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Issues:
Validity of reassessments made under section 147(b) of the Income-tax Act, 1961 for the assessment years 1963-64, 1964-65, and 1965-66. Analysis: The case involved a private limited company deriving income from business in cigarettes and investment in shares. The Income-tax Officer reopened the assessment under section 147(b) based on information that a part of loans borrowed by the company went towards investment in shares. The Officer reduced the income assessable under the head "Dividends" for the respective assessment years. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal heard the appeals challenging the reassessments. The Tribunal held that the income had been assessed at a low rate due to the entire interest being deducted from business income without apportioning it to dividend income. It also noted that the Income-tax Officer had no knowledge of the diversion of borrowed money for share investment during the original assessment. The Tribunal concluded that the requirements of section 147(b) were satisfied as income had escaped assessment. The Tribunal's decision was challenged before the High Court. The High Court considered the argument that the Income-tax Officer did not come into possession of any new information post-assessment to form the opinion that income had escaped assessment. However, the Court upheld the Tribunal's finding that the Officer had no knowledge of the diversion of borrowed money for share investment during the original assessment. As a result, the report of the audit party informing the Officer of the diversion constituted new "information" leading to the belief that income had escaped tax. The Court affirmed the Tribunal's decision, answering the legal question in the affirmative and against the assessee. The Commissioner was awarded costs, including counsel's fee. In conclusion, the High Court upheld the validity of the reassessments made under section 147(b) of the Income-tax Act, 1961 for the assessment years in question. The decision was based on the finding that income had indeed escaped assessment due to the incorrect apportionment of interest between dividend income and business income during the original assessment. The Court's ruling was supported by the fact that the Income-tax Officer lacked knowledge of crucial information regarding the diversion of borrowed funds for share investment, justifying the reassessment under section 147(b).
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