G.M. Lodha, J.
1. We are disposing of these two income-tax reference applications under Section 256(1) of the I.T. Act, 1961, by a common judgment as prayed for by Mr. Joshi, learned counsel for the Department. The brief facts giving rise to the references are as follows :
The respondent is a P.W.D. contractor and derives income from the contracts executed in his own name and share income from the two firms, i.e., M/s. Makhan Singh & Co. comprising of three partners at Hanumangarh and M/s, Makhan Singh & Co. comprising of four partners at Sriganganagar. Both the firms were granted registration for the first time for the assessment year 1959-60.
2. The assessment for the year 1959-60 was completed by the ITO on May 8, 1982, on a total income of Rs. 26,597 in which the share of profit of Makhan Singh from the partnership firm of Sriganganagar was determined at Rs. 6,475 and that at Hanumangarh it was determined at Rs. 14,750.
3. While the assessment proceedings for the assessment year 1960-61 in the case of the firm, M/s. Makhan Singh & Co., Hanumangarh, were being taken, the ITO noticed certain facts which led him to believe that thebusiness run in the name and style of Maklian Singh & Co. belonged to Makhan Singh in his individual capacity and was not that of a genuine partnership firm. He, therefore, refused to grant contimiation of registration to the firm and completed the assessment for 1960-61 treating Makhan Singh as sole proprietor of the firm and, therefore, in the status of an individual. The assessment was upheld and confirmed by the Tribunal, vide its order in I.T.A. No. 13615 of 1965-67 dated March 25, 1960.
4. The ITO while rejecting the prayer for registration and assessing the income of Makhan Singh as sole owner in his individual capacity, issued notice under Section 148 read with Section 147(b) of the I.T. Act, 1961, for the assessment year 1959-60, also with a view to assess the income of Makhan Singh & Co., Hanumangarh, in the hands of the assessee.
5. The assessee, Makhan Singh, filed a reply and denied that he was carrying on Makhan Singh & Co., Hanumangarh business, as a sole proprietor. In his reassessment proceedings, the assessee contended that issue of notice under Section 148 was illegal, void and unwarranted in law. He also argued that no action could be commenced under Section 148 of the I.T. Act as the ITO had no definite information in his possession about the underassessment of any income.
6. Undeterred by the above submission of the assessee, the ITO rejected the contention of the assessee and completed the assessment on a total income of Rs. 49,685 on February 27, 1965. Makhan Singh filed an appeal before the AAC. The assessee argued that since he has placed all the material facts necessary for his assessment before the ITO, proceedings under Section 147(b) of I.T. Act, 1961, were misconceived and cannot be taken resort to on those very grounds. Reliance was placed by the assessee on Calcutta Discount Co. v. ITO : 41ITR191(SC) and Muthappa Chettiar v. CIT : 53ITR642(Mad) .
7. The AAC was of the opinion that the decisions cited are not applicable to the present case as action is being taken under Section 147(b) and not under Section 147(a) of the I.T. Act.
8. The assessee then submitted that even under Section 147(b) of the I.T. Act, no fresh proceedings can be taken now as all relevant facts were placed before the ITO at the time of the original assessment proceedings. It was held that the order of the ITO in 1960-61 discovering that Makhan Singh was not a partner only, but he was the sole proprietor of the firm, was referred to. The assessee preferred an appeal before the Tribunal and raised the same arguments as raised before the ITO and the AAC. It was contended that the ITO was fully aware of the facts relating to the partnership business and no new information came into his possession and as such the ITO could not take action under Section 147(b) of the I.T. Act. Theassessee placed reliance on the decisions in the matter of Bhimraj Pannalal v. C1T : 32ITR289(Patna) and ITAT v. Byramji & Co. .
9. The assessee further argued that before and without cancelling the assessment of the firm, no assessment could be done afresh as sole proprietor. The decision in Agarwal v. CIT : 37ITR107(All) and C1T v. Murlidhar Jhawar & Purna Ginning & Pressing Factory : 60ITR95(SC) were relied upon. The Departmental representative submitted that the information received by the ITO after completion of the assessment is an information within the meaning of Section 147(b) and hence the ITO was competent to reopen the assessment. Reliance was placed on Makaraj Kumar Kamal Singh v. CIT : 35ITR1(SC) . The Tribunal accepted the first contention of the assessee and allowed the appeal of the assessee, vide order dated June 14, 1968.
