1972 (10) TMI 16 - HC - Income Tax

This is a reference under section 66(1) of the Indian Income-tax Act 1922 at the instance of the revenue. The question that is referred to us for determination is whether on the facts and in the circumstances of the case the Income-tax Officer was justified in reopening the assessments for the years 1955-56 1957-58 and 1958-59 under section 34(1)(b) of the Act?

Summary

Issues:
1. Reopening of assessments for the years 1955-56, 1957-58, and 1958-59 under section 34(1)(b) of the Indian Income-tax Act, 1922.

Analysis:
The judgment pertains to a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the justification of reopening assessments for specific years. The case involves an assessee firm engaged in yarn business and commission agency. The primary issue revolves around whether the Income-tax Officer was justified in reopening assessments for the years 1955-56, 1957-58, and 1958-59 under section 34(1)(b) of the Act. The crux of the matter lies in the treatment of interest payable by an Agency firm to the assessee-firm, which was not included in the total income of the assessee in the original assessments. The Revenue contended that the failure to charge interest to the Agency firm constituted income escaping assessment, warranting the reopening of assessments.

The assessee argued that the provisions of section 34(1)(b) were not applicable as there was no new information discovered post the original assessments that could justify reopening. The Income-tax Officer's decision to issue supplemental assessment orders was challenged by the assessee, leading to appeals before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal set aside the supplemental orders, prompting a reference to the High Court for determination.

The crux of the legal issue revolved around the interpretation of section 34(1)(b) and the threshold for reopening assessments. The judgment emphasized that a mere change of opinion by the Income-tax Officer is insufficient grounds for reopening assessments. The court highlighted the importance of the Income-tax Officer having "reason to believe" based on new information that income had escaped assessment. The court referred to precedents to establish that information must be beyond what was already available during the original assessments to justify reopening.

The court scrutinized the facts and circumstances of the case, emphasizing that all relevant information regarding the interest payable by the Agency firm was known to the Income-tax Officer during the original assessments. The court rejected the Revenue's argument that the subsequent change in the Officer's view constituted new information, emphasizing that the Officer had already applied his mind to the relevant data during the original assessments. Ultimately, the court held that there was no discovery of new information warranting the reopening of assessments under section 34(1)(b) of the Act.

In conclusion, the court ruled against the Revenue, holding that the Income-tax Officer lacked justification to issue a notice under section 34(1)(b) for reopening assessments. The court directed the Revenue to pay the costs of the assessee for the reference.