Divan C.J. - The petitioner herein which is a limited company challenges the notice under s. 148 of the I.T. Act, 1961, issued by the respondent herein, the ITO, Company Circle II, Ahmedabad, proposing to reopen the assessment of the assessee for the assessment year 1975-76. The notice was issued on February 23, 1978. The facts leading to this litigation are as follows. The assessee-company manufactures dyestuff as and chemicals. The assessment year under consideration is the assessment year 1975-76, the corresponding accounting year calendar year 1974. For the assessment year 1975-76, the petitioner-company filed its return under s. 139 on June 29, 1975, declaring the total income of Rs. 4,55,96,020 but thereafter on july 28, 1975, a revised return showing an income of Rs. 4,45,74,590 was filed. The income returned in the revised return decreased because in the original return the petitioner had not made the claim for deduction under s. 80J , that is, relief in respect of a new industrial undertaking. In the assessment for this particular year, the petitioner who had claimed relief under s. 80J in respect of a new industrial undertaking, also claimed relief under s. 80M in respect of inter-corporate dividends, gratuity of Rs. 53,041 accrued and paid during the according year and extras shift depreciation allowance for plant and machinery including technical know-how. The ITO passed the order in the original assessment on January 3, 1977, and he allowed all the claims except the claim under s. 80J. An application under s. 154 was made to the ITO and thereafter the ITO by his order dated July 2, 1977, accepted the application and granted relief as claimed in the letter. Thereafter, the notice dated February 23, 1978, exhibit D to the petition, was issued by the respondent stating that he had reason to believe that the petitioners income chargeable to tax for the assessment year 1975-76 had escaped assessment and that he proposed to reassess the same and asked the petitioner to file a fresh return within thirty days. In order to avoid penalty proceedings under s. 271(1)(a) , the petitioner submitted its return on March 19, 1978. The petitioner-company also requested the respondent to initiate reasons for reopening the assessment. During the course of the discussion with the respondent the petitioners representative was informed that s. 147 proceedings were being taken in respect of four terms, namely, relief under s. 80J in respect of expansion of Naphthalene Intermediate Plant (hereinafter referred to as NIP Expansion Plat), s. 80M relief granted on gross dividends instead of net dividends, gratuity of Rs. 53,041 paid during the accounting year and allowed in the original assessment and extra shift depreciation and technical know-how. Thereafter, the petitioner-company addressed a letter on July 19, 1979, setting forth its contentions in respect of each of these four different heads in respect of which the reassessment proceedings were proposed to be started. The petitioners contention is that the proceedings have been restarted under s. 147(b) on the basis of the information of audit note objection and the petitioner contends that no information was received by the ITO within the meaning of s. 147(b) regarding any of these four items. In the affidavit-in-reply filed by the respondent, being the affidavit dated January 21, 1980, in para. 5, the respondent states: 'I submit that the reopening of the assessment is done in consequence of information on facts received from audit and the decision of the honble Supreme Court in the case of Indian Eastern Newspaper Society : 119ITR996(SC) , will be no bar to such proceedings. 'Thus, it is clear that the case of the respondent is that it was because of information on facts, which information was received by him from the audit, that proceedings under s. 147(b) were initiated by the respondent.
Section 147(b) of the I.T. Act, 1961, is in the following terms :
'If notwithstanding that there has been no omission or failure as mentioned in clause(a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 1 53, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned .......'
The provisions of s. 147(b) have been interpreted by the Supreme Court in Indian and Eastern Newspaper Society v. CIT : 119ITR996(SC) . Pathak J., speaking for the Supreme Court, has pointed out that the controversy before the Supreme Court in that case was whether the view expressed by the internal audit party of the I.T. department on a point of law could be regarded as 'information' for the purpose of initiating proceedings under s. 147(b) of the I.T. Act. At page 1001 of the report, it has been pointed out that the correct definition of the word 'information' in s. 147(b) of the Act is 'instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment.': CIT v. A. Raman and Co. : 67ITR11(SC) .
Then, Pathak J. states (at p. 1001):
'In so far as the word information means instruction or knowledge concerning facts or particulars, there is little difficulty. By its inherent nature, a fact has concrete existence. It influences the determination of an issue by the mere circumstance of its relevance. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality.
But when information is regarded as meaning instruction or knowledge as to law the position is more complex. when we speak of law, we ordinarily speak of norms or guiding principles having legal effect and legal consequences. To possess legal significance for that purpose, it must be enacted or declared by competent authority. The legal sanction verifying it imparts to it its force and validity and binding nature. Law may be statutory law, or what is popularly described as judge-made law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge-made emanates from a declaration or exposition of the content or a legal principle or the interpretation of a statute, and may in particular cases extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a Tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority ......
