R.C. Mankad, J.
1. Whether, the ITO, Companies Circle-V, Ahmedabad, respondent herein, could have entertained a reasonable belief that there was escarpment of income from assessment on account of the failure on the part of the petitioner to disclose full and truly material facts necessary for its assessment for the assessment year 1970-71 and 1974-75, justifying the initiation of action for reopening the assessment for the said assessment year So far as the assessment year 1974-75 is concerned, there is a further question, namely, whether the respondent could have entertained a reasonable belief that there was escarpment of income from assessment in consequence of information in his possession. These are the questions which we are called upon to answer in this petitioner filed under art 226 of the Constitution of Indian.
2. petitioner is a company registered under e Indian Companies Act, 1913, and it is engaged in the business if manufacturing textiles for the last several year. The respondent is the ITo having jurisdiction to assess the petitioner. The relevant assessment year with which this petitioner is concerned are assessment years 1970-71 and 1974-75, corresponding year of account being financial year 1969-70 and 1973-74, respectively. Petitioner was following the cost method for the purposes of valuing its opening and closing stock's of cloth and yarn for the purpose of income-tax assessment for the last several years. Common method was followed for the purpose of valuing the stocks of cloth and yarn bother for the purpose of income-tax and balance-sheet and profits and loss account up to the assessment year 1965-6 6. Departure was, however, made in the assessment year 1966-67, that is, financial year 1965-66. In that year, the petitioner changes the method of valuation of stocks of yarn in process and cloth for the purpose of the Companies Act. Balance-sheet and profits and loss account required to be prepared under the provisions of the Companies Acts were prepared on the basis of the new method and while the old method was continued to the followed for the purpose of income-tax. It is not necessary to set out the methods which the petitioner followed in valuing its stocks of clothe and yarn which was not in process, since the controversy in this petitioner arises only on account of the valuation of the stock of yarn in process. So far as the yarn in process was concerned, the petitioner followed a uniform method of valuing the stock at 12 paise per kg or 6 per 1b. for the purpose of income-tax/. Cost of yarn in process for the purpose of balance-sheet was worked out by adding 25% weaving charges to the cost of ready yarn. Along with its return of income submitted for the assessment year 1966-67, the petitioner filed a statement in which difference between the valuation of the closing stock shown in the balance-sheet and its valuation for the propose of income-tax assessment and the necessary adjustment to be made in its valuation for the purpose of income-tax assessment were stated. It appears that standard queries were issued by the ITo for the purpose of assessing the petitioner to income-tax for the year 1966-67, which as pointed out above, was e firms year in which the petitioner changed the basis or method for valuation of the stock for the purpose of balance-sheet and profits and loss account. In reply to query No. 21, regarding stock valuation, the petitioner, stated as follows :
'21. Stocks of cotton and yarn are valued at cost as in the past. Stocks of yarn in process and cloth are valued at cost on a slightly different method for the purpose of balance-sheet. Rs. 1,55,127 is the amount of over-valuation on e basis of the valuation at cost on e basis of method followed for the purpose of income-tax. Valuation of stocks at cost is given in a statement with the return of income.'
