1980 (2) TMI 266 - HC - Income Tax

Summary

Issues:
1. Reopening of assessments based on audit objection report.
2. Jurisdiction of the ITO to reopen assessments under section 147(b) of the IT Act.
3. Classification of receipts as capital or revenue in nature.
4. Interpretation of "information" under section 147(b) of the IT Act.
5. Applicability of Supreme Court decisions in similar cases.

Detailed Analysis:
1. The assessments for the years 1968-69 to 1971-72 were reopened by the ITO based on an audit objection report highlighting certain incomes treated as capital receipts but deemed revenue receipts liable for taxation. The IAC's opinion was sought, leading to the reopening of assessments for the mentioned years.

2. The jurisdiction of the ITO to reopen assessments under section 147(b) of the IT Act was challenged by the assessee. The AAC held that the ITO exercised his own judgment based on existing facts and sought the IAC's views to support his decision. The ITO's change of opinion on the nature of receipts was considered a debatable legal point, leading to the conclusion that income did not escape assessment under section 147(b).

3. The classification of receipts as capital or revenue in nature was a crucial aspect of the case. The ITO added amounts representing earnest money and premiums received by the assessee for defaults committed by land allottees, asserting that they had escaped assessment in the original assessments. The AAC found in favor of the assessee, stating that the change of opinion by the ITO was on a debatable legal point.

4. The interpretation of "information" under section 147(b) of the IT Act was extensively discussed. The Tribunal held that the reopening of assessments was based on information from the audit objection report, which was deemed sufficient grounds for the ITO to exercise jurisdiction. The Supreme Court's decision in a similar case emphasized that information on a point of law must come from a formal source like legislation or a competent judicial authority.

5. The applicability of Supreme Court decisions in similar cases was crucial in determining the legality of the assessments' reopening. The Court referred to past judgments to establish that the ITO's error in judgment, based on the internal audit report, did not warrant the reopening of assessments. The Court emphasized that the ITO's power to reopen assessments should not extend to mere errors discovered during a reconsideration of existing material.

In conclusion, the Court ruled in favor of the assessee, stating that the ITO's change of opinion on the nature of receipts did not justify the reopening of assessments. The Court highlighted the importance of formal sources of information in determining the legality of reopening assessments under section 147(b) of the IT Act.