1. The assessee is a company assessed to surtax. The company had a general reserve of Rs. 6,03,329 as on April 1, 1967, and for the year ending March 31, 1968, the net profit amounted to Rs. 5,18,217. On August 19, 1968, at a meeting of the board of directors, a sum of Rs. 1,30,083 out of the profits was appropriated to the general reserve. By the report of the directors dated August 20, 1968, a dividend of Rs. 7 per share which would absorb Rs. 1,68,000 was recommended, subject to approval by the shareholders, which was also accorded by the shareholder at the meeting held on September 27, 1968. For the assessment year 1969-70, the income of the assessee was finally determined as Rs. 9,53,269 after granting a deduction in a sum of Rs. 37,734 in respect of dividend. The original assessment under the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as 'the Act'), for the assessment year 1969-70 was completed on July 24, 1970, determining the net chargeable profit at Rs. 20,091 and Surtax of Rs. 5,023 was levied. The ITO computed the capital as. Rs. 30,03,329 comprised of Rs. 6,03,329 being the general reserve as on April 1, 1967, after rejecting the assessee's claim that Rs. 1,30,083 appropriated towards general reserve by the board of directors of the company from out of the profits of the year ending March 31, 1968, should also be taken as part of the general reserve, as such appropriation became effective after the approval by the shareholders on September 27, 1968. Aggrieved by this, the assessee preferred an appeal to the AAC, who confirmed the assessment rejecting the contention of the assessee that Rs. 1,30,083 appropriated by the board of directors to the general reserve should be taken into consideration in computing the capital. On further appeal to the Tribunal, by its order dated February 21, 1972, the Tribunal accepted the claim of the assessee and held that Rs. 1,30,083 appropriated by the board of directors out of the profits of the assessee-company for the year ending March 31, 1968, should also be reckoned as forming part of the general reserve for the computation of the capital base to ascertain the net chargeable profits.
2. To give effect to this order of the Tribunal, the ITO passed a revised assessment order on April 5, 1972, determining the net chargeable profits at Rs. 7,083 and the surtax at Rs. 1,771. Subsequently, on account of the objections raised by the audit party, the ITO proposed to reopen the assessment under s. 8(b) of the Act on the ground that the amount of Rs. 1,68,000 recommended by the directors to be distributed a dividend should have been excluded from the capital and capital proportionate to Rs. 37,734 being dividend income excluded in the assessment under the I.T. Act, 1961, should also have been excluded. In response to the notice issued in that regard, the assessee raised objections to the reopening of the assessment but overruling those objections, the ITO determined the net chargeable profits at Rs. 25,641 and the surtax payable thereon at Rs. 6,410. In that process, the ITO excluded Rs. 1,68,000 representing the amount recommended to be distributed by the directors as dividend and Rs. 1,06,795 being the proportionate capital relatable to Rs. 37,734 being the dividend income not included in the assessment under the I.T. Act, 1961, from the calculation of the capital, which was arrived at Rs. 26,63,956. Aggrieved by this, the assessee appealed to the AAC contending that the reopening of the assessment was invalid and the exclusion of Rs. 1,68,000 and Rs. 1,06,795 was not justified. The AAC took the view that the question of capital computation for the assessment year under consideration was the subject-matter of an appeal earlier before the Tribunal which had accepted the assessee's contention regarding the capital computation and that since that order had become final, the ITO had no jurisdiction whatever to reopen the assessment. In so holding, the AAC applied the principles of the decision in CIT v. Rao Thakur Narayan Singh : 56ITR234(SC) . In view of the conclusions so arrived at, the AAC did not consider the case of the assessee on merits. Ultimately, the reassessment order was cancelled and the appeal was allowed. Against that, the Department went up in appeal before the Tribunal contending that the cancellation of the revision of the assessment by the AAC was not justified, as the question whether the amount of Rs. 1,68,000 recommended to be distributed as dividend by the directors could be considered as forming part of the general reserve for the purpose of computation of the capital was not the subject-matter of the appeal before the Tribunal and, therefore, the Tribunal cannot be taken to have adjudicated on that question, and further contending that the reopening was also made for the reason that a portion of the capital proportionate to the dividend income not included in the assessment should be excluded under rule 4 of the Second Schedule to the Act and that was also not decided by the Tribunal earlier. On the other hand, the assessee contended that the original order