3. In the statement showing valuation for he purpose of income-tax filed along with the return, cost of yarn in process was shown at 12 p per kg. In anther statement working of valuation according to the method followed in balance-sheet was shown. The final working was shown as follows :
'Cost of Stock on old method up to 31-3-1966 : Rs.Yarn in process 8,74,025Cloth 60,20,038 Rs.----------69,94,063Cost of stock on new methodYarn in process 9,79,564Cloth 60,69,620----------Difference = 1,56,121' 70,49,184
4. In the course of assessment proceedings for the assessment year 1966-67, the petitioner also submitted the following note showing difference in valuation :
Over-valuation in e closing stock of yarn in process as on 31-3-1966 on the basis of method followed for income-tax purpose till not is as follows :
' (1) Over-valuation in weaving process due to change in
method of adding 6 p. per 1b. to cost of ready yarn and
that method followed for balance-sheet on 31-3-1966, by
adding 25% of weaving charges to cost of ready yarn. 90,565
(2) Over-valuation in stock of ready yarn, spinning
process, weaving process and cloth on 31-3-1966, due
to change in method of valuing cotton on basis of loss
percentage to that of valuing cotton on the basis of
yarn manufactured. 63,349-------1,53,914-------
5. It would thus appear that the working of valuation on the basis of both methods was placed before the ITO, The ITO while framing the assessment for the assessment year 1966-67, ln February 17, 1968, stated as follows :
'The assessee-company has claimed deduction of Rs. 1,55,127 being over-valuation in closing stock of cotton yarn process and cotton cloth and Rs. 1,70,615 being the over-valuation in closing stock of terry-cotton yarn and cloths from the profits during the year. it is contended that hitherto the assessee-company was valuing cost of ready yarn, spg, process and wvg,. process and cloth by including there in the cost of cotton arrived at by dividing the value of cotton consumed by the quantity of cotton consumed and adding thereto the average percentage of loss of cotton. For balance-sheet purpose, the assessee-company has changed the method of valuing the closing stock of cotton, etc., arriving at the cost of clean cotton by dividing the value of cotton consumed by quantity of yarn manufacured. For income-tax purpose, the method hitherto employed had been followed and on the said basis, the over-valuation for balance-sheet propose is claimed as deduction in respect of the following items :
Rs.(1) Closing stock of ready yarn Spg,. process and cloth 63,349(2) Over-valuation in Wvg. Process 90,565--------1,53,914--------
6. So also cost of weaving process of terry-cotton is valued on the basis of 25% of wvg. charge instead of additional of 6 np, per pound dot cost of ready yarn. Terry-cotton is manufactured only form 64/65 and so no adjustment are made thereto accordingly to the basis hitherto followed, viz, adding 6 np. per pound to cost of ready yarn. The valuation of closing stock of terry-cotton at cost has been worked out and the over-valuation on March 31, 1966, as per balance-sheet figure worked ouyt to Rs. 1,54,892 in the aggregate adjustment on revaluation of closing stocks comes to Rs. 3,08,806.'
7. From the assessment year 1966-67, petitioner is consistently following two methods for valuing its closing stock of yarn and cloth, one for the purpose of income-tax and another for the purpose of balance-sheet and profits and loss account as stated above. In the income-0tax assessment proceedings income was computed on the basis of valuation of closing stock shown for the purpose of income-as in each year. Every year, one of the standard queries put by the ITO related to the two different methods of valuation adopted by the petitioner for valuing its opening and closing stock and it is the petitioner case that form year to years the said query has been replied consistently in the same manner as stated above explaining the difference between the two methods of valuation and pointing out the adjustment which was required to be made as a result of the difference in framing the income-tax assessment. Every year assessment was completed on th basis of the valuation of opening and closing stock by the petitioner for the purpose of income-tax assessment.
8. For the assessment year 1970-71, which is one of the year under our consideration, the petitioner filed return of income along with the statement showing computing of total income. Accordingly to the petitioner, in one of the statements, two valuation of closing stock of yarn and cloth, one for the purpose of income-tax proceedings as per the method consistently adopted by its form year, and another for the purpose of balance-sheet, were disclosed giving details as to how the valuation were worked out. the valuation of the classing stock on method described as cost method were shown w as follow :-
Valuation for Valuation as per Over-valuationincome-tax balance-sheet in balance-sheetRs. Rs. Rs.Yarn 10,71,560 11,91,788 1,20,228Cotton Cloth 71,23,116 71,74,584 51,468terry-Cotton 24,02,724 28,36,670 4,33,946--------6,05,642--------
9. On the same basis, the opening stock of that year was also revalued for the purpose of income-tax proceedings as per the past practice and the said revaluation resulted in over-valuation in aforesaid three categories of stock aggregating in all to Rs. 14,96,316, which was also shown in the statement accompanying the return of income. The net result of this difference in the two methods both as regard the opeing in and the closing stock was reflected by a net addition of Rs. 8,90,674, which was required to be made for income-tax purpose to arrive at the net income. This figure was also shown in statement accompanying the computation of total income filed by the petitioner along with the return of income. In this year, also, m standard queries were p; u by the ITO and query relating to the closing stock was query No. 21. In answering third at cost but on a slightly different method than for the purpose of balance-=sheet and the same has resulted in over-valuation as regard the closings stock to the extent mentioned above. It was also stated that the valuation of the stock was given in a statement with the return of income. the ITo thereafter passed the assessment order on December 18, 1972, making. addition of Rs. 8,90,674 which reflected the effect of the revaluation of stock as stated above. It may be stated here that besides the statement referred to above. It may be stated her that besides the statement referred to above, the petitioner has also placed on records balance-sheet of the petitioner where in the basis on which the stock was valued by the petitioner was shown.
