1970 (6) TMI 6 - HC - Income Tax

Reassessment - whether a certain intimation received by the Income-tax Officer expressing the opinion of the audit department as to the correct interpretation of section 23(2) could be said to constitute information on which the Income-tax Officer could act for the purpose of initiating proceedings for reassessment against the petitioner under section 147(h)

Summary

Issues Involved:
1. Construction of section 147(b) of the Income-tax Act, 1961.
2. Whether intimation from the audit department constitutes "information" under section 147(b).
3. Validity of the notice issued under section 148 for reassessment.

Issue-Wise Detailed Analysis:

1. Construction of Section 147(b) of the Income-tax Act, 1961:
The primary issue in this case is the interpretation of section 147(b) of the Income-tax Act, 1961. The provision allows the Income-tax Officer (ITO) to reassess income if he has "reason to believe" that income has escaped assessment due to information received after the original assessment. Two conditions must be met: (i) the ITO should receive information post-assessment, and (ii) this information should lead him to reasonably believe that income chargeable to tax has escaped assessment. The fulfillment of these conditions was contested by the petitioner.

2. Whether Intimation from the Audit Department Constitutes "Information" Under Section 147(b):
The central question was whether the audit department's opinion on the interpretation of section 23(2) qualifies as "information" under section 147(b). The court examined the definition of "information" as established by the Supreme Court in Commissioner of Income-tax v. A. Raman and Co., which states that "information" must be derived from an external source concerning facts or law related to the assessment. The court emphasized that "information" should not be a mere change of opinion by the ITO but must come from an external source with authority to pronounce on the law.

The court rejected the revenue's argument that any external source, including the audit department, could provide "information." It held that the audit department is not competent or authorized to declare the correct state of the law. Therefore, the audit department's opinion does not constitute "information" under section 147(b).

3. Validity of the Notice Issued Under Section 148 for Reassessment:
Given that the audit department's opinion did not qualify as "information," the court concluded that the ITO did not have the requisite "information" to justify reopening the assessment under section 147(b). Consequently, the notice issued under section 148 was deemed invalid. The court emphasized that reopening an assessment causes considerable anxiety and harassment to the assessee, and the legislature has imposed strict conditions to prevent unwarranted reassessments.

Conclusion:
The court ruled that the conditions precedent for the exercise of jurisdiction under section 147(b) were not satisfied. The audit department's opinion did not constitute "information" within the meaning of section 147(b), and thus, the notice issued under section 148 was invalid. The petition was allowed, and the notice dated 12th September 1969 was quashed. The respondent was ordered to pay the costs of the petition to the petitioner.

Judgment:
Petition allowed.