In that view, therefore, when s. 147 (b) of the I.T. Act is read as referring to information as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent legislature or a competent judicial or quasi-judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessees tax liability.'
And, at page 1003, Pathak J. has pointed out :
'...... although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying s. 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose.'
In this case, we have asked the learned Government pleader, Mr. G. N. Desai, appearing on behalf of the respondent, to give us the audit objections raised on these four points in respect of which the reassessment proceedings were proposed to be started. We find from these audit objections that as regards s. 40A (7) the audit party put forward before the ITO its own interpretation of s. 40A(7) as compared to the interpretation of s. 40A (7) placed by the ITO at the time of the original assessment. The audit party was not drawing the attention of the ITO, the respondent herein, to any formal expression of law, either legislative or judicial or judge-made law, and to that extent 'information' cannot be said to have been given on the point concerning s. 40A(7). It is possible that the view taken by the ITO in the original assessment regarding the interpretation of s. 40A (7) was not correct but the audit party was not drawing the attention of the ITO to any formal expression of law, judge-made or legislature-made, when it put forward its own interpretation of s. 40A (7). Therefore, there was no 'information' within the meaning of s. 147(b) so far as the audit objection regarding s. 40A(7) was concerned.
As regards the question of extra shift allowance in the context of depreciation allowance the audit party was basing its objection on its own interpretation of a circular issued by the Central Board of Direct Taxes on September 28, 1970, and a very significant sentence occurs in the audit objection in this connection: 'These orders have not been accepted in audit'. It is very difficult for us to appreciate the stand taken up by the audit party in refusing to follow the orders issued by the Central Board of Direct Taxes and in refusing to allow the ITO to follow those orders issued by the CBDT in the context of extra shift allowance. It is possible that while interpreting those orders, in a matter of law, the ITO might have made a mistake at the time of the original assessment but there was no authority which had pronounced either Legislature-made or judge-made law, regarding this extra shift allowance, when the audit party was drawing the attention of the ITO, the respondent herein, and, therefore, where was no 'information' before the ITO regarding extra shift allowance and, therefore, there was no material within the meaning of s. 147(b) or which the ITO could act.
As regards s. 80J relief, the whole question was regarding the N.I.P. (Expansion) unit and the question on which the audit party was contesting was whether this as a new industrial undertaking or new unit within the meaning of s. 80J. No facts have been referred to in the audit note or audit objection regarding any factual aspect regarding the N.I.P. (Expansion) Unit. The relevant paragraph runs as follows :
'The company was allowed deduction in respect of Naphthalene Intermediate (Expansion) Unit under section 80J of the Income-tax Act. This deduction is admissible only in respect of the profits and gains from newly established industrial undertakings and not in respect of expression of existing units and a reference in this connection is also invited to CBDT. No. 68(1) /97/5-0 dt. 1-4-50. The incorrect deduction resulted in under-assessment of income of Rs. 3,12,040 resulting in a short levy of tax of Rs. 1,80,200.'
It seems from the papers which have been placed before us regarding this audit objection that the ITO did not accept the objection in the first instance and stated that in view of the decision in the cases of Indian Aluminium Co. Ltd. : 108ITR367(SC) and Textile Machinery Corporation : 107ITR195(SC) , both being decisions of the supreme Court, this relief was admissible for the unit also. The reasoning of the ITO was not acceptable to the audit party unless it was established by detailed examination whether all the five tests laid down by the Supreme Court were fulfilled in this case. Nor is there any factual aspect about which the ITO received information from the audit party regarding the N.I.P. Expansion unit installed by the petitioner-company as far back as 1970. It appears from the order dated September 20, 1978, passed by the Commissioner (Appeals), annex. C to the petition, that is plant was installed in the year 1970 and in respect of the assessment year 1971-72 the question arose whether s. 80J relief could be granted in respect of this plant. The matter went in appeal and the Commissioner (Appeals), following the two decisions of the Supreme court in Textile Machinerys case : 107ITR195(SC) and Indian Aluminium Co. Ltd.s case : 108ITR367(SC) , held on the facts that the N.I.P. Expansion unit was a new industrial undertaking within the meaning of s. 80J. That decision at annex.C has become final. If that is so, and that fact is not disputed, the claim made by the ITO when he issued the notice on February 23, 1978, for 1975-76, was merely in connection with the new industrial undertaking in the shape of N.I.P. Expansion unit plant for which relief in the initial year was granted in respect of assessment year 1971-72. It has been held by this court in Saurashtra Cement & Chemical Industries Ltd. v. CIT : 123ITR669(Guj) , that tax-holiday under s. 80J cannot be discontinued in the subsequent year without disturbing the relief granted in the earlier year. At page 675 of the report, B. K. Mehta J., speaking for this court, has pointed out :
'No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted.'
