1982 (2) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147(b) of the Income Tax Act, 1961.
2. Legitimacy of the information received from the Revenue Audit as a basis for reopening the assessment.
3. Applicability of rectification under Section 154 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening Assessment Under Section 147(b) of the Income Tax Act, 1961:
The primary issue was whether the reopening of the assessment for the year 1971-72 under Section 147(b) was valid. The Income Tax Officer (ITO) issued a notice under Section 148, based on the belief that income chargeable to tax had escaped assessment due to an erroneous allowance of medical expenses. The petitioner argued that the reopening was invalid as it was based on information from the Revenue Audit and not on new information or material facts. The court noted that reopening under Section 147(b) requires new information or a belief that income has escaped assessment. The court held that the reopening was permissible if based on new information, which was not the case here since the information was already available during the original assessment.

2. Legitimacy of the Information Received from the Revenue Audit as a Basis for Reopening the Assessment:
The ITO's belief that income had escaped assessment was based on information from the Revenue Audit, which pointed out that the medical expenses claimed were not allowable under the law. The petitioner contended that the opinion of the Revenue Audit could not be considered "information" under Section 147(b). The court referred to the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), which held that an audit party's opinion on a point of law is not "information" enabling the ITO to initiate reassessment proceedings. The court concluded that the ITO acted on the audit's advice without forming an independent belief, making the reopening invalid.

3. Applicability of Rectification Under Section 154 of the Income Tax Act, 1961:
The petitioner challenged the rectification orders under Section 154, which disallowed the previously allowed medical expenses. The court examined whether there was a "mistake apparent from the record" that could be rectified under Section 154. The court noted that the original assessment had considered all relevant materials, and the reassessment was based on a change of opinion rather than a mistake apparent from the record. The court held that rectification under Section 154 was not permissible as there was no apparent mistake, and the reassessment was based on reappraising the same material.

Conclusion:
The court ruled in favor of the petitioner, holding that the reopening of the assessment under Section 147(b) was invalid as it was based on the Revenue Audit's opinion, which did not constitute new information. Additionally, the rectification under Section 154 was not permissible as there was no mistake apparent from the record. The rule was made absolute with no order as to costs.