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Commissioner of Income-tax Vs. Calcutta Steel Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 474 of 1975
Judge
Reported in[1981]127ITR528(Cal)
ActsIncome Tax Act, 1961 - Sections 35B and 147
AppellantCommissioner of Income-tax
RespondentCalcutta Steel Co. Ltd.
Appellant AdvocateS. Sen and ;R.C. Prosad, Advs.
Respondent AdvocateR.N. Bajoria, ;S.K. Bagaria, ;R.K. Chowdhury and ;A.K. Dey, Advs.
Cases ReferredAnandji Haridas and Co. (P.) Ltd. v. S. P. Kushare
Excerpt:
- sabyasachi mukharji, j.1. in this reference under section 256(1) of the i.t. act, 1961, the old question, viz., what is information, is presented for our consideration in the light of the facts of this case. we were tempted to embark upon the controversy whether the decision of a larger bench of the supreme court is binding on the high court under article 141 of the constitution even though the subsequent decision of the supreme court, composed of judges of a lesser number, has expