Commissioner of Income Tax vs Ramesh Investment and Trading (P.) Ltd.

Y.B. Bhatt, J.—The present reference under s. 256(1) of the IT Act, 1961 raises the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal has correctly found that the proceedings for reassessment under s. 147(b) of the IT Act, 1961 initiated by the ITO suffered from infirmities and, hence, his action without jurisdiction ?"

The assessee is a private limited company whose assessment in respect of the asst. yr. 1974-75 was originally completed on 20th July, 1976. Thereafter on 10th January, 1979 the ITO issued under s. 148 of the Act for reopening the assessment. Accordingly the ITO reopened the assessment under s. 147(b) of the said Act; but did not refer to the reasons for reopening the said assessment in his order of reassessment dt. 8th January, 1980.

The assessee went in appeal to the CIT(A) wherein the assessee challenged the validity of the reopening of the assessment under s. 147(b) of the Act. The CIT(A) held that the ITO had not recorded the reasons for reopening of the assessment in the order sheet, and this being a fundamental defect, the reassessment framed could not stand.

This order of CIT(A) was challenged both by the Revenue as well as the assessee. In the appeal by the Revenue it was contended that the reasons for reopening may not have been recorded by the ITO; but in the facts of the case the CIT(A) ought to have upheld the order of the ITO.

The Tribunal, while dealing with this appeal, considered the rival submissions and ultimately came to the conclusion that the action of the ITO under s. 147(b) of the Act suffered from certain basic infirmities. The Tribunal came to the conclusion that the ITO could not resort to s. 147(b) of the Act, inasmuch as, he was not in possession of any information which would give him reason to believe that income chargeable to tax has escaped assessment. Moreover, when s. 148(2) is taken into consideration, it is necessary that the ITO shall record his reasons for doing so before issuing any notice under the section. Here also it is found by the Tribunal that the ITO has failed to record reasons for reopening the assessment.

5.1 The contention of the assessee was that the reopening of the assessment by the ITO was not on the basis of any new information which had come into his possession; but was merely a change of opinion. In this context it is well settled that the ITO before taking any action under s. 148(2) must record his reasons for doing so, and that the reasons so recorded must clearly specify the "information" which had come into his possession in consequence of which he had reason to believe that income chargeable to tax had escaped assessment. On the facts of the case we find that the letter dt. 10th January, 1979, addressed by the ITO to the assessee (which letter was subsequent to the notice in question), does not disclose the "information" which had come into possession of the ITO. The Departmental Representative was not able to show, other than the letter referred to above, that there was any other independent material on record on this question. It must also be noted that the decision of this Court referred to by the Departmental Representative had already been reported on the date when the regular assessment was made by the ITO. There is nothing on record, let alone any assertion or statement on the part of the ITO, that the decision of this Court was not known to him or was not available to him when he made the regular assessment. Thus, the Tribunal was correct in observing that it was merely a case of change of opinion, on the basis of the material already on record.

In this context we may only refer to the basic principles pertaining to reopening of the assessment, as laid down by the Supreme Court in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, as under :

"Plainly, the statutory provision envisages that the ITO must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words "reasons to believe" and it follows from the "information" received by the ITO. The information is not the realisation, the information gives birth to the realisation."

After having perused the judgment of the Tribunal we can only conclude that it has recorded findings of fact to the effect that the ITO has failed on both the counts referred to hereinabove, viz, as regards existence of the "information", and that the said "information" gives him reason to believe that income chargeable to tax has escaped assessment.

On the facts and circumstances of the case we are satisfied that these are findings of fact and also the legal position do not justify interference in the present reference.

In the premises aforesaid the question raised in the present reference is answered in the affirmative, i.e., against the Revenue and in favour of the assessee.

The reference stands disposed of accordingly with no order as to costs.