1971 (5) TMI 29 - HC - Income Tax

Proceedings initiated under section 34(1)(b) - legality and validity - officer who made the original assessment had full knowledge of the relevant information or facts. The interpretation by the subsequent officer of the existing material amounts only to a change of opinion - it is wellsettled that a mere change of opinion does not constitute information within the meaning of section 34(1)(b). The Income-tax Officer who purported to reopen the assessments did not therefore have any information within the meaning of section 34(1)(b) in his possession and he therefore could not exercise any power or jurisdiction under section 34(1)(b) to reopen the assessments already made. The reopening of the assessments of the assessee already concluded was therefore illegal and not validly done

Summary

Issues Involved:

1. Validity of proceedings initiated under Section 34(1)(b) of the Indian Income-tax Act, 1922.
2. Whether the Income-tax Officer had "information" within the meaning of Section 34(1)(b) to justify reopening the assessment.

Detailed Analysis:

1. Validity of Proceedings Initiated under Section 34(1)(b):

The primary issue was whether the proceedings initiated under Section 34(1)(b) of the Indian Income-tax Act, 1922, for the relevant assessment years were legally and validly done. The assessee argued that the Income-tax Officer (ITO) did not have the necessary information to justify reopening the assessment under Section 34(1)(b). According to the assessee, the ITO had all the relevant information at the time of the original assessment, and the reopening was based merely on a change of opinion, which does not constitute "information" under the said section.

2. Whether the Income-tax Officer had "Information" within the Meaning of Section 34(1)(b):

The court examined whether the ITO had any new "information" that came into his possession after the original assessment, which could justify reopening the assessment. The assessee contended that all relevant information, including the existence of government control over wheat and wheat flour distribution, was already available to the ITO during the original assessment. The ITO had allowed deductions for banian's commission and brokerage based on this information.

The department argued that the ITO discovered during the assessment for the year 1947-48 that there was no necessity for incurring these expenses due to government control, which constituted new information. The Tribunal had upheld this view, stating that the reopening was justified based on the new facts discovered during the 1947-48 assessment.

Court's Findings:

The court found that the existence of government control was fully known to the ITO at the time of the original assessments. The directors' reports and correspondence between the ITO and the assessee prior to the original assessments clearly established this fact. The ITO had allowed the deductions for banian's commission and brokerage with full knowledge of the government control.

The court noted that the ITO's finding during the 1947-48 assessment, that there was no necessity for incurring these expenses, was based on his interpretation and appreciation of the same materials available during the original assessments. This constituted a mere change of opinion, which does not qualify as "information" under Section 34(1)(b).

The court emphasized that a mere change of opinion on the same materials does not constitute information within the meaning of Section 34(1)(b) and does not justify reopening an assessment. The ITO who reopened the assessments did not have any new information but acted on a change of opinion.

Conclusion:

The court concluded that the reopening of the assessments was illegal and not validly done, as the ITO did not have any new information within the meaning of Section 34(1)(b). The question was answered in the negative, in favor of the assessee and against the department. The respondent-Commissioner was directed to pay the costs to the applicant-assessee.

Separate Judgment:

S. P. Mitra J. concurred with the judgment.