1978 (10) TMI 15 - HC - Income Tax

Summary

Issues:
1. Reopening of assessment under section 147(b) of the Income Tax Act based on excess entertainment expenses.
2. Validity of the information used by the Income Tax Officer (ITO) to reopen the assessment.
3. Jurisdiction of the ITO to reassess income based on information in his possession.

Analysis:
The judgment by the High Court of ALLAHABAD addressed the appeal filed by the assessee concerning the assessment year 1968-69. The Additional Commissioner of Income Tax (AAC) found that the ITO had allowed entertainment expenses exceeding the statutory limit of Rs. 5,000 and had debited these expenses in various accounts. Consequently, the ITO sought to reopen the assessment under section 147(b) of the Income Tax Act based on this discrepancy. The ITO disallowed Rs. 1,514 of the excess entertainment expenses and made additional disallowances under other heads after reopening the assessment.

The assessee appealed, and the AAC determined that the actual entertainment expenses were Rs. 3,394, below the allowable limit of Rs. 5,000. The AAC deleted the disallowed amount of Rs. 1,514 but upheld some of the other additions made by the ITO. Subsequently, the matter was taken to the Tribunal, which concluded that the ITO had valid information to proceed under section 147(b) and partially allowed the assessee's appeal regarding the disallowed items.

The High Court emphasized the requirement for the ITO to have valid information in his possession to reopen an assessment under section 147(b). The Court highlighted that the information must be factual or legal and cannot be based on mere suspicion or conjecture. In this case, the note provided by the AAC did not contain factual information regarding the assessment year 1966-67 but rather reflected suspicions based on the assessment for 1968-69. The Court held that the ITO's belief was solely founded on suspicion, which does not constitute a valid ground for initiating proceedings under section 147(b. Therefore, the notice issued by the ITO was deemed to be without jurisdiction, leading to the entire proceedings and order being declared invalid.

Consequently, the High Court ruled in favor of the assessee on both questions referred by the Tribunal, concluding that the assessee is entitled to costs amounting to Rs. 200.