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TMI Blog1968 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated July 3, 1958. In the course of the assessment proceedings for the year 1958-59, the Income-tax Officer discovered that the assessee's claim for payment of interest on money said to have been borrowed for the purpose of business was not sustainable. In the opinion of the Income-tax Officer the entire borrowed money had not been utilised for the purposes of the business, but for the purpose of giving interest-free advances to the partners of the assessee-firm. As a result of the discovery, the Income-tax Officer took action under section 34(1)(b) of the Indian Income-tax Act, 1922, on the ground that he had reasons to believe that the assessee's claim of payment of interest on money borrowed was not proper and that income to the extent of Rs. 43,116 was under-assessed. In the reassessment that followed, the Income-tax Officer added the sum of Rs. 43,116 to the total income and reassessed the total income at Rs. 7,78,467. The relevant portion of the order of the Income-tax Officer is hereinbelow set out : " In their letter dated April 22, 1961, Messrs. S. K. Sawday & Co. have given their objections to my action under section 34. In fact no argument as regards the allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners.This was a piece of information which was not before the Income-tax Officer at the time of the original assessment. I am, therefore, of the opinion that the Income-tax Officer was justified in starting action under section 34(1)(b) for this year. Thereupon, the assessee took a second appeal before the Appellate Tribunal. The Tribunal allowed the appeal with the following observations : " In the present case the position is that in the original assessment deduction was claimed by the appellant in respect of the sum of Rs. 43,116 as interest paid on borrowed money and it was wholly allowed by the income-tax Officer. There is nothing whatever on record to indicate that the Income-tax Officer did not apply his mind to the question of allowance of the interest claimed by the assessee. In the absence of anything to the contrary it must be presumed that the amount of the interest claimed was allowed by the Income-tax Officer with his eyes open on the basis of materials which were then produced before him. Subsequently, however, the assessment was reopened by the Income-tax Officer and he changed his mind holding that the interest had been wrongly allowed. There was no fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section . . . . The words " in consequence of information in his possession " as used in section 34(1)(b) have been interpreted by the Supreme Court in the case of Maharaj Kumar Kamal Singh v. Commissioner of Income-tax in the following language: " It is not disputed that, according to its strict literal meaning, the word 'information' may include knowledge even about a state of the law or a decision on a point of law. The argument, however, is that the context requires that the word ' information ' should receive a narrower construction limiting it to facts or factual material as distinguished from information as to the true state of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment. The dictionary meaning of the word does not support Mr. Sastri's contention. According to the same dictionary, the word ' escape ' also means ' to get clear away from (pursuit or pursuer); to succeed in avoiding (anything painful or unwelcome) ' ; so that judging by the dictionary meaning alone it would be difficult to confine the meaning of the word ' escaped ' only to cases where no return has been submitted by the assessee. Even if the assessee has submitted a return of his income, cases may well occur where the whole of the income has not been assessed and such part of the income as has not been assessed can well be regarded as having escaped assessment . . . . . We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. " Thereafter, the Supreme Court again adverted to the " i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too low a rate or has been made the subject of excessive relief under the Act. " In the later decision, namely, in A. Raman & Co.'s case, the Supreme Court made it clear that the information need have to come into the possession of the Income-tax Officer after the previous assessment but it need not be information of the type which could not be obtained during the previous assessment from materials on record if the Income-tax Officer had cared to go through the records with greater vision and circumspection. In an unreported decision of this court, namely, in Income-tax Reference No. 13 of 1964 (Dinesh Chandra H. Shah v. Commissioner of Income-tax), this court took notice of the law as laid down in the cases of Maharaj Kumar Kamal Singh and A. Raman and Company and made the following observation : " There may be cases where the mere existence of materials on the record does not become informative at the first sight. The existence of a piece of information and the realisation of the effect of that piece of information are different things. We are prepared to uphold the argument of Mr. Mukherjee to this extent that there may be information existing on the record or placed to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on borrowed capital ; before allowing that claim the Income-tax Officer was required to find out if the borrowed capital was for the purposes of the business of the assessee. If satisfied on that point, then only could the Income-tax Officer allow the deduction as claimed by the assessee. Whether the borrowed capital was actually applied for the purpose of the business, he submitted, could be scrutinised and ascertained from the balance-sheet and if the fact which seemed to be revealing to the Income-tax Officer later on had not been noticed at the earlier stage, he could not have allowed deduction. Mr. Banerjee submitted that all the material information being before the Income-tax Officer, on consideration of which he allowed the deduction, he could not thereafter change his opinion on the same material and come to the conclusion that the borrowed capital had not been applied for the purpose of the assessee's business and, therefore, the interest paid on borrowed capital should not have been allowed as deduction. Mr. Dipankar Gupta, learned counsel for the revenue, however, submitted that the Tribunal was in error in presuming that what had been done by the Income-tax Officer f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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