1986 (2) TMI 108 - AT - Income Tax

Summary

Issues:
Jurisdiction to reopen assessment under s. 147(a) of the IT Act.

Analysis:
The case involved an appeal by the ITO objecting to the annulment of the assessment by the AAC due to lack of jurisdiction to reopen the assessment under s. 147(a) of the IT Act. The original assessment was completed for the assessee firm, engaged in business in Kirana goods, with a total income of Rs. 7,925. Subsequently, based on information from the ST Department about a survey revealing higher turnover, the ITO issued a notice under s. 148. The assessee disputed the reopening, arguing that it was based on an audit note suggesting income had escaped assessment, which the ITO blindly followed. The AAC annulled the assessment, citing the principle of change of opinion. The Revenue contended that the audit note merely conveyed facts, not legal interpretation, and the reopening was valid. The Tribunal upheld the reopening, finding the ITO had valid reasons to believe income had escaped assessment, and directed the AAC to consider the merits of the case.

The main contention was whether the ITO had valid reasons to believe income had escaped assessment, justifying the reopening under s. 147(a) of the IT Act. The assessee argued that the ITO relied on the audit note without independent assessment, constituting a change of opinion. However, the Tribunal found that the audit note conveyed factual information, not legal interpretation, and the ITO had valid reasons based on the information received to believe income had escaped assessment. The Tribunal emphasized that at the time of reopening, the focus is on the genuineness of the information and the formation of a belief by the ITO, which was found to be valid in this case.

The Tribunal also addressed the issue of whether the business belonged to the firm or an individual partner, impacting the assessment. The assessee contended that the ITO failed to consider relevant factors like the nature of the business and income percentage in the sugar business. The Tribunal directed the AAC to delve into these aspects and determine the correctness of the income computation. The cross-objection filed in support of the original order was dismissed, upholding the decision to allow the appeal filed by the Department and restore the matter for further consideration by the AAC on merits.