1976 (8) TMI 34 - HC - Income Tax

Issues Involved:
1. Justification of initiation of proceedings under section 147(b) of the Income-tax Act, 1961.
2. Tribunal's consideration of reasons for reopening the assessment under section 147(b) not referred to by the Income-tax Officer and the Appellate Assistant Commissioner.
3. Material supporting the Tribunal's finding that the development rebate disallowed was in respect of 'casablanca conversion materials.'
4. Entitlement of the assessee to the development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, on the cost of new machineries installed.
5. Tribunal's failure to direct the allowance of the entire cost of the machinery as revenue expenditure.

Detailed Analysis:

1. Justification of Initiation of Proceedings under Section 147(b):
The court analyzed whether the Income-tax Officer (ITO) acted within the scope of section 147(b) of the Income-tax Act, 1961, when reopening the assessments for the years 1961-62 to 1963-64. The statutory requirements under section 147(b) were examined:
1. The ITO must have reason to believe that income chargeable to tax has escaped assessment.
2. This reason must be in consequence of information in his possession.
3. The information must come into the possession of the ITO subsequent to the original assessment.

The court found that the ITO did not possess any external information and acted solely on a reconsideration of the original order. The ITO's reliance on the judgment in Salem Provident Fund Society Ltd. v. Commissioner of Income-tax [1961] 42 ITR 547 (Mad) was misplaced as that case involved an obvious mistake apparent on the face of the record. In the present case, the court concluded that the ITO's action constituted a mere change of opinion, which is insufficient to confer jurisdiction under section 147(b).

2. Tribunal's Consideration of Reasons Not Referred to by the ITO and Appellate Assistant Commissioner:
The court addressed whether the Tribunal was justified in considering reasons for reopening the assessment under section 147(b) that were not referred to by the ITO and the Appellate Assistant Commissioner. The court noted that the Tribunal referred to an audit objection as the information that led to the reopening of the assessment. However, this audit objection was not mentioned in the ITO's order or by the Appellate Assistant Commissioner. The court held that the Tribunal was not justified in taking notice of this reason, as it was not part of the original record.

3. Material Supporting the Tribunal's Finding on 'Casablanca Conversion Materials':
The court examined whether there was any material to support the Tribunal's finding that the development rebate disallowed was in respect of 'casablanca conversion materials.' The Tribunal had relied on the decision in Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd. [1965] 56 ITR 256 (Mad), affirmed by the Supreme Court in [1967] 66 ITR 710. However, the court found that the facts of the present case were not the same as those in Mahalakshmi Textile Mills' case. The Tribunal did not conduct a similar detailed inquiry or inspection of the machinery involved. Therefore, the court concluded that there was no material to support the Tribunal's finding.

4. Entitlement to Development Rebate under Section 10(2)(vib):
The court addressed whether the assessee was entitled to the development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, on the cost of new machineries installed. The court noted that the Tribunal had not made a clear finding that the machinery in the present case did not satisfy the requirements of section 10(2)(vib) of the 1922 Act or section 33 of the 1961 Act. The court held that in the absence of such a finding, it could not be concluded that there was any escapement of income from tax.

5. Tribunal's Failure to Direct Allowance of Entire Cost as Revenue Expenditure:
The court found it unnecessary to answer this question, as it had already held that the reassessment proceedings were illegal and that the Tribunal had no material to support its findings on the development rebate.

Conclusion:
The court answered the first four questions in the negative and in favor of the assessee, concluding that the initiation of proceedings under section 147(b) and the reassessments were not justified in law. The Tribunal was not justified in considering reasons not referred to by the ITO and the Appellate Assistant Commissioner, and there was no material to support the Tribunal's finding on 'casablanca conversion materials.' The fifth question was deemed unnecessary to answer. The assessee was entitled to costs, with counsel's fee fixed at Rs. 500.

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