1980 (4) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Competence of the Income Tax Officer (ITO) to initiate reassessment under Section 34(1)(b) of the Indian Income Tax Act, 1922.

Detailed Analysis:

Issue 1: Competence of the ITO to Initiate Reassessment Under Section 34(1)(b) of the Act

The primary issue in this case is whether the action initiated by the ITO under Section 34(1)(b) of the Indian Income Tax Act, 1922, for the reassessment of the income was competent.

Facts and Background:
The assessee, a company, purchased a building named "Recluse," part of which was used for business purposes and the rest was occupied by tenants. The rental income from the building was credited to the profit and loss account as business income, and deductions were claimed accordingly. The ITO initially assessed this income under Section 10 of the Act and allowed depreciation on the building's cost. However, the ITO later issued a notice to recompute the income under Section 9 instead of Section 10, leading to reassessment proceedings under Section 34(1)(b).

Arguments and Findings:
1. Assessee's Objections:
- The assessee argued that all necessary information was provided during the original assessment, and there was no new information to warrant reopening under Section 34(1)(b). The reopening was merely due to a change of opinion by the ITO.
- On merits, the assessee challenged the correctness of the income computation under Section 9.

2. Assistant Commissioner's (AAC) Findings:
- The AAC found that the information provided by the assessee was insufficient for the ITO to make a correct assessment initially. He concluded that the reopening was justified as the ITO received new information long after the original assessment, particularly from the assessment proceedings of a subsidiary company occupying part of the premises.

3. Appellate Tribunal's Decision:
- The Tribunal held that the assessee had disclosed all primary facts necessary for the assessment. The ITO's duty was to infer the correct legal position, and no new information was obtained after the original assessment. The reassessment was based on a mere change of opinion, making it unjustified.

Legal Provisions and Precedents:
- Section 34(1)(b) allows reassessment if the ITO has "reason to believe" that income has escaped assessment due to new information in his possession.
- The court referenced the Supreme Court decisions in Kalyanji Mavji & Co. v. CIT and Indian and Eastern Newspaper Society v. CIT, which clarified that mere change of opinion without new information does not justify reopening an assessment.

Court's Analysis:
- The court noted that the ITO's reassessment was based on the same facts and material available during the original assessment. There was no new information that came to light post the original assessment.
- The ITO's notice and subsequent actions did not indicate any new information but rather a re-evaluation of the same facts, constituting a mere change of opinion.
- The court reiterated that an internal change of opinion does not authorize reassessment under Section 34(1)(b).

Conclusion:
The court concluded that the ITO was not competent to initiate reassessment proceedings under Section 34(1)(b) as there was no new information obtained after the original assessment. The reassessment was based on a mere change of opinion, which is outside the purview of the said section.

Judgment:
The court answered the referred question in the negative, in favor of the assessee, and awarded costs to the assessee.