10. In view of the above decision of the Tribunal, the second question regarding the quantum of the amount to be assessed was not gone into. Now, on the application of the Revenue, this reference has been made.
11. The assessee's case is that the proceedings under Section 147(b) are unwarranted. It was also pointed out that it was a case of a mere change of opinion. It was further submitted that there was a genuine firm in existence and the conclusions drawn by the ITO that it was not a genuine firm was based on conjectures and surmises and not supported by any fact. Mr, Joshi, learned counsel for the Department, has submitted that the ITO was justified in reopening the assessment and giving a notice for the same because while conducting the assessment for the year 1960-61, he got the following information :
(i) There was no bank account in the name of the firm ;
(ii) All payments received from P.W.D. were deposited either in the personal bank account of S. Makhan Singh or encashed at the counter of the bank ;
(iii) All contracts were allotted in the name of S. Makhan Singh;
(iv) The names of the partners were not declared to the Government Department ;
(v) Bhagat Singh and Bhupinder Singh were close relations of S. Makhan Singh and they could be made to sign any agreement beneficial to the assessee.
12. Now the questions referred to us are as under :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was not legally justified in initiating proceedings under Section 147(b) of Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in cancelling the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 ?'
13. We have carefully considered the submissions of learned counsel for the Department and have gone through the record of the case. In particular, we have perused the relevant orders of the ITO, the AAC and the Tribunal along with the statement of the case referred to in the case.
14. In the instant case, it is obvious that the proceedings have been initiated under Section 147(b) of the new Act. This empowers reopening of the assessment even though no omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment has occasioned. It empowers the ITO to reopen the assessment in consequence of information in his possession, on the basis of which he has reason to believe that income chargeable to tax has escaped assessment. There is no doubt that during the course of assessment proceedings in respect of the subsequent assessment year with regard to the firm, M/s. Makhan Singh & Co. (having three partners), the ITO came to the conclusion that the said firm was a proprietary concern of the appellant and the other two partners were benamidars only. It came to his notice that these facts for the assessment year 1959-60 were also the same. In view of this, the information received was sufficient reason to believe that income chargeable to tax has escaped assessment and the income of the earlier year was underassessed onaccount of it. That decision of 1960-61 was upheld in appeal and that being so it became final. The above principle is supported by the decision in Maharaj Kumar Kamal Singh v. C1T : 35ITR1(SC) . Their Lordships of the Supreme Court observed as under (p. 14) :
'Mr. Rajagopala Sastri, for the respondent, suggested that under the provisions of Section 34 as amended in 1948, it would be open to the Income-tax Officer to act under the said section even if he merely changed his mind without any information from an external source and came to the conclusion that, in a particular case, he had erroneously allowed an assessee's income to escape assessment. We do not propose to express any opinion on this point in the present appeal.'
15. In CWT v. Imperial Tobacco Co. of India Ltd, : 61ITR461(SC) it has been held that information in Section 34(1)(b) includes information as to the true and correct state of the law and so will cover information as to the judicial decisions.
16. The altered situation in which the ITO discovered that the partnership firm was a fake one and Makhan Singh was the sole proprietor, an order which was confirmed in appeal would certainly constitute information also within the meaning of Section 34(1)(b). Reference may be made toJawahar Lal Maniram v. CIT : 48ITR837(All) . The principles laid down in Bansi Lal Abirchand v. CIT : 53ITR536(Bom) CIT v. Zaveri : 68ITR594(Bom) and Mooljee Sicka & Co. v. 2nd Addl. ITO : 40ITR163(Cal) also support the above view.
17. It would be important to notice the discussions in CIT v. Zaveri : 68ITR594(Bom) which has been relied upon by the Tribunal. The Bombay High Court observed the following in it (headnote) ;
''Information' within the meaning of Section 34(1)(b) of the Income-tax Act may consist of a different view taken of the facts on record by a higher Tribunal on appeal from the Income-tax Officer's decision resulting in the escapement of assessment, and a decision of the appellate authority on the same facts, us to which entity is really chargeable, may constitute information within the meaning of Section 34(1)(b).
