1977 (6) TMI 35 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessments under Section 147(b) of the Income-tax Act.
2. Classification of goods manufactured by the assessee as 'petro-chemicals' under item 18 of the 5th and 6th Schedule to the Income-tax Act.
3. Jurisdiction of the Income-tax Officer in reopening assessments based on alleged new information.

Detailed Analysis:

1. Validity of Reassessments under Section 147(b):
The primary issue was whether the reassessments initiated by the Income-tax Officer (ITO) under Section 147(b) of the Income-tax Act were valid. The original assessments had allowed higher development rebate and deductions under Section 80-I, treating the goods manufactured by the assessee as 'petro-chemicals'. The ITO later reopened the assessments, withdrawing these benefits on the grounds that the goods did not qualify as 'petro-chemicals'.

The Appellate Assistant Commissioner (AAC) annulled the reassessments, holding that the ITO had no new information to justify reopening the assessments and had merely changed his opinion. The Tribunal upheld the AAC's decision, emphasizing that the ITO must have "reason to believe" based on new information received after the original assessment. The reasons recorded by the ITO did not indicate any such new information, thus failing to satisfy the conditions of Section 147(b).

2. Classification of Goods as 'Petro-chemicals':
The reassessments were also challenged on the merits, specifically whether the goods manufactured by the assessee (urea-formaldehyde and phenol formaldehyde resins) qualified as 'petro-chemicals' under item 18 of the 5th and 6th Schedule to the Income-tax Act. The AAC held that the goods did indeed qualify as 'petro-chemicals', thus entitling the assessee to the benefits originally granted.

The Tribunal noted that the department did not specifically challenge this finding in their grounds of appeal. The Tribunal also referenced a similar case decided by the Bombay Bench of the Tribunal, which supported the classification of such goods as 'petro-chemicals'. Consequently, the Tribunal agreed with the AAC's finding on this point.

3. Jurisdiction of the Income-tax Officer:
The Tribunal scrutinized whether the ITO had the jurisdiction to reopen the assessments under Section 147(b). It was established that for the ITO to invoke Section 147(b), there must be new information received after the original assessment, which leads to the belief that income had escaped assessment. The Tribunal found that the reasons recorded by the ITO did not mention any new information but merely indicated a change of opinion.

The Tribunal rejected the department's argument that circulars from the Central Board of Direct Taxes (CBDT) and letters from the Commissioner constituted new information. The Tribunal emphasized that the reasons for reopening must be recorded and disclosed to the court, and the ITO must be confined to these recorded reasons. Since the recorded reasons did not indicate any new information, the Tribunal held that the reassessment proceedings were without jurisdiction and invalid.

Conclusion:
The Tribunal dismissed the department's appeals, upholding the AAC's order annulling the reassessments. The Tribunal confirmed that the reassessments were invalid as they were based on a change of opinion rather than new information, and the goods manufactured by the assessee were correctly classified as 'petro-chemicals' under item 18 of the 5th and 6th Schedule to the Income-tax Act.