10. In the same manner, while filing the return of income for the assessment year 1974-75, the petitioner filed a statement showing computation of net income an in this year the revaluation as aforesaid resulted in a net over-valuation to the extent of Rs. 17,11,024, which amount was to be deducted from the profit as per the profits and loss account. In a statement accompanying the return detailed computation of income was made and on the basis on which closing stock was valued for the purpose of income-tax was also stated. The difference in the valuation between that adopted in the balance-sheet and the valuation between that adopted in the balance-sheet and the valuation for income-tax purposes was pointed out. The working as regards the valuation, which was shown, was as follows :
Valuation for Valuation as per Over-valuationincome-tax balance-sheet in balance-sheetpurposeRs. Rs. Rs.Cloth includingterry-cotton 83,03,657 1,27,86,222 44,82,565cloth yarn 15,48,375 17,38,489 1,90,114---------46,72,679---------
11. As against this difference in valuation, the difference in the valuation of the opening stock came to Rs. 19,61,595 resulting in a net difference of 27,11,084, which amount as stated above was to be deducted from the profits as per the profit and loss account. In this year, also, while relying on quarry No. 21 put by the ITO, as in th earlier year, it was pointed out that method of valuation far the purpose of income-tax was explained in a statement accompanying the return of income. The ITO, while framing the assessment for the assessment year 1974-75, gave effect to the difference in valuation by deducting Rs. 27,11,084 as stated above.
12. The respondent issued notice dated March 19, 1979, under s. 148 read with s. 147 of the I. T. Act, 1961 (hereinafter referred to as 'the Act'). stating that he had reason to believe that the petitioner income for the assessment year 1974-75 had escaped assessment and, therefore the assessment year 1974-75 had escaped assessment and, therefore, e he proposed to reassess the same and called upon the petitioner to file a return of income in the prescribed form within 30 days. This notice was received by the petitioner on March 28, 1979. A similar notice dated was received by the petitioner on March 28, 1979. A similar notice dated march 29, 1979, under s. 148 read with s. 147 of the Act was issued by the respondent for the assessment year 1970-71. In the notice also, the respondent stated that he has reason to believe that the petitioner income chargeable to tax for the assessment year 1970-71 had escaped assessment, and, therefore, he proposed to reassess the income for the said assessment year. Petitioner was required to deliver to the respondent within 30 days from the date of the service of the notice a recession of income in prescribed form for the said assessment year. Petitioner filed returns in pursuance of the said notice on April 16, 1979, along with a covering latter accompany the returns. It was pointed out that the returns were filed under protest and without prejudice to the petitioners right to challenge the validity of the notice and initiation of reassessment proceedings. it was pointed out 6that the provision of s. 147(a) or s. 147(b) of the Act were not attracted as there was no concealment of any particulars not was there any information in possession of the respondent for reopening the assessments. petitioner contends that since it, had made full, complete and true disclosure regarding all material facts, relevant for the purpose of making assessment, there was no justification for reopening the assessment for the aforesaid assessment years. It is contended that the petitioner had placed on record all material facts as regards the valuation of the closing and opening stocks and e basis adopted by its for such valuation. It is pointed out that the basis for valuing the closing and opening stocks were fully explained in e statement filed by the petitioner along with the return. It is further pointed out that the petitioner was consistently following one method for income-tax purpose and this method was accepted by the I. T. Dept. for the last many years. Petitioner further contends that the respondents was not in possession of nay information in consequence of which he could entertain a reasonable belief that the was escarpment of income form assessment in the aforesaid years Petitioner has, therefore, e filed this petitioner challenging the validity of the aforesaid notices issued by the respondent under s. 148 read with s. 147 of the Act and prayed that the said notices be quashed and set aside.
