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TMI Blog1978 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act, 1961, and recorded the following reasons for such reopening: "Perused records. The assessee took lease of a plot of land and erected building on it. At first the lease was taken for 15 years which expired in April, 1960. Thereafter, in August, 1960, the lease was renewed for a longer period. In the building constructed by the assessee, a studio was set up and the assessee started to do business as a studio owner and producer of motion pictures. The business of production of films was short lived but the assessee continued to do the business of a studio owner. After some time this business also closed down and the assessee let out the studio with its plant and machineries to one Sri M. D. Chatterjee on rental basis. In 1960, M. D. Chatterjee left the tenancy and the assessee sold out all its plant and machinery (assessment year 1961-62). Thus, in the assessment year 1961-62, assessee's business was fully dissolved. Thereafter, the assessee let out the building erected by him (from time to time more additions were made to the original building) to several tenants on monthly rent as the owner of the building. As decided in the case of Ballygunge Bank Ltd. v. CIT [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T. Act, 1961, has referred the following questions as questions of law arise from its aforesaid order. For the assessment year 1962-63 : "Whether, on the facts and in the circumstances of the case, notice under section 147(b) of the Income-tax Act, 1961, was validly issued for the assessment year 1962-63 ?" For the assessment year 1963-64: "Whether, on the facts and in the circumstances of the case, notice under section 147(b) of the Income-tax Act, 1961 was validly issued for the assessment year 1963-64 ? " Mr. Suhas Sen, learned counsel for the revenue, contended before us at the hearing that the order of the Tribunal was erroneous inasmuch as the Tribunal proceeded on the sole consideration that the information within the meaning of s. 147(b) did not reach the ITO from an extraneous source but was present in the material on record at the time of the original assessment. Mt. Sen submitted that the settled law was that information for the purpose of initiating a reassessment may be gathered also from existing materials. All that was necessary to be established was that the officer concerned had gathered such information on a further investigation into the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows : " In our judgment, the knowledge of the fact that the appellants had not submitted their quarterly returns as well as the treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turnovers with which we are concerned in this case had escaped assessment." (b) Kalyanji Mavji Co. v. CIT [1976] 102 ITR 287 (SC). The facts in this case were that in the asssessment year 1958-59, the assessee, a firm, had claimed, as in the two preceding years, deduction of interest paid on loans. On enquiry the ITO found that the amount obtained on such loan had been utilised for giving interest-free loans to the partners of the firm for clearing up their income-tax dues. It was heId that the loan obtained was not for the business of the firm and the claim was disallowed. Thereafter, notices were issued by the ITO under s. 34(1)(b) of the Indian I.T. Act, 1922, the assessment for the earlier year 1956-57 was reopened and the interest allowed as deduction was included in the total income. The reassessment was confirmed on appeal by the AAC. On further appeal, the Tribunal held that the belief of the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the conduct of the assessee itself in not adducing any evidence or materials to prove its stand that the deduction was validly claimed constituted information on which the reopening under s. 34(1)(b) could be validly made. (c) Parkin v. Cattell [1971] 48 TC 462 (CA). This decision was cited for observations of Lord Denning made in the context of a corresponding section of the English statute as follows : "If an inspector or the Board discover-(a) that any income which ought to have been assessed to tax at the standard rate or to surtax has not been assessed ... the inspector or, as the case may be, the Board may make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged."' Lord Denning observed : "The word ' discover ' simply means ' find out '. That is what Lord President Normand said in Commissioners of Inland Revenue v. Mackinlay's Trustees [1938] 22 TC 305, with the approval of Tucker L.J. in Commercial Structures Ltd. v. Briggs [1948] 30 TC 477; [1949] 17 ITR (Supp) 30 (CA). An Inspector of Taxes 'discovers' (that income has not been assessed when it ought to have been), not only when he finds out new facts which were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound for reopening the assessment. The question whether an inadvertent omission by the ITO could justify the reopening of an assessment on subsequent discovery of such omission was, however, left open. (b) Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC). The facts in this case were that the assessee, a members' club, had submitted " nil" returns for the assessment years 1956-57 to 1959-60. The ITO, while assessing, held that the asseasee was not liable to pay any tax in respect of amounts realised by it from its members. Subsequently, the assessments were reopened by notices under s. 34(1)(b) and it was held on reassessment that the amounts received from members of the club as guest charges were the income of the assessee and the same was brought to tax. The Supreme Court, however, found that the assessments had not been validly reopened. It was observed in its judgment as follows : " This court has repeatedly ruled that the information referred to in section 34(1)(b) must be what the Income-tax Officer receives after he makes the original order of assessment. It must come to his knowledge subsequent to the assessment sought to be reopened. In these cases it is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld base his belief that the income has escaped assessment and on that ground held that the reopening in the instant case was invalid. The reassessment was accordingly cancelled. This conclusion of the Tribunal appears to be erroneous. The law as laid down by the Supreme Court is that an ITO can obtain information from materials already on record and it is lawful for him to reopen assessments on the basis thereof. The contention of Mr Banerjee that it has been found as a fact, that the ITO had not come into possession of any information is not borne out by the order of the Tribunal. From para. 2 of the order of the Tribunal it appears that the Tribunal found that no information came into the possession of the ITO which could lead him to believe that there was any escapement or under-assessment of the income, and not that there was no information at all. In any event, the Tribunal did not base its order on this finding. We are also unable to accept the contention of Mr. Banerjee that the information received by the ITO could not lead to his belief that there has been an escapement of income. The statute does not require that ITO should have incontrovertible proof in his hands sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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