The Income-tax Officer had at the time of the original assessment on the facts before him taken the view that certain income, though claimed by the assessee as his income was in fact the income of another person, M. He, accordingly, included it in the assessment of M and brought it to tax. In an appeal by M, the Tribunal decided that the Income-tax Officer had committed an error in treating the income as income of M and that he had assessed the income in the hands of the wrong person, with the result that it had escaped from being assessed in the hands of the proper person. The Income-tax Officer thereupon initiated proceedings for reassessment and issued notice to the assessee under Section 34(1)(b) : Held, that the decision of the Tribunal constituted information to the Income-tax Officer as to which of the assessable parties was chargeable for this income and constituted 'information' within the meaning of Section 34(1)(b) and the proceedings for reassessment under Section 34(1)(b) were not illegal.'
18. In that case, the High Court framed two questions :
'(1) Whether, on the facts and in the circumstances cif the case, proceedings for the assessment year 1952-53 were validly initiated under Section 34(1)(b) of the Income-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, proceedings for the assessment year 1953-54 were validly initiated under Section 34(1)(b) of the Income-tax Act? '
19. Since we are concerned with Section 34(I)(b), it would be proper to concentrate on the second question only. The Bombay High Court, after discussing the various cases, observed as under (p. 612) :
'We are not inclined to accept this submission. It is no doubt true that the assessee had claimed the income as his own in the originalassessment. The Income-tax Officer, however, had not accepted the said claim and contrary to the said claim had come to the conclusion that the income was not of the assessee but of Mehta. In other words, the facts accepted by the Income-tax Officer on which he proceeded, were not the facts as alleged by the assessee, but as found by him and, according to him, the true factual position was that the income belonged to Mehta and not to the assessee. On that basis, he had assessed the income in the hands of Mehta and had not assessed it in the hands of the assessee. The Tribunal in the appeal preferred by Mehta, on the facts which had already been considered by the Income-tax Officer, held that the income truly belonged to the assessee and did not belong to Mehta and could not, therefore, be assessed in the hands of Mehta. In other words, according to the Tribunal, the Income-tax Officer had committed an error in holding that the income belonged to Mehta and not to the assessee. The information conveyed by this decision to the Income-tax Officer was that he had erred in holding that the income belonged to Mehta and not to the assessee, and in consequence of his error, he had allowed the income of the assessee to escape assessment. It is the information as to the error committed by him which had resulted in the escapement of income from assessment which is the information under Section 34(1)(b) entitling the Income-tax Officer to initiate proceedings under Section 34 of the Act. The mere circumstance that the facts were disclosed in the original assessment is not sufficient to take away the application of Section 34(1)(b), if on the facts, the Income-tax Officer had erroneously allowed a part of the income to escape assessment and has subsequently come to realise his error as a result of a decision of the higher Tribunal pointing out the said error.'
20. It would thus be seen that the Bombay High Court clearly laid down that a decision of a higher Tribunal as to the correct facts and legal question can constitute information within the meaning of Section 34(1)(b). In the instant case, we have noticed the view of the ITO that MakhanSingh Firm was a proprietary firm only and was not a partnership firm, which was confirmed by the higher authority in appeal and, therefore, on that premise also it is tantamount to 'information' and not a change of opinion.
21. It is true that the Bombay High Court has held that a mere change of opinion cannot be treated as information for the purpose of Section 34(1)(b) but that principle is well known that on a mere change of the opinion, reassessment cannot be done by reopening an earlier assessment and we also do not propose to differ from this established view.
22. Since we have taken the view that the finding of the ITO and information which he received for giving that finding in 1960-61 that MakhanSingh firm was a proprietary firm and which was confirmed by the appellate authority, validly form 'information' for the purpose of Clause (b) for reopening, we are of the opinion that the view taken by the Tribunal for setting aside the order of reassessment of the ITO was not correct and justified. The judgment of the Tribunal, therefore, cannot be allowed to stand and in view of that, the judgment of the AAC of Income-tax confirming the judgment of the ITO for reassessment should have been confirmed.
23. Our answer to the questions referred are as under :
1. On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the Income-tax Officer was not legally justified in initiating proceedings under Section 147(b) of the Income-tax Act, 1961.
In view of our answer to question No. 1, the logical and legal answer without further discussion to question No. 2 is as under :
2. On the facts and circumstances of the case, the Tribunal was legally not justified in cancelling the penalty imposed under Section 271(1)(c) of the I.T. Act.