1. The assessee furnished a return under the I.T. Act, 1961, for the assessment year 1971-72 showing the annual income from his property at No. 24, Krumbigal Road, Bangalore, at Rs. 3,767 and the annual letting value was determined on that basis by the ITO. For the assessment year 1975-76, the value of the property for purposes of wealth-tax assessment was returned at Rs. 2,00,000. As the rental income shown for the assessment year 1971-72 was found to be too low when compared with the value of the property, which was admitted to be two lakhs of rupees in 1975-76 by the assessee, the assessing authority, by invoking his powers under s. 147(b), reopened the assessment for the assessment year 1971-72 and determined the annual letting value of the property at Rs 12,000 under s. 23(1) of the I.T. Act, 1961.
2. On appeal by the assessee, the AAC held that the rent receipts as returned by the assessee and the value of the building were already on record at the time of the ITO making the original assessment and, as such, there was no fresh material which subsequently came into his possession so as to enables him to reopen the assessment under s. 147(b). In this view, the AAC set aside the reassessment.
3. Aggrieved by the order of the AAC, the Revenue went up in appeal before the Tribunal contending that there was information that the rental income from the property shown by the assessee was low in relation to the value of the property as borne out by an inspection by the departmental officers and also from the subsequent wealth-tax return filed by the assessee and as the ITO had reason to believe that the income from the property was under assessed, the reopening of the assessment under s. 147(b) was justified. In support of the said contention, the Revenue relied on the decision of this court in Salem Provident Fund Society Ltd. v. CIT : 42ITR547(Mad) . Before the Tribunal, the assessee contended that the income-tax as well as the wealth-tax assessments were completed by the same officer for the assessment year 1971-72 on January 6, 1972 and the valuation shown then for the property was at Rs. 1,75,000 and this valuation was accepted in the wealth-tax assessment. The rental income disclosed was accepted for purposes of income-tax notwithstanding the fact that the same ITO was aware of the fact that the property had been valued at Rs. 1,75,000 and there was no fresh material which had come to light after the assessment order was passed by the ITO and as such the reopening of the assessment under s. 147(b) cannot be legally justified. It was also further contended that the information which was said to have come to the notice of the ITO related to the assessment year 1975-76 and that will not justify the ITO to reopen the assessment for 1971-72 under s. 147(b). The Tribunal upheld the contention put forward on behalf of the assessee and held that the reopening of the assessment in this case made under s. 147(b) cannot legally be sustained.
4. Aggrieved by the decision of the Tribunal, the Revenue has sought and obtained a reference on the following question of law :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessment made under section 147(b) cannot be legally sustained ?'
5. In this case, as will be clear from the facts set out above, at the time of the completion of the income-tax as well as wealth-tax assessments for the assessment year 1971-72, the ITO accepted the annual letting value given by the assessee as well as the value of Rs. 1,75,000 returned for the property. Even at this stage, the ITO was aware of the disparity between the value of the property and the annual income returned. But the ITO chose to accept the annual value given by the assessee, which was based on the actual rental receipts from the property. Subsequently, while finalising the assessment for the year 1975-76, the assessee returned the annual value of the property on the basis of the actual rents as he had done before, but valued the property at two lakhs of rupees as against Rs. 1,75,000 returned for the assessment year 1971-72. Merely because the assessee valued the house slightly higher in the year 1975-76, that cannot be taken as a ground by the ITO to reopen the assessment and to determine the annual letting value of the property. Apart from the valuation of the house at two lakhs of rupees by the assessee, there is no other fresh material or information from which the ITO could have reason to believe that the income from the property was underassessed. The basis for the reopening the assessment here is that the rental income shown was too low in relation to the value of the property. But this basis was available even at the stage of the original assessment. Even at the stage of the original assessment, the ITO could have been aware that the rental income shown was too low in relation to the value of the property. Therefore, the reopening of the assessment in this case cannot be taken to be based on new information or material, but it was made only on the change of opinion the part of the ITO that the rental income was too low in relation to the value of the property.
6. The learned counsel for the Revenue contends that it is not necessary for reopening an assessment under s. 147(b) to have any new or fresh material from which the ITO must come to the conclusion that there had been an underassessment, and that the reopening of the assessment could be made under s. 147 if the ITO informs himself from the materials already on his file that there had been an under assessment. The learned counsel also refers to the provisions under s. 23 of the I.T. Act in support of her submission that the ITO blindly accepted the annual letting value given by the assessee without a proper determination as to whether clause (a) or clause (b) of s. 23(1) applied or not. According to the learned counsel, on the facts of this case, only cl.(a) is to be applied and not cl.(b), that cl.(b) will come into operation only if the annual rent received is in excess of the sum referred to in cl.(a),and,as the ITO had blindly applied cl.(b) and accepted the annual rental value given by the assessee based on the annual rental receipts, it was not in accordance with s. 23 and, therefore, the ITO is justified in reopening the assessment to bring it in line with s. 23.
7. It is not possible for us to accept the above contention advanced by the Revenue. At the stage of the original assessment, the ITO had two options, namely, (1) to apply clause (a), or (2) to apply clause (b) of s. 23(1). When the assessee furnished the annual letting value based on the annual rents received, the ITO chose to accept that valuation without further probing as to the sum for which the property might reasonably be expected to let from year to year and whether such sum is higher then the annual rents received. Subsequently, the ITO felt that if he had applied clause (a), the Revenue will stand to be benefited, But that cannot be a ground for reopening the assessment under s. 147(b), which contemplates the reopening of an assessment on receipt of fresh information or fresh material on which the ITO should have reason to believe that the income chargeable to tax had escaped assessment as contemplated by Expln. 1 to s. 147. In this case, the Tribunal has specifically found, and it is not disputed before us, that excepting the fresh valuation of the property for the assessment year 1975-76 for wealth-tax assessment, there was no other fresh information or material from which the ITO could have entertained the belief that income had escaped assessment. Even assuming that the learned counsel is right in her submissions that there is no necessity for any fresh material or information and the ITO can inform himself from the materials already on record before him for purposes of reopening the assessment, in this case the reopening of the assessment under s. 147(b) cannot be sustained, for he has already accepted the annual letting value given by the assessee and completed the assessment on that basis. Now, the reopening of the assessment has been made for the specific reason that the annual rental value has not been correctly determined. It will clearly amount to change of opinion on his part as to what is the annual letting value of the property. Even assuming what the learned counsel for the Revenue submits that the ITO has blindly accepted the annual letting value given by the assessee for the assessment year 1971-72 is correct, still he must be deemed to have applied his mind to s. 23 and determined the annual letting value for the purposes of assessment. If his present attempt to reassess the annual rental value of the property will amount only to a change of opinion, it is well estabished that the change of opinion cannot form the basis for reopening the assessment under s. 147(b). In this view, we are inclined to agree with the view taken by the Tribunal. The question is, therefore, answered in the affirmative and against the Revenue. The Revenue will pay the costs to the assessee. Counsel fee Rs. 500.