13. Assessment are sought to be reopened3 by the respondent on account of method of valuation adopted by the petitioner of valuing yarn in process for income-tax purpose. In the respondents affidavit, it is stated that on perusal of the method adopted for the valuation of the yarn in process, it was found that the petitioner had shown cost in respect of such yarn at 12 paise per kg. whereas the actual cost as disclosed in the balance-sheet was m, ore. According to the respondent, the correct cost of balance-sheet was more. According to the respondent, the correct cost of yarn in process was shown in the balance-sheet whereas the valuation for the purpose of income-tax was adopted on estimate basis. It is stated that the method which the petitioner has declared for the purpose of income-tax was unscientific, arbitrary and unreliable and its was wrongly described as 'cost method'. Accordingly to the respondent, the petitioner had misled the Department by stating that the method which it followed for valuing yarn in process was the cost method. The responded recorded the following reasons for responding the assessment for the assessment year 1974-75 :
'IN this case, in REvenue Audit has pointed out that while valuing the stock in process, the assessee has valued the stock by adopting fixed cost at 12 p, in. balances-sheet the figure adopted are different and, therefore, e income to the extent of Rs. 1,34,216 has escaped assessment. In view of the audit objection received, I have reason to believed that due to failure on the part of the assessee to disclose fully and truly all material fact necessary for its assessment, income chargeable to tax has escaped assessment.'
14. It is stated before us that identical reasons were recorded fro reopening assessment for the assessment year 1970-71. It is submitted that petitioner was guilty of suppression of material fact and had not fully and truly disclosed all material fact for framing assessment. As the fact which were not disclose by the assessee came to light subsequently, assessment are sought to be reopened. In paragraph 7(K) of the affidavit-in-reply of the respond, it is conceded that for the assessment year 1970-71, assessments could not be reopened under s. 147(b) of the Act,. It is clarified that for the said assessment year, action was taken under s. 147(a) and not under s. 147(b) of the Act. This position was accepted by Mr. S. N. Shelat, learned counsel for the responded, at the time of hearing of this petitioner. However, so far as assessment year 1974-75 is concerned, it is contended that apart from the fact that the petitioner was guilty of suppression of material facts justify in reopening of the assessment under s. 147(a), the respondent has reason to believe that there was escarpment of income in consequently of information in his possession and, error, e it was open to him to reopen the assessment under s. 147(b) of the Act, According to e responder us information came into his possession as a result of audit objection which we shall refer to when we deal with e question whether assessment could be reopened under s. 147(b).
15. Now, so far as reopening of the assessment under s. 147(b) of the Act is concerned, as observed by this court in Arivind Boards and Paper Products Ltd. V., M. T. Keshruwala, ITO, : 124ITR626(Guj) , it is well settled that two conditions have to be satisfied before the ITo acquired jurisdiction to issue not case under s. 148 in respect of an assessment beyond the period of four year but within a period of eight year from the end of the relevant year, namely, (i) that the ITo must have reason to be live that e income chargeable to tax had escaped assessment and, (ii) that he must have reason to believe that such income has escaped assessment by reason of the omission or failure on e part of the assessee, (a) to make a return under s. 139 for the assessment year to the ITO, or (b) to disclose fully and truly material facts necessary for the assessment for that year. Both these condition must co-exist to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reason before initiating proceedings as required by s. 148(2). Another requirement is that before notice is issued after the expiry of four years form the end of the relevant assessment, year, the Commissioner should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. / In the present case, this last condition is satisfied and there is no dispute on at count. IN the present case reassessment is not resorted to on the ground that the re was omission or failure on the part of the assessee to make returns under s. 139 of the Act for the assessment years in question. The ground which us common to both the assessment year on which the proceedings are sought to be initiated in that there was failure on the part of the petitioner to disclose fully and truly material facts which are necessary for its assessment of the assessment years in question. The law on this aspect is also well settled. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Once he has done that, his duty ends. It is not the responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If the ITO draws an inference which appears subsequently to be erroneous, mere changed of opinion with regard to that infernos would not justify and necessary for assessment will differ from case to case. But once those primary fact are disclose and all e facts which would help the ITO in coming to the correct conclusion are brought to his notice, the assessee duty ends. From these primary fact and the further facts inferred from them the taxing authority has to draw the proper legal infernos and ascertain on a correct interpretation of the taxing enactments the proper tax livable (vide Parashuram Pottery Works Co. Ltd. v. ITO : 106ITR1(SC) .
