2004 (12) TMI 674 - HC - Income Tax

Summary

Issues:
1. Validity of re-opening assessment under section 147(b) based on audit objection.
2. Interpretation of the decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996.
3. Allowance of weighted deduction under section 35B of the Income-tax Act, 1961.

Analysis:
1. The case involved a reference by the Income-tax Appellate Tribunal, Allahabad regarding the validity of re-opening assessment under section 147(b) of the Income-tax Act, 1961 for the assessment year 1975-76. The respondent, a registered firm engaged in the business of manufacturing and selling garments, had initially claimed a weighted deduction of &8377; 54,574 under section 35B of the Act for Export Market Development Allowance. Subsequently, based on an audit objection stating that the deduction had been excessively allowed, re-assessment proceedings were initiated. The Appellate Assistant Commissioner set aside the reassessment order, a decision upheld by the Tribunal.

2. The Hon'ble Supreme Court's decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 was crucial in this case. The Court held that the opinion of the audit party on a point of law could not be considered as information for initiating reassessment proceedings under section 147(b) of the Act. The audit report highlighting excessive deduction under section 35B of the Act was deemed to be a legal opinion and not valid information for re-assessment purposes. Therefore, the Income-tax Officer was not justified in initiating reassessment proceedings based on the audit objection.

3. The Tribunal, after considering the legal position established by the Supreme Court, upheld the order of the Appellate Assistant Commissioner canceling the re-assessment under section 147(b) of the Act. The Court concurred with this decision, stating that the audit report did not constitute valid information for re-assessment. Consequently, the question referred to the Court was answered in the affirmative, favoring the assessee and ruling against the Revenue. No costs were awarded in this matter.