1976 (8) TMI 4 - SC - Income Tax

Appellant argues that reassessment under section 147(b) would be justified where in the original assessment income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer - present case does not fall in any of above categories - revenue's appeal dismissed

Issues Involved:
1. Jurisdiction to reopen assessment under Section 147(b) of the Income-tax Act, 1961.
2. Validity of changing the method of computation in reassessment proceedings.
3. Interpretation of "escaped income" under the Income-tax Act.

Detailed Analysis:

1. Jurisdiction to Reopen Assessment under Section 147(b):

The primary issue was whether the Income-tax Officer (ITO) had jurisdiction to reopen the assessment under Section 147(b) of the Income-tax Act, 1961. The original assessment for the assessment year 1959-60 was completed on May 31, 1960, with a total income of Rs. 21,49,169. The ITO initiated reassessment proceedings on November 5, 1962, and completed them on February 29, 1964, with a revised total income of Rs. 69,85,097. The Appellate Assistant Commissioner (AAC) held that the proceedings under Section 147(b) were bad in law and that the ITO had no jurisdiction to change the method of computation. However, the Tribunal disagreed, stating that the proceedings under Section 147(b) had been validly initiated. The Supreme Court upheld the Tribunal's decision, confirming that the ITO had jurisdiction to reopen the assessment under Section 147(b).

2. Validity of Changing the Method of Computation in Reassessment Proceedings:

The second issue was whether the ITO could change the method of computation in the reassessment proceedings. In the original assessment, the ITO adopted one method of computation under Rule 33 of the Income-tax Rules, 1922, while in the reassessment, a different method under the same rule was used. The AAC and the Tribunal both held that the ITO could not adopt an alternative method of computation in the reassessment proceedings. The Supreme Court agreed, stating, "The Income-tax Officer could not in reassessment proceedings depart from the method of computation adopted in the original assessment." The Court emphasized that the discretion vested in the ITO by Rule 33 must be exercised in a proper and judicious manner, and the mere fact that a different method could result in higher tax liability does not justify reopening the assessment.

3. Interpretation of "Escaped Income":

The third issue involved the interpretation of "escaped income" under the Income-tax Act. The High Court had observed that "escaped income" means income that has eluded observation or notice of the tax authorities and cannot mean an item of income not taxed by pursuing a method approved by law. The Supreme Court upheld this view, stating, "The order made by the Income-tax Officer at the time of the original assessment was a legally correct order and was not vitiated by any error." The Court further explained that the absence of an error in the original order would justify the inference that the present case is not one of income escaping assessment. The Court concluded that the ITO ordering reassessment does not sit as a court of appeal over the ITO making the original assessment and cannot substitute his own opinion regarding the method of computing the income.

Conclusion:

The Supreme Court upheld the judgment of the High Court, dismissing the appeal with costs. The Court confirmed that the ITO had no jurisdiction to change the method of computation in reassessment proceedings and that the original assessment was legally correct and not vitiated by any error. The case was not one of income escaping assessment under Section 147(b) of the Income-tax Act, 1961. The appeal was dismissed.

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