of assessment had become merged in the order of the Tribunal and, therefore, there was no question of the revision of the assessment already made by the ITO. Considering these rival contentions, the Tribunal concluded that the subject-matter for consideration in the appeal before the Tribunal was whether Rs. 1,30,083 transferred by the board of directors to the general reserve out of the profits for the year ending March 31, 1968 should be treated as forming part of the reserve as on April 1, 1968, and that question only was decided in favour of the assessee and, therefore, the question of computation of capital cannot be stated to have become final by reason of the order of the Tribunal. Besides, the Tribunal also took the view that the purpose of the reopening was for excluding from the capital Rs. 1,06,795 being the capital proportionate to Rs. 37,734 representing the dividend income and included in the assessment by the application of rule 4 of the Second Schedule to the Act and that also did not form the subject-matter of the appeal before the Tribunal on the earlier occasion. So holding, the Tribunal proceeded to consider the further question whether the reopening of the assessment can be considered to be valid. Adverting to the significant absence of the recording of any reason for reopening the assessment and the total absence of any pointed reference to mistakes in the original assessment order, the Tribunal was of the view that by no stretch of imagination, the note by the internal audit party can be stated to be 'information' leading the ITO to reasonably believe that chargeable profits had escaped assessment, as it was accepted by the departmental representative before the Tribunal that there was no revenue audit objection relating to this case and the objection was only by the internal audit party. Finally, the Tribunal found that the ITO did not have any information which led him to reasonably believe that the chargeable profits had escaped assessment but that the revision of the assessment was brought about on a mere change of opinion which is not permissible. The reopening of the assessment was thus invalidated by the Tribunal.
3. Not satisfied with this, the Revenue obtained a reference under s. 256(1) of the I.T. Act, 1961, as applied to surtax by s. 18 of the Companies (Profits) Surtax Act, 1964, on the following question :
'Whether, on the facts and in the circumstances of the case, the reopening of the assessment under section 8(b) of the Companies (Profits) Surtax Act, 1964, for the assessment year 1969-70 was not valid ?'
4. Thus, the only question in this reference relates to the validity of the proceedings for reopening the assessment made already. Clause (b) of s. 8 of the Act, which is relevant for the present purposes, runs as under :
Profits escaping assessment. - If - ........
(b) 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 chargeable profits assessable for any assessment year have escaped assessment or have been underassessed or assessed at too low a rate or have been the subject of excessive relief under this Act.......'
5. This provision is more or less identical with s. 147(b) of the I.T. Act, 1961, which again embodies the principles of s. 34(1)(b) of the Indian I.T. Act, 1922. These are enabling provisions intended to reopen assessments and for levying back duty. A feature prominently discernible in these provisions is that the ITO must have some information subsequent to the passing of the assessment order on the basis of which he must have reason to believe that chargeable profits assessable for any assessment year have escaped assessment or have been underassessed or assessed at too low a rate or subjected to excessive relief. The vital requirement is that the ITO must have information in his possession. In this case, the Tribunal, in paragraph II of its order, has referred to the absence of the recording of any reason by the ITO for reopening the assessment. This was also not disputed before us. If no reason at all for reopening the assessment had been given, it should be taken to have been so done at the mere whim of the officer, and cannot be attributed to any information in his possession. It is further seen that the internal audit party had made the following note :
'Revenue audit objection is filed. The assessment has to be revised. While revising the assessment, the applicability of rules 1, 2, 3 and 4 of the Surtax Act, 1964, should also be taken into account. Further, the income-tax assessment has also been revised on January 22, 1971, and hence the chargeable profits to be computed will vary. Necessary orders may be passed.'
6. Thereafter, another noting was made and initialed by the ITO on February 3, 1973, to the following effect :
'Please see A.G. and I.A.P.'s audit notes. Order under section 15 put up. There are other details requiring consideration. (Reserves, application of r. 4, etc.) Hence, the revision order need not be issued now.'
7. On September 22, 1973, another noting was made and signed by the ITO to the following effect :
'Notice under section 8 is issued.'
