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TMI Blog1978 (7) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... .A.C. (Audit) and reply is awaited. Hence to protect the time bar action, a notice under s. 148 may be issued for re-opening of the 1971-72 asst. under s. 147(b). Notice under s. 148 with I.T. return to assessee put up." Thereafter the ITO has recorded the following note under date 19th March, 1976 "Though a reply has been sent to the audit objection, Audit has not yet intimated to us their final views. In case audit does not accept my view and later on it is decided by the Deptt. to accept audit's point of view, the asstt. has to be kept open. Objn raised by audit constitutes "information" within the meaning of s. 147(b). Issue notice under s. 148 r/w s. 147(b)." 4. The office note refers to audit objection OA/Rev/45-117/73-74/IV/356 dt. 6th Feb., 1974 only and no other audit objection. The aforesaid audit objection related to purported loss in revenue consequent to a change in the previous year which was permitted for the asst. yr. 1971-72 which is the assessment year now under consideration. The objection did not cover any other matter and the same is reproduced in extenso as under "Till the asst. yr. 1970-71 the assessee company was adopting the year ending 31st Jul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange in the previous year, the company has escaped sur-tax liability to the extent of Rs. 5,382 (25 per cent of the net chargeable amount Rs. 21,530). On this being pointed out, the ITO states that permission for change in the accounting year having been granted, the benefit the assessee would be entitled to for the asst. yr. 71-72 cannot be denied under the law, and that the relief from levy of surcharge (applicable for 1972-73) cannot be helped. In regard to sur-tax, the ITO states that under sub-s (8) of s. 2 of the Companies (Profits) Sur-tax Act, only the statutory (standard) deduction has to be proportionately increased when the previous year is longer than a period of 12 months, and that there can be no change in the total income assessed for income-tax. The point raised is that the acceptance of the change of the previous year would itself required reconsideration, inasmuch as it is detrimental to revenue to the extent of Rs. 11,100 as indicated above. As regards, sur-tax, if the change in the previous year is not given effect to, the sur-tax liability is to be assessed with reference to the income of the 12 month period only in the normal course vis-a-vis the capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. Application for necessary approval has been made to the Government of India in this connection." The then ITO granted the assessee's request on 22nd July, 1969, which is again before the commencement of the relevant year of account. It is, therefore, clear that the motive for the change in the year of account was only to fall in line with the principal company. In this view of the matter, the assessee's request was also granted entirely on merits, without giving any thought to the tax implications. In fact, it was too early then to even think of the tax implications. The amendment to s. 80I of the Act in the form of deletion of item 20 of the VI Schedule w.e.f. 1st April, 1972 was introduced in the Finance Act (No. 2 of 1971) and got the assent of the President on 10th Aug., 1971 i.e. nearly two years after the assessee thought of a change in accounting year and the ITO permitted the same. Again the relief from levy of surcharge was also effected by the Company's (Surcharge on Income-tax) Bill 1971 which received the assent of the President on 23rd Dec., 1971. This again happened two years after the assessee's request for change in accounting year. As regards Sur-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part, Tube Investments Ltd. of the other part and H. Miller Co., Ltd., a third part. By the agreement of 15th Dec., 1961 H. Miller was to permit the assessee to use the trade mark 'Miller' in respect of certain licensed products to be manufactured by the assessee and marketed in certain territories. For manufacturing and marketing licensed products there was an agreement between the assessee and H. Miller also executed on 15th Dec., 1961. The agreement to use the trade mark was to continue from year to year as long as the agreement of 9th Oct., 1961 was in force. For permitting the assessee the licence to use the trade name 'Miller' the assessee was to issue H. Miller 500 shares of Rs. 100 each credited as fully paid. Thus the equivalent money value was Rs. 50,000. The assessee wrote off in its accounts the amount of Rs. 50,000 over a period of 14 years commencing from the asst. yr. 1965-66 and ending with the asst. yr. 1978-79. Suffice it to say that in 12 of the 14 years the amount written off in each year was Rs. 3,570. In the asst. yr. 1971-72 it was Rs. 5,060 and in asst. yr. 1978-79 it was Rs. 2,070, making in all an aggregate of Rs. 49,973. In all the earlier years as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inapplicable. 6. The assessee appealed to the AAC who did not accept the contention that the re-opening was invalid. According to the AAC it was settled law that audit note would constitute "information" for the purposes of s. 147 (b) and, therefore, it was held that the assessment was validly re-opened. On merits also the AAC upheld the withdrawal of the allowance originally made of Rs. 5,060. 7. In the appeal before us the learned counsel for the assessee submitted that the re-opening was invalid as the necessary requisites were not satisfied. The learned departmental representative, on the other hand, stated that the objections raised by audit constituted "information" and this was a proposition which was settled law in view of the decision of the Supreme Court in Kalyanji Mavji Co. vs. CIT, West Bengal-II (1). He further stated that once proceedings under s. 148 were validly initiated the jurisdiction of the ITO was not restricted to the portion of the income which escaped assessment but the entire gambit of assessment was open. He submitted that in the present case though the assessment was purported to be reopened only with reference to the audit objection which related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in full the reasons as recorded by the ITO. He has stated that he was re-opening the assessment to forestall the eventuality of the audit not accepting his view and the Department deciding to accept the audit's point of view. It is the ITO who has to form the belief consequent to "information" in his possession that income had escaped assessment. Courts have repeatedly held that as long as there is some rational basis for such belief and it is not a mere pretence, the appellate authorities cannot interfere. At the same time, where the ITO himself has not formed the belief and as a matter of fact has come to the contrary conclusion, namely, that no income had escaped assessment, it is equally not open to an appellate authority to substitute its own judgment for that of the ITO. The decision of the Supreme Court on Johri Lal vs. CIT(2) has categorically stated that in the absence of material on record to show that the ITO had formed the requisite belief and recorded his reasons for initiating proceeding for reopening it was not open to the Tribunal to justify the proceedings taken by the ITO. In the present case there is total absence of material on record to show that the ITO had th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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