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TMI Blog1980 (4) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 4th of May, 1970 ; that mistake, however, does not affect the position). The original assessment in this case was made on the 12th of June, 1970, that is to say, subsequent to the above amendment. The assessee had made a claim originally in its return under s. 35B for a higher figure of deduction but by a letter dated May 30, 1970, the assessee had restricted such claim to Rs. 52,498. Section 35B deals with export markets development allowance, and sub-s. (1) of the section deals with the case where the assessee, being domestic company or a person other than the company, who is a resident in India, has incurred, after a particular date, whether directly or in association with any other person, any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, referred to in cl. (b) of the said section, shall, subject to the provisions of the said section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year. There is a proviso to sub-s. (1) with which we are not concerned and the expenses which must be incurred wholly and exclusively for certain purposes are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort department is also engaged in various other activities in connection with distribution, despatch and supply of goods and any expenditure incurred on these items are not to be considered for determining relief allowable u/s. 35B. I, therefore, take only expenses under the head 'salary, travelling, advertisement' amounting to Rs. 3,06,531 as allowable expenditure under section 35B." The ITO held that none of the expenses incurred in head office could be related to the purposes permissible under s. 35B. He reduced the allowance under s. 35B to Rs. 16,642 and disallowed the allowances as claimed under s. 35B. The assessee preferred an appeal and raised the same contention and the said contention was negatived by the AAC. Regarding the merits of the liability of deduction of Rs. 52,498 as claimed by the assessee the AAC held, inter alia, as follows: " In the original assessment a sum of Rs. 52,498 was allowed as weighted deduction u/s. 35(B) in respect of expenditure incurred for development of export market. But the actual weighted deduction allowable was only Rs. 16,542. Since the claim was wrongly allowed in excess, the ITO reopened the assessment to assess the income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh v.CIT [1959] 35 ITR 1 (SC), a decision to which again our attention was drawn by learned advocate for the revenue, which reiterated that " information " in s. 34(1)(b) of the Indian I.T. Act, 1922, which is in pari materia with the expression used in s. 147(b) of the 1961 Act included information as to the true and correct state of law and should cover information as to the relevant judicial decisions. This question was again considered in the case of CIT v. Sir Mahomed Yusuf Ismail [1944] 12 ITR 8, by the Bombay High Court, as far back as 1943, where it was held that a mere change of opinion on the same facts or on a question of law or the mere discovery of a mistake was not sufficient information within the meaning of s. 34 of the Indian I.T. Act, 1922, and in order to take action under s. 34, there must be some information as to a fact which leads the ITO to discover that income has escaped assessment or has been under-assessed. The same view was taken in a later case by the Nagpur High Court in the case of Income-tax Appellate Tribunal v. B. P. Byramji and Co. [1946] 14 ITR 174 and other decisions of different High Courts which the Supreme Court has noted. The Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e powers vested in the ITO under s. 35 did not bar recourse to the jurisdiction vested in him by s. 34. The Supreme Court in the case of CWT v. Imperial Tobacco Co. of India P. Ltd. [1966] 61 ITR 461, which we have noted before, referred to the aforesaid decision. Reliance was also placed by the Supreme Court in the said decision on the case of CIT v. Rathinasabapathy Mudaliar [1964] 51 ITR 204 (Mad) and on the case of Canara Industrial and Banking Syndicate Ltd. v. CIT [1964] 51 ITR 479 (Mys). The Supreme Court also referred to the decision in the case of Asghar Ali Mohammad Ali v. CIT [1964] 52 ITR 962 (All) and noted that in the event of divergence of judicial views there would arise the question of law. The question was exhaustively dealt with in a decision of the Supreme Court in Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326. There, the Supreme Court consisted, in considering the said decision, of five learned judges. Of these five learned judges, two of them did not express any opinion on this aspect of the matter but the majority of three expressed the opinion, that the expression "escaped" used in s. 11A of the C.P. and Berar Sales Tax Act, 1947, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this principle in detail in the case of Reform Flour Mills (P.) Ltd. v. CIT [1973] 88 ITR 150, a decision upon which the Tribunal relied in disposing of the present appeal out of which this reference has arisen. There, the Division Bench held that whether the change of opinion on the part of the ITO, who made the assessment subsequent to the assessment, constituted information within the meaning of s. 34(1)(b) of the Indian I.T. Act, 1922, was undoubtedly question of law. There, the assessee-company had carried on a business in the conversion and sale of wheat flour. In the assessments of the assessee for the two assessments years 1945-46 and 1946-47, which were completed on 4th June, 1946, and 2nd December, 1946, the bania's commission for sale of flour and brokerage for purchase of wheat were allowed as deduction. At the time of original assessment, the assessee had filed balance-sheet which contained the directors' report in which the existence of control over the distribution of wheat and wheat flour was referred to. Further, the assessee had stated in his reply dated 20th April, 1946, to letter of the ITO that the production and supply of wheat were controlled by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the officer, who had reopened the assessment, had any other information in his possession. This change of opinion on the part of the officer, who had made the assessment for the subsequent year 1947-48, it was held by the Division Bench, on the basis of the same materials, would not constitute information within the meaning of s. 34(1)(b) and the officer, therefore, could not exercise any power or jurisdiction under s. 34(1)(b) to reopen the assessments already made. Thereafter, the Division Bench discussed