16. Bearing in mind this settled legal position we would not press to consider the question whether in this case, there was material on the basis of which the respondent could have entertained a reasonable belief that there was escarpment of income from assessment on account of failure on e part of the petitioner to disclose fully and truly material facts necessary for the purpose of assessment for the year in question justify reopening of the assessment under s. 147(a) of the aCt. AS pointed out above, the ground on which e assessment are sought to be reopened under s. 147(a) is that the assessee had valued its stock off yarn in press at 12 p per kg. IN other words, the stock of yarn in process was valued at a uniform rate of 12 p though, in the balance-sheet, the figures of cost adopted were difference,. Now, as point out above, the of yarn in process at the fixed or uniform rate of 12 p per kg. This method of valuation of stock of yarn in press has been followed of the last several years' for income-tax purposes. However, from the assessment year 1966-67, that is financial year, 1965-66, the petitioner adopted two methods of valuation of the stock, one for the purpose of income-tax and another for the balance-sheet and profits and loss account. For the purpose of income-tax, it followed the past practice of valuing the stock. while for the purpose of balance-0sheet and profit and loss account, it adopted a slightly difference method of valuation. Cost of yarn in process was shown at 12 p per kg. for the purpose of valuing its stock as in the past for the purpose of income-tax. For the assessment years under references, that is, assessment years 1970-71 and 1974-75, the petitioner followed the same method of valuation of its stock which is has followed form the assessment year 1966-67. In other word it valued its stock of yarn in process at 132 p per kg. for the propose of income-tax, while it adopted a slightly different method of valuation for the purpose of balance-sheet and profits and loses account. Statement containing details of method s of valuation adopted by its were filed along with its return of income. Balance-sheets in which method different from the one adopted for the purpose of income-tax was followed were also filed in the course of assessment proceedings. In answer to the queries put by e ITO in both the yearns in question, e petitioner had explained the method of valuation of stock adopted by it. It was after taking into consideration the valuation of stock for the purpose of income ITO while framing the assessment for the said yearn made suitable adjustment and made additions or deduction as a result of such adjustment. The grievance of the respondent is that the petitioner, had valued its stock on cost method, though in fact it was not a cost method which it was following. It is contended that the fact that the petitioner was not valuing its stock of yarn in process at actual cost was evidence from the method adopted by its in the balance-sheet. It is contended that the balance-sheet showed the correct method of valuation, Still however, for the purpose of income-tax. the petitioner adopted a different method. It is contained that the statement add by the petitioner that it was valuing its stock by actual cost method was false and misleading and therefore it could not be said that the petitioner had fully and truly disclose all material facts necessary for its assessment. It was submitted that both e method of valuation adopted by the petitioner and the actual valuation made by its were primary facts which the petitioner was required to state fully and truly. If both or either of the fact was found to be untrue of false, it was open to the responded to initiate proceedings for reassessment of the petitioners income for the assessment year 1970-71 and 1974-75.