It is clear, therefore, that what the ITO was refusing to do, namely, to reopen the assessment on the ground of s. 80J , he was compelled to do by the audit party and the IAC (Audit) was directed to see to the necessary action in this connection of s. 80J. Under these circumstances, it is clear that there were no facts on which s. 80J question could be re-examined in reassessment proceedings so far as N.I.P. Expansion unit is concerned. The respondent in para. 5 of his affidavit-in-reply is clear that it was on information on facts received from the audit objection that he was seeking to reopen the assessment under s. 147 (b) of the Act. No facts are disclosed in the audit objection papers placed before us and it seems to us that the only question was whether the N.I.P. Expansion unit could, in the eye of law, be said to be a new industrial undertaking under s. 80J and it was the ITO who, being already informed of the decisions of the supreme Court in Indian Aluminiums case : 108ITR367(SC) and in Textile Machinerys case : 107ITR195(SC) , was seeking to justify his own original assessment order in the light of those judgments and the audit party was pressing him to reopen the case on the ground of the five tests laid down in the Supreme Court case. We may point out that in the case of Textile Machinery Corporation : 107ITR195(SC) , the Supreme Court approved the decision of this High Court in Nagardas Bechardas & Brothers P. Ltd. v. CIT : 104ITR255(Guj) . In that case, this High court has held (p. 265) :
'Though every case must depend upon its own peculiar facts, a broadly correct solution can be arrived at by asking two questions: (1) Whether there was any activity in the existing business which could have been reconstructed and could have assumed a new form on such reconstruction; and (2) Whether the nature of the business which has assumed a new form as a result of the change which is introduced, is the same as the nature of the business which was existing before the change was introduced. If either of these two questions is answered in the negatived, it would mean, prima facie, that there is no reconstruction which would attract clause (i) of section 84(2) (now section 80J (4)(i)) of the Act.'
It is clear so far as s. 80J objection is concerned regarding N.I.P. Expansion unit that in the light of the decision of this court which was available to the ITO when he passed the original order of assessment that decision having now got the imprimatur of the Supreme Court, the ITO had correctly applied the law and yet in the light of the tests said to have been evolved by the Supreme Court, the ITO was being pressed to reopening the assessment by the IAC (Audit) asking to see that the necessary action of reopening was taken.
As regards the question regarding s. 80M , it appears that the assessee, the petitioner before us, has made some investments and by virtue of s. 80M , deduction in respect of gross dividend earned by the company is allowable. In view of the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) , if any interest is to be paid by the assessee concerned in respect of moneys borrowed for the purpose of investment, then such interest is not to be deducted for the purpose of calculating deduction under s. 80M. We find from the audit objection regarding s. 80M that a method was devised by the audit party on the footing of the total borrowing of the petitioner-company and co-relating a percentage of the net interest paid to the investments and it has been sought to be asserted that fifteen per cent. of the total interest paid by the petitioner-company on its borrowings was allocable to the investments and it was pointed out in the audit note that calculating on this basis of fifteen per cent. some amount might have to be deducted so far as s. 80M deduction was concerned. Now, in the instant case, no facts are supplied by the audit party but it is pure question of interpretation of law of s. 80M. No decision of the Supreme Court has been pointed out regarding the interpretation of s. 80M and in this audit objection the audit party was seeking to force the respondent, the ITO concerned, on a question of interpretation of law, and that too without drawing attention to any authoritative source of law, namely, either to a legislative enactment or to an interpretation by a court or a quasi-judicial Tribunal. Under these circumstances, that audit objection regarding s. 80M also cannot be said to be 'information' on the basis of which assessment could be reopened under s. 147(b).
The only four points on which audit objections were raised were each of them either on points of law or an interpretation of law which the audit party wanted the respondent to take up and in respect of relief under s. 80J. It was all a question of interpretation of s. 80J. The respondent in his affidavit says that he was informed on facts by the audit party and no facts regarding s. 80J or on any of the other three points are on scrutiny found to be 'information' within the meaning of s. 147(b). The petitioner-company was informed that the proceedings under s. 147(b) were being taken in respect of four points, namely, extra shift allowance so far as depreciation allowance was concerned, s. 40A(7) so far as gratuity was concerned, s. 80J relief and the question of s. 80M. On none of those four points was information forthcoming from the audit party within the meaning of s. 147(b) as interpreted by the Supreme Court in Indian and Eastern Newspaper Societys case : 119ITR996(SC) . Hence, it is obvious that the condition precedent for the exercise of powers under s. 147(b) was absent in the instant case and the notice issued by the respondent on February 23, 1978, was illegal and void in law and must be quashed.
Under these circumstances, this special civil application is allowed and the rule is made absolute with costs. The notice dated February 23, 1978, is quashed and set aside and the respondent is restrained by permanent injunction from giving effect to the said notice.
Copies of the audit objections regarding the four points discussed in the course of this judgment to be kept on the record of this case.