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Issues involved: Reopening of assessment u/s 147(b) based on subsequent information from internal audit party, interpretation of legal opinion given by audit party, applicability of section 147(b) for reassessment.
Summary: The reference application u/s 256(2) of the Income-tax Act, 1961 was filed by M/s. Zoraster and Company challenging the reassessment order passed under section 147(b) read with 148. The Commissioner of Income-tax (Appeals) allowed the appeal, citing a change of opinion at the time of original assessment. However, the Income-tax Appellate Tribunal overturned this decision based on information from the internal audit party regarding interest-free advances to parties not considered during the original assessment. The counsel for the assessee argued citing Indian and Eastern Newspaper Society v. CIT that legal opinion from the audit party cannot be the basis for reopening assessment u/s 147(b). On the other hand, the Revenue's counsel contended that the audit party's factual information could legitimately trigger reassessment proceedings under section 147(b). The High Court analyzed the case, noting that the Income-tax Officer had overlooked crucial information from the audit party during the original assessment, leading to discrepancies in the debit balances and interest-free advances. The Court upheld the Tribunal's decision, stating that the audit note provided subsequent factual information within the scope of section 147(b). The Court dismissed the reference application, emphasizing that no question of law arose in this case. The specific question raised by the assessee regarding the audit note constituting subsequent information was deemed irrelevant due to the Income-tax Officer's failure to consider all relevant material during the original assessment. Thus, the application was dismissed.
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