17. The arguments advance on behalf of the respondent in the present case are, in our opinion, covered by decision of the Supreme Court in CIT v. Burlop Dealers Ltd. : 79ITR609(SC) and ITO v. Madnani Engineering Works Ltd. : 118ITR1(SC) . In Burlop DEalers case, the assessee in the course of its original assessment to income-tax for the assessment year 1949-50, had produced a partnership agreement within Ratiram Tansukharia and claimed that the profits earned by its form H. Manory Ltd, had bene divided between itself and Ratiram Tansukharia under the partnership agreement and its one-half share of the pact of this source. the ITO accepted the partnership agreement profit namely,. Rs. 87,937, was the only amount assessable to tax in respect of this source. The ITO accepted the partnership agreement and assessed the assessee only on profits of Rs. 87,937. It appears that while, making assessment for th assessment year 1950-51, the ITO found that the partnership agreement between the assessee and Ratiram Tansukhrai was a got up[device to reduce that profits received from H. Manory Ltd. and the assessee was, therefore, liable to tax on the entire amount of profit's coming from H. Manaory Ltd. This view taken by the ITO was confirmed on appeal by e AAC and e Tribunal. The High Court also on a reference agreed with the view of e Tribunal. The ITO thereupon issued a notice under s, 34(1) (a) of the 1922 ACt to reopen the assessment of the assessee for the assessment year 1949-50 in order to bring to tax the further amount of Rs. 87,937, being the half share of the profit H. Manory Ltd. alleged to have bene paid to Ratiram Tansulbrai under the partnership agreement. The assessee contended that it had produced all e re, even account and documents necessary for completing the assessment and it was under no obligation to inform the ITO about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment. This contention was negatived by the ITO, and the income of the assessee was reassessment by adding Rs. 87,937 to the income returned by the assessee. This view taken by the ITo was confirmed on appeal, by the AAC but further an appeal, the Tribunal accepted the contention of the assessee and held that there was no failure on e part of the assessee to make a full and true disclosure of the material facts and hence the ITO was not justified in seeking to reopen the assessment under s. 34(1) (a) of the said Act. The Revenue applied to e Tribunal for a reference but the application was rejected and e High Court also dismissed the application of the Revenue for calling for a reference form the Tribunal. the REvenue thereupon preferred an appeal to the Supreme Court by special leave. ?The appeal was rejected by the Supreme Court on the ground that the assessee had disclosed all its books of account evidence from which material facts could be discovered and it was under no obligation to inform the ITO about the possible inference which might be raised against tit and hence there was no failure on its par to disclose the preliminary facts relevant to the assessment which would invite the preliminary facts relevant to e assessment which would invite the application of s. 34(1) (a). It would thus be seen that accordingly to this judgment, there was no obligation on e assessee to disclose that the partnership there wa son obligation on the assessee to disclose that the partnership agreement produced by it was bogus and at the entire made it in its books of account were false. The assessee discharge the obligation which lay upon it by disclosing its books of account end evidence from which material facts could be discovered and it was for the ITO to decide whether the documents produced by e assessee were genuine.
