1982 (7) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Whether the inspection notes of the Inspecting Assistant Commissioner (IAC) and the note of the inspector constitute "information" within the meaning of section 147(b) of the Income-tax Act, 1961.
2. Whether the Tribunal was right in not giving a reasonable opportunity to the assessee for making out a case for allowance of fair estimate of interest.

Detailed Analysis:

Issue 1: Interpretation of "Information" under Section 147(b)
The primary issue revolves around whether the inspection notes of the IAC and the note of the inspector can be considered "information" under section 147(b) of the Income-tax Act, 1961, thus justifying the reopening of the assessment.

- Facts and Background: The assessee, an individual with income from various sources, had his assessments for the years 1961-62 to 1963-64 reopened by the Income Tax Officer (ITO) under section 147(b) on the basis that excessive interest had been allowed as a deduction in the original assessments. The ITO relied on inspection notes from the IAC which indicated that the borrowings were partly used for personal expenses, leading to an excessive allowance of interest.

- Tribunal's Findings: The Tribunal upheld the reopening of the assessments, considering the inspection notes as "information" under section 147(b). It also found the ITO's revised interest disallowance reasonable due to the lack of correlation shown by the assessee between interest payments and investments.

- Court's Analysis: The court examined the scope and ambit of "information" under section 147(b) by referring to various precedents, including:
- R.K. Malhotra, ITO v. Kasturbhai Lalbhai: The Supreme Court had held that a report from the audit department could constitute "information" under section 147(b).
- Indian and Eastern Newspaper Society v. CIT: The Supreme Court overruled previous decisions and held that the opinion of the audit party on a point of law could not be regarded as "information" for initiating reassessment proceedings under section 147(b).

- Conclusion: Applying the latest pronouncement from the Supreme Court, the court concluded that the reopening of assessments based on the IAC's inspection notes did not constitute "information" as per section 147(b). The court emphasized that the ITO was already aware of the facts during the original assessment and had consciously adopted an estimate for interest disallowance. The inspection notes merely indicated a change of opinion and did not bring any new material or information to light. Therefore, the reopening of assessments was deemed unjustified.

- Judgment: The court answered the first question in the negative, ruling that the inspection notes did not constitute "information" under section 147(b), and thus, the reopening of assessments was not justified.

Issue 2: Opportunity for Assessee to Make Out a Case for Allowance of Fair Estimate of Interest
Given that the first issue was decided in favor of the assessee, the second issue concerning whether the Tribunal was right in not giving a reasonable opportunity to the assessee for making out a case for allowance of fair estimate of interest became moot.

- Judgment: The court did not address the second question, as it was contingent on the first issue.

Summary:
The court held that the inspection notes of the IAC and the note of the inspector did not constitute "information" under section 147(b) of the Income-tax Act, 1961, and thus, the reopening of the assessments for the years 1961-62 to 1963-64 was not justified. Consequently, the second issue regarding the opportunity for the assessee to argue for a fair estimate of interest did not require an answer. The reference was answered in favor of the assessee, with costs awarded to the assessee.