8. Before the Tribunal, the Revenue accepted the position that the revenue audit objection did not deal with this case at all, and, therefore, the noting made by the internal audit party that a revenue audit objection had been raised is totally incorrect. Eschewing that and carefully scanning the note, it cannot be understood to specify or pinpoint or draw attention to any particular error or omission in the assessment already completed. What should be done has been indicated, viz., the revision of the assessment; but for what reason, it does not say. It, therefore, proceed to state that a revision is called for for unknown reasons, but while so revising, the applicability of rules 1 and 4 of the Second Schedule to the Act should also be taken into account and that there will be a variation in the chargeable profits. We are of view that the aforesaid noting cannot constitute 'information' leading the ITO to reasonably believe that chargeable profits had escaped assessment. There is nothing at all to show that any material came to the notice of the officer subsequently. There cannot be any basis, therefore, for the formation of a belief by the ITO that there has been an escarpment of chargeable profits on non-existing materials. Equally, the other noting under the initials of the ITO dated February 3, 1973, refers only to a proposal for revision of the original assessment by the Commissioner and we are unable to understand how such a proposal can be characterised as information. Further, the note states that there are other details requiring consideration like reserves, application of rule 4, etc. This also, in our view, is very vague, indefinite, remote and farfetched and cannot be stated to be information for purposes of s. 8(b) of the Act. We have already pointed out that what is important is possession of information by the ITO. From a reading of the notings referred to earlier, we are of the view that they could not constitute 'information' for purposes of s. 8(b) of the Act at all.
9. We may state that these enabling provisions for reopening of assessments for the purposes of back duty have contributed to a considerable abundance of case-law and we now proceed to refer to a few cases. In Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) , in dealing with s. 34(1)(b) of the Indian I.T. Act, 1922, the Supreme Court pointed out that where an assessment for a particular year is completed on a particular basis and particular understanding of the provision of law by the ITO, and subsequently a decision of the Privy Council is render giving a different interpretation to the statutory provision, then the ITO would be justified in reopening the original assessment, as a subsequent decision of the Privy Council on the construction of a statutory provision would constitute 'information' enabling the reopening of an assessment under s. 34(1)(b). Numerous other decisions have also referred to the aforesaid interpretation of the expression 'information', but those cases have no application at all to the present case. We may refer to Salem Provident Fund Society Ltd. v. CIT : 42ITR547(Mad) . The expression 'information' occurring in s. 34(1)(b) of the Indian I.T. Act, 1922, came to be construed and contrasted with the provision under s. 35 dealing with the rectification of mistakes Rajagopalan J. stated that a mistake in the original assessment, if pointed out by an extraneous authority, would be information within the meaning of s. 34(1)(b), while, if the ITO subsequent to the original assessment, comes to know of it by a subsequent study of the records, it would also be information. In this case, the ITO by himself had not come to, know anything by a subsequent study of the records. It is true that something had been pointed out by an extraneous authority, but that does not clearly draw attention to any error or mistake to constitute 'information' within the meaning of section 34(1)(b) of the Indian Income-tax Act, 1922. In Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) , the Supreme Court construed the expression 'information' and it was held that the information on which the ITO can set under s. 34(1)(b) of the Indian I.T. Act, 1922, may come in and flow from an external source and it may be found from materials already available on record and it may be derived from the discovery of new and important matter or fresh facts. It was also very clearly laid down that where no subsequent information is got by the ITO, but he proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, s. 34(1)(b) would not be attracted. Again, in Indian and Eastern Newspaper Society v. CIT : 119ITR996(SC) , the Supreme Court held that an error discovered on a reconsideration of the same materials and no more, would not give the ITO the power to reopen the assessment. We find that all these cases and the related aspects have been exhaustively dealt with in Tax Case Nos. 870 to 876 of 1976 dated August 26, 1980 (United India Fire and General Insurance Co. Ltd. v. CIT - supra p. 81). The position is thus clear that a mere change of opinion on the part of the ITO without anything more, cannot provide a basis for reopening an assessment. The information in this case is not a matter of law. Merely proceeding to reopen an assessment on no material not leading to the formation of a belief relating to the escarpment of chargeable profits, as in this case, is not at all contemplated under s. 8(b) of the Act. The sufficiency or the adequacy of the material, if any, is not the concern of this court, but on the point whether any action should be initiated by way of reopening of the assessment already completed, the court has to consider whether the material would be such as to constitute 'information'. Earlier, we have pointed out that there is no information at all. The attempted reopening is, therefore, attributable only to the entertaining of second thought on the assessment already made on a mere charge in the opinion on the part of the ITO. Besides, a note by the internal audit party not charged under the Act with the duty of laying down the law or arriving at a decision binding on the ITO cannot be regarded as information and, as pointed out earlier, the note is totally vague and does not pinpoint or draw attention to any effort or mistakes committed legally or factually. We, therefore, agree with the Tribunal that the ITO did not have any information in his possession and that the reopening of the completed assessment was done only on a mere change of opinion. We, therefore, answer the question referred in the affirmative and against the Revenue. The assessee will get the costs of the reference. Counsel's fee Rs. 500.