18. In Madnani Engineering works Lid's case : 118ITR1(SC) ,. for the assessment year 1959-60, which was complete on August 23, 1960, certain interest paid by the assessee to its creditor form whom it claimed to have borrowed monies on hundies was allowed as detectable expenditure. Subsequently on January 25, 1968, i.e., after a lapse of four year from the end of the assessment year, a notice was issued by the ITO to reopen the assessment of the assessee on the found that the transaction of loan represented by the hundies were bogus and not interest was paid by the respondent to any of the creditor and interest was wrongs allowed. The assessee challenged the validity of notice by filling a writ petitioner, in the High Court. On December 5, 1968, the ITO in his counter-affidavit, declined to disclose the fact on the ground that if such facts were disclosed it would cause great prejudice o the interest of the Revenue and would frustrate the object of reopening the assessment. Thereafter, h filed a further affidavit on January 27, 1970, stating that in the course of th assessment of the assessment of h respondent for the assessment year 1963-64 it was discovered that various items shown as loans again that security of hundies in the respondents books of account of the assessment year 1959-60 were in fact fictions and credit again the names of certain persons, viz, A, G, R, M, and D, were found not to genuine and that in that premise it appeared to the ITo that the assessee had filed to disclose fully and truly all material facts necessary for its assessment and by reason of such failure a portion of its income had escaped assessment. The learned singly judge of the High Court dismissed the writ petition but, on appeal e Division Bench of the High Court allowed the petitioner and quashed the notice. On appeal. e Supreme Court held that he case was directly covered by its decision in Burlop Dealers Ltd. : 79ITR609(SC) , as her also e assessee had procured in the original assessment proceeding all e hundies on the strength of which it had obtained loans from creditors as also entries in the books of aconite showing payment of the interest and its wa of the ITO in investigate and determined whether these documents were genuine or not, the assessee could not be said to have filled to make a true and full discolor off the material facts buy not confessing before the ITO that the hundies and e entire in e books of account produced by it were bogus. The Supreme Court held that there was no distinction at all between Burlop Dealers' case : 79ITR609(SC) , and the aforesaid case and the language of s. 147(a) being identical with that of s,. 34(1) (a) of the Indian I. T. Act, 1922, the ratio of the decision in Burlop Dealers case must over the decision of th aforesaid case. The Supreme Court, therefore, held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of s. 147(a) was not satisfied.
19. We are of the view that, prima facie, on e facts and circumstances of the case, the appendage or label which the petitioner gave to the method of valuation of stock of yarn, namely, valuation of stock at cost. is not by itself a primary fact. The description accordingly given by the petitioners is really in the nature of an inference-even if it be an ill-informed inference-drawn by it as to the nature and character of the calculation adopted by it. The details of e basis laced on the record of the original assessment proddings and e case is not one where th final figure of valuation alone was given with the statement that it was arrived at on the basis of actual cost. That apart, even assuming that the description accordingly given by the petitioner about the method of valuation constituted a primary fact, e petitioner, as earlier stated, had simultaneously placed on record in e form of a statement the details or particulars in relation to the valuation of stock. In other words, e actual method adopted by the petitioner for valuing the stock was laid bare in all its essential particular in the court of the original assessment proceedings. Such material also constituted a primary fact which was fully disclosed. There was thus a true and full disclosure of all e primary fact at the time of the original assessment. Once the petitioner had done this, his duty ended. If was for the ITO to draws a correct inference from r, or not the stock could be said to have all those primary facts taken together and to decide, inter alia, whether or not the stock could be said to have bene valued at cost as claimed by the petitioner, having regard to the method adopted. It was not part of the duty or responsibility of the petitioner, to advise the ITO with regard to the returns and correct inference which should be drawn from these primary facts as regard the method of valuation. If the ITO drew an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify e initiation of action for reopening the assessment. From all he primary facts and e further facts inference from them the ITO had draw the proper legal inference at the relevant time and to ascertain on a correct interpretation the proper tax livable. We are, therefore, of the view that there is absolutely no justification to reopen e assessment in either of the assessment years under consideration under s. 147(a) of the Act.
20. So far as the assessment year 1974-75 is concerned, e additional contention which is raised on behalf of the respondent is that he had 4reasons to believe that the was escarpment of income from the assessment in consequence of information in his possession. The information on the basis of which the assessment is sought to be reopened consists of an audit objection a copy of which is placed on record at Ex. A to be affidavit-in-reply. The audit objection was in following terms :
'A company engaged in the manufacturing of cotton cloth valued its closing stock under the cost method. In valuing the cost of cotton consumed in the manufacture of cotton cloth during the previous year relevant to A. Y. 1974-75, the total entity off cotton consumed was taken as 32,07,355 kg,. as against 30,76,723 kg as shown in he quantity amounts of raw materials consumed. By taking the correct quantity of consumption into consideration the cost of cloth would work out to Rs. 9.32 per kg. including the wastage of 21.61% as against Rs. 8.94 per kg. adopted in valuation of this item. this resulted in under valuation of closing stock of 3,52,847 kg. of cotton to the extend of Rs. 134 lakhs involving short levy of tax of Rs. 77,430. the ITO agreed to take necessary action calling for further information from the assessee.'
