1980 (7) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notices issued under Section 8(b) of the Companies (Profits) Surtax Act, 1964.
2. Whether the audit report constitutes "information" under Section 8(b) of the Act.
3. Jurisdiction of the Income-tax Officer (ITO) to reassess based on the audit report.

Detailed Analysis:

1. Validity of the Notices Issued Under Section 8(b) of the Act:
The petitioner, a limited company liable to assessment under the Companies (Profits) Surtax Act, 1964, challenged the notices issued by the ITO under Section 8(b) for the assessment years 1971-72, 1972-73, and 1973-74. The ITO issued these notices on December 6, 1975, proposing to reassess the income of the petitioner, as he had reason to believe that the petitioner's chargeable profit had escaped assessment within the meaning of Section 147 of the I.T. Act, 1961. The petitioner contended that the audit report does not constitute valid "information" under Section 8(b) of the Act, rendering the ITO's notices invalid and liable to be quashed.

2. Whether the Audit Report Constitutes "Information" Under Section 8(b) of the Act:
Section 8(b) of the Act allows the ITO to reassess if he has "reason to believe" based on "information" in his possession that chargeable profits have escaped assessment. The revenue argued that the audit report, which identified errors in the original assessments, constituted valid "information" under Section 8(b). The petitioner countered that the audit report merely expressed an opinion on a matter already adjudicated by the ITO and did not introduce any new information or external knowledge.

3. Jurisdiction of the ITO to Reassess Based on the Audit Report:
The court examined whether the audit report could be considered "information" under Section 8(b) by referencing various judicial precedents. In Kasturbhai Lalbhai v. R. K. Malhotra, the term "information" was interpreted to mean knowledge derived from an external source. The Supreme Court in Indian and Eastern Newspaper Society v. CIT clarified that an audit report could not be considered "information" if it merely pointed out an error based on a re-evaluation of the same material without introducing new facts or external knowledge. The court concluded that the ITO had issued the impugned notices for reconsideration of a decision already taken, which he was not competent to do.

Conclusion:
The court held that the audit report did not constitute valid "information" under Section 8(b) of the Act, and hence, the ITO had no jurisdiction to reopen the assessments. Consequently, the notices issued by the ITO for the assessment years 1971-72, 1972-73, and 1973-74 were quashed. All three writ petitions were accepted, and the notices, P-8, P-9, and P-10 in Writ Petitions Nos. 387, 821, and 819 of 1976, respectively, were quashed. No order as to costs was made.