasized that the opinion of an internal audit party cannot be considered as "information" under section 147(b). The Department argued that the audit party merely highlighted the law without interpreting it. However, the court agreed with the Tribunal's finding that the audit party's influence on the Income-tax Officer could not be disregarded. The court concluded that the reassessment under section 147(b) for the current assessment year was invalid, as the Income-tax Officer might have been influenced by the earlier year's audit note. Therefore, the court upheld the Tribunal's decision, ruling in favor of the assessee.