21. We have already set out above the reasons recovered by the respondent for reopening the assessment for the assessment year 1974-75. It is obvious from the reasons recorded by the respondent that assessment was not reopened bon the basis of e audit objection or the factual information supplied by the audit objection. The audit objection was with regard to valuation of stock of cloth; whereas the reason for reopeing the assessment recorded by the respondent is valuation of stock of yarn in process. What would constitute 'Information' in consequence of possession of which the ITO can act within the meaning of s. 147(b) has been the subject-matter of many decision. this court in K. Mansukhram & Sons v. CIT : 133ITR65(Guj) reviewed the legal position on the question in e light of the decision of the Supreme Court in India and Eastern Newspaper Society v. CIT : 119ITR996(SC) , and observe that the view which finally prevailed as to the legal position governing the applicability of s. 147(b) was as follows (p. 73) :
'This decision clarifies the legal position on the question as to when instructions or knowledge as to fact of the correct state of law constitute 'information' within the meaning of s. 147(b). Instruction or knowledge concerning any fact relating to the assessment, which has a concrete existence and definitive vitality and which is capable of influencing the determination of an issue arising in the course of an assessment but has escaped notice of the ITO, would constituted, 'information', if it is derived from any external source after the completion of e assessment. However, instruction or knowledge as to law, in order to constitute 'information', must be relatable to statutory or judge-made law and traceable to a formal source competent to enact or declare law. As statement of law by a persons or body not complement to create of define law,. such as a competent legislative judicial or quasi-judicial authority, cannot be regarded as providing instruction or knowledge as to law. But attention as to the existence of such law may be drawn by any person or authority and thereupon only that part of the communication, which mentions the law and which has escaped the notice of the ITO at the time of the original assessment, would constitute 'information. If would not be open to the ITO, however, to reopen a completed assessment upon reappraisal of the material considered by him during the original assessment. An error discovered on a reappraisal of the same material without anything more, does not given him the power to reopen the assessment.' As pointed out by is court in K. Mansukhram & Sons, it would not be open to the ITo to reopen the complete assessment upon a reappraisal of the material considered by him during th original assessment. ?An error discovered on a reappraisal of the same material, without anything more, does not given him the power to open the assessment.
22. We have already set out in detail the facts disclosed by e assessee and considered by the ITo in e course of the assessment proceedings in the present case. it is clear from what is disclose above that the audit objection merely drew the attention of the ITO to the material which was already on record and which was considered by the ITO at the time of original assessment. In other words, the factual information supplied by e audit objection was already consider by e ITo when the framed the assessment. The audit had no informed the ITo of any fact which had escaped the notice of the ITO or which was not considered by the ITO. therefore, apart from the fact that reopeing of assessment was not on the basis of any information supplied by the audit objection no fact which had gone notice or which had not been considered by the ITO was disclosed by such information. The ITO had already considered the material to which his attention. The ITO had already considered the material to which his attention was drawn by the audit, as also the method of valuation adopted by the petitioner in valuing the stock of yarn in process when he framed the original, assessment. The reasons recorded by e respondent to reopen assessment made it clear that according to him there was an error in action he basis adopted by the petitioner in valuing stock of yarn in process. It is obvious that this error, if any, is discovered on a reappraisal of the same material without anything more. Here what seems to have happened is that the respondent has upon a review of the material on record, arrived at a difference conclusion on the above aspects of the case. This is, therefore, a case of mere change of of opinion which does not given power or jurisdiction to the respondent to reopen the assessment. We are, therefore, of the opinion that there is no jurisdiction for reopeing the assessment for the assessment year 1974075 under s. 147(b) of the Act. For the foregoing reasons we hold that the impugned notice issued by the ITO for the assessment year 1970-71 and 1974-75 are void and without jurisdiction.
23. In the result, this petitioner succeeds. The impugned notice dated March 19, 1979, and March 29, 1979, Exs. C-3 and C-1 respectively, rate quashed and set aside. REspondent shall pay the cost of the petitioners.
24. Rule made absolute accordingly.