1. This is a reference under section 66 (1) of the Indian Income-tax Act, 1922, at the instance of the revenue. The question that is referred to us for determination is whether, on the facts and in the circumstances of the case, the Income-tax Officer was justified in reopening the assessments for the years 1955-56, 1957-58 and 1958-59 under section 34 (1) (b) of the Act
2. The assessee is a registered firm doing business in yarn and also commission agency. The question for determination is confined to assessment years 1955-56, 1957-58 and 1958-59. The corresponding previous years are Samvat years 2010, 2012 and 2013. Up to and including S. Y. 2011, the assessee-firm had three partners, viz., Bhagwandas, Ramniklal and Vrajlal. For and from S. Y. 2012 the frm had six partners, viz., Ramniklal, Vrajlal, Ishwarlal, Kumudchandra, Vinodchandra and Indulal. In the books of the assessee there was an account in the name of Bombay Import and Export Agency (hereinafter referred to as 'the Agency firm'). During the relevant period, the partners of the assessee-firm were interested in the Agency firm as there were common partners. The account of the assessee-firm with the Agency firm commenced many years ago and right up to S. Y. 2007, interest was charged to the account of the Agency firm and was included in the business profit of the Agency firm. From S. Y. 2008 onwards the Agency firm started incurring losses and the assessee-firm did not charge interest to the account of the Agency firm. In the beginning of S. Y. 2010, the Agency firm was indebted to the extent of Rs. 4,76,722 to the assessee-firm, and at the end of S. Y. 2014, the Agency firm was indebted to the assessee-firm in the sum of Rs. 6,09,129. Original assessment for the assessment years 1955-56, 1957-58 and 1958-59 of the assessee-firm was completed by the Income-tax Officer by his orders passed on April 17, and December 31, 1957, and on November 27, 1958. In none of these three years was the interest payable by the Agency firm to the assessee-firm added to the total income of the assessee-firm. Later on the assessments for these three years were reopened under section 34 (1) (b) of the Act, on the following ground : The assessee-firm had paid interest to various parties on funds borrowed from them. However, part of the funds borrowed has been invested in the Agency firm in which the partners of the assessee-firm were also partners. No interest appears to have been charged from this account to the Agency firm. It is the case of the revenue that this fact has come to the notice of the officer while examining the account books for the year 1959-60. On the basis of this fact, a notice was issued under section 34 (1) (b) of the Act to reopen assessment on the ground that certain income for the three years had escaped assessment.
3. Before the Income-tax Officer on behalf of the assessee-firm, it was sought to be contended that the provisions of section 34 (1) (b) were not attracted because there was no discovery of information on the basis of which such a notice to reopen assessment could be issued. That contention, however, was rejected by the Income-tax Officer and he passed supplemental assessment orders on the footing that the assesses-firm had, as part of its income, the interest payable by the Agency firm on the amount due by it to the assessee-firm. An appeal by the assessee-firm to the Appellate Assistant Commissioner was dismissed. On further appeal by the assessee-firm before the Income-tax Appellate Tribunal, it was urged that all relevant facts were known to the Income-tax Officer at the time when he passed the original assessment order for all the three relevant years; that there was no discovery of information which could have justified the issue of a notice under section 34 (1) (b); that the mere change of opinion on the part of the Income-tax Officer cannot be the basis for issue of such a notice. The contention, on the other hand, on behalf of the revenue was that even though the specific statement of accounts of the Agency firm for all the three relevant years were filed before the Income-tax Officer when he passed the original assessment order, the same was done only to enable the Income-tax Officer to issue information slips to the other firm; that there was no conscious application of the mind by the Income-tax Officer to the question whether the amounts advanced to the Agency firm were for the purposes of the business and whether any money borrowed to the extent of advance was not for the purposes of business. The Tribunal rejected the contention urged on behalf of the revenue and accepted the contention of the assesses-firm and set aside the supplemental orders of assessment passed for these three relevant years. Upon an application of the revenue, the Tribunal has referred the above question to this court for our determination.
4. Mr. Joshi on behalf of the revenue has contended that merely because the statement of account for the relevant year of the Agency firm was filed before the Income-tax Officer, it cannot be said that while passing the original assessment orders, the Income-tax Officer consciously applied his mind to the facts disclosed thereby and to the inference to be drawn therefrom. He submitted that the assessee-firm had borrowed large sums of money and in respect of the said sums so borrowed, interest paid to the creditors was permitted to be deducted in calculating the income of the assessee-firm. A part of this borrowed amount was utilised for making payment to the Agency firm and no interest was charged on the amount due by the Agency firm. His submission was that the fact that no interest was charged to the Agency firm was discovered by the Income-tax Officer when he passed the assessment order for the assessment year 1959-60. As this fact was discovered later on, his submission was that a case was made out for issue of a notice under section 34 (1) (b) of the Act.