several authorities including the decision in the case of Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326 (SC) referred to hereinbefore. Our attention was drawn to the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, where the Supreme Court observed that the opinion of an internal audit party of the I.T. Dept. on a point of law could not be regarded as " information" within the meaning of s. 147(b) of the I.T. Act, 1961, for the purpose of reopening an assessment. But although an audit party did not possess the power to pronounce on the law, it nevertheless might draw the attention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members as well as to outsiders and also provided certain services to its members. All along the assessee's income from that source was assessed to tax as income from business and it was so assessed for the assessment years 1960-61 to 1963-64 also. In the course of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head " Income from property " and not as business income. Treating the contents of the audit report as " information ", the ITO initiated reassessment proceedings for those four years under section 147(b). On appeal, the AAC held that it could not in law be said that the ITO had any " information " in his possession enabling him to take action under s. 147(b), but on further appeal, the Tribunal, after noticing the difference of opinion between the High Courts, followed the decision of the Delhi High Court in the case of Smt. Chand Kanwarji [1972] 84 ITR 584, and held that an internal audit report could be regarded as " information ". On a reference, it was held by the Supreme Court that the opinion of the audit party on a point of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for 1956-57 under s. 34(1)(b) of the Indian I.T. Act, 1922, and disallowed the interest paid. The Appellate Tribunal held that the ITO had merely changed his opinion on the basis of the very materials that were before him when The original assessment was made and that was not sufficient to attract s. 34(1)(b). On a reference, the High Court held that the reassessment was valid in law as the information on the basis of which the officer sought to reopen the assessment was based on subsequent facts as also on the materials of the original assessment revealed by a more careful and closer investigation. On appeal, the Supreme Court, affirming the decision of the High Court, held that the reassessment under s. 34(1)(b) was valid in law inasmuch as the ITO proceeded on the basis of information which came to him after the original assessment by fresh facts revealed in the assessment proceedings for 1958-59. The word " information " in s. 34(1)(b) is of the widest amplitude and comprehended a variety of factors. Nevertheless, the power under s. 34(1)(b), however wide it might be, was not plenary because the discretion of the ITO was controlled by the words " reason to believe ". Informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be reopened there has to be a change of opinion. The assessment that was made originally must have been because it was thought to be all right by the ITO on the basis that all income had been included in the assessment. Subsequently, the ITO forms the belief that some income has escaped assessment or has been under-assessed. Therefore, change of opinion must be there in the belief that this is tentatively formed under cl. (b) of s. 147 of the Act in reopening the assessment. But what has been emphasised is that such change of opinion must not be mere 'change of opinion'. The change of opinion must be brought about 'in consequence of information'. This has been introduced in the section and so was interpreted by the different courts from time to time in order to prevent arbitrary and unilateral reopening of assessments depriving any finality to the assessment orders passed. But the section itself visualises the possibility of reopening on the change of opinion but such change, as we have mentioned before, must only be in consequence of information in the possession of the ITO and such information, again, must have a reasonable nexus to that opinion that income has escaped assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of opinion and is without jurisdiction ... in the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer. The aforesaid observations were noted by the Supreme Court in the case of Kalyanji Mavji Co. v. CIT [1976] 102 ITR 287 '. " The Supreme Court quoted the aforesaid observations of Chandrachud J. of the Bombay High Court and expressed the opinion that they were inclined to agree with the observations of Chandrachud J. A reference was also made to the observations of Lord Denning in the case of Parkin v. Cattell [1971] 48 TC 462 (CA). The expression used was " discovered ". In any case, it is not material for our present purpose to embark upon a discussion on this aspect of the matter. Learned advocate for the revenue drew our attention to the decision of the Supreme Court in the case of Union of India v. K. S. Subramanian, AIR 1976 SC 2433, 2437, para. 12 of the judgment, and the decision of the Supreme Court in the case of State of U.P. v. Ram Chandra Trivedi, AIR 1976 SC 2547, 2556, para. 22 of the judgment, in aid of the proposition that where a larger Bench of the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been considered. Then, if that was subsequently considered, the question might arise whether the subsequent consideration of the old materials on record would constitute information in terms of that section. Here, admittedly, in view of the matter that the assessee had originally made a larger claim for deduction under s. 35B of the I.T. Act, 1961, and had, after filing the return, subsequently moved and reduced its claim and that it was brought to the knowledge of the ITO clearly established that this question, viz., whether this reduced claim, as claimed by the assessee under s. 35B of the Indian I.T. Act, 1961, was brought to the notice of the ITO and he had considered this aspect of the matter. If, on a consideration of this aspect of the matter, he had taken a view, then there being no subsequent view or subsequent opinion on any law of any authority competent to pronounce on law or subsequent information on any fact, a mere examination of old records afresh would not be a change of opinion on the basis of or in consequence of the information but really be change of opinion-change of opinion simpliciter-on an appraisal of the old materials which would not be in consequence o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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