1983 (10) TMI 11 - HC - Income Tax

Issues Involved:
1. Validity of the reopening of the assessment under Section 8(b) of the Companies (Profits) Surtax Act, 1964.
2. Inclusion of Rs. 1,30,083 as part of the general reserve for capital computation.
3. Exclusion of Rs. 1,68,000 recommended as dividend from the capital.
4. Exclusion of Rs. 1,06,795, proportionate to Rs. 37,734 dividend income, from the capital.

Detailed Analysis:

1. Validity of the Reopening of the Assessment under Section 8(b) of the Companies (Profits) Surtax Act, 1964:
The central issue in this case was whether the reopening of the assessment under Section 8(b) of the Companies (Profits) Surtax Act, 1964, was valid. The Tribunal found that the Income Tax Officer (ITO) did not record any reasons for reopening the assessment, which is a vital requirement under the Act. The Tribunal noted that the internal audit party's note, which suggested revising the assessment, did not constitute "information" leading the ITO to reasonably believe that chargeable profits had escaped assessment. The Tribunal concluded that the reopening was based on a mere change of opinion, which is not permissible under the Act. The High Court agreed with the Tribunal, stating that the ITO must have information in his possession to justify reopening an assessment. The court cited several precedents, including Maharaj Kumar Kamal Singh v. CIT and Indian and Eastern Newspaper Society v. CIT, to support its conclusion that a mere change of opinion does not constitute valid grounds for reopening an assessment.

2. Inclusion of Rs. 1,30,083 as Part of the General Reserve for Capital Computation:
The Tribunal had earlier accepted the assessee's claim that Rs. 1,30,083 appropriated by the board of directors to the general reserve should be considered part of the general reserve for computing the capital base. This inclusion was crucial for determining the net chargeable profits. The High Court did not revisit this issue in detail, as it was already settled in favor of the assessee by the Tribunal.

3. Exclusion of Rs. 1,68,000 Recommended as Dividend from the Capital:
The ITO excluded Rs. 1,68,000, which was recommended by the directors to be distributed as a dividend, from the capital calculation. The Tribunal found that this issue was not part of the original appeal before it and therefore had not been adjudicated earlier. The High Court noted that the ITO's action to exclude this amount was part of the reopening process, which it found invalid. Therefore, the exclusion of Rs. 1,68,000 was not justified.

4. Exclusion of Rs. 1,06,795 Proportionate to Rs. 37,734 Dividend Income from the Capital:
The ITO also excluded Rs. 1,06,795, which was proportionate to Rs. 37,734, the dividend income not included in the assessment under the Income Tax Act, 1961. The Tribunal held that this issue was also not part of the original appeal and thus had not been decided earlier. The High Court found that the reopening of the assessment to exclude this amount was based on a mere change of opinion and lacked valid information. Consequently, this exclusion was also not justified.

Conclusion:
The High Court affirmed the Tribunal's decision that the reopening of the assessment under Section 8(b) of the Companies (Profits) Surtax Act, 1964, was invalid. The court emphasized that the ITO must have information leading to a reasonable belief that chargeable profits had escaped assessment, which was not the case here. The court answered the reference question in the affirmative, against the Revenue, and awarded costs to the assessee.

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