5. It is now well settled that a notice under section 34 (1) (b) of the Act can only be issued to reopen assessment where the Income-tax Officer 'has in consequence of information in his possession reason to believe' that the income has escaped assessment or full assessment. The Income-tax Officer cannot take any action under this section merely because he happens to change his opinion or to hld an opinion different from that of his predecessor on the same set of facts. Strong reliance was placed by Mr. Joshi on behalf of the revenue upon a recent decision of this court in Commissioner of Income-tax v. H. Holck Larsen : 85ITR467(Bom) . Relying upon this case, his submission was that unless the Income-tax Officer, while passing the original assessment orders, consciously applied his mind to the data before him, and had co-related the various relevant facts, it is permissible later on to reopen assessment by issuing the notice under section 34 (1) (b). The Division Bench in this case has taken the view that information within the meaning of section 34 (1) (b) of the Act may be obtained by the Income-tax Officer from his own record but a mere change of opinion would ont justify the reopening of the completed assessment. In this case, for the assessment of the assessee for the assessment years 1957-58 and 1959-60, the Income-tax Officer had accepted, as in previous years, the assessee's case that he held the shares of the company, Larsen & Toubro, as investment and that the profits arising from the sale of the shares of that company were capital gains. The very same Income-tax Officer in his assessment proceeding of the assessee for the assessment years 1959-60 and 1960-61, scrutinized the entire course of transactions from the year 1946, and held that though the assessee was an investor till March 31, 1954, he has converted his investment shares into stock-in-trade on April 1, 1954, and had become a dealer in shares and brought to tax the profit made by the assessee by sale of shares in the assessment years 1959-60 and 1960-61 as business profit. In the light of the findings recorded by him in hte assessment years 1959-60 and 1960-61, the Income-tax Officer re-opened the assessment of the assessment years 1957-58 and 1958-59 under section 34 (1) (b) of the Act and held that the assessee was a dealer in shares in those two assessment years. On appeal by the assessee, the Appellate Assistant Commissioner set aside the fresh order of assessment and that order was confirmed by the Appellate Tribunal. Upon a reference to this court, this court took the view that the fact that the Income-tax Officer had recorded a different decision in the assessment proceedings of subsequent years could not constitute 'information' within the meaning of section 34 (1) (b) so as to give him jurisdiction to re-open the assessment. The information must have come into the possession of the Income-tax Officer after the previous assessment. In the instant case, the facts and circumstances on which the Income-tax Officer purported to act under section 34 (1) (b) were already before him during the original assessment proceedings of 1957-58 and 1958-59. He had consciously applied his mind to that data and he had co-related the various facts. In other words, he was not only aware of that data but he had realised its implications. It was, therefore, not open to him to fall back upon the same facts and circumstances and re-open the assessments. The only subsequent information which the Income-tax Officer had was that in later assessments he head himself taken a different view of the same facts. It was held that that would not justify the case for re-opening an assessment.
6. The facts on the basis of which the assessment is sought to be reopened are that the assessee-firm paid interest to various parties on the funds borrowed from them. That a part of the fund so borrowed was utilised in investment of the Agency firm in which the assessee-firm had certain common partners; that no interest was charged during the three relevant years to the Agency firm in respect of the amount due by it to the assessee-firm. Each one of these facts was within the knowledge of the Income-tax Officer when he passed the original orders of assessment for these three years. For these three years, the quantum of the amount due by the Agency firm to the assessee-firm was by itself such that no responsible Income-tax Officer can fail to scrutinize the effect thereof. The matter, however, did not rest there. For each one of the three assessment years in the question, a copy of the accounts of the Agency firm was filed and these accounts disclosed that no interest was charged to the Agency firm. Reliance was placed by Mr. Joshi upon the Explanation to section 34 (1) which lays down that production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section. Upon scrutiny of the facts of each case, one has to consider whether there is discovery of information in consequence of which the Income-tax Officer has reasonable belief that particular income had escaped assessment or was not assessed in full. That there was conscious application of mind by the Income-tax Officer when he passed the original assessment orders is disclosed by the fact that while passing the original assessment order, he put his tick mark upon the amount of the Agency firm for the first assessment year, viz., 1955-56. The putting of this tick disclosed that there was a conscious application of his mind by the Income-tax Officer when he passed the original assessment order. He knew very well then that no interest was charged to the Agency firm for each one of the three relevant years. Mere fact that in the subsequent year 1959-60 the Income-tax Officer took a different view for failure to charge interest to the Agency firm cannot result in discovery of information which could justify the issue of a notice under section 34 (1) (b). All relevant facts and the inferences to be drawn therefrom were before and known to the Income-tax Officer when he passed the original assessment orders and a mere change or difference in opinion, while assessing for the subsequent years, could not justify an officer to issue a notice under section 34 (1) (b) of the Act. In our opinion, the Tribunal was right in taking the view that there was no discovery of information which could have justified the Income-tax Officer to issue a notice under section 34 (1) (b) of the Act.
7. Our answer to the question referred to us is in the negative. The revenue will pay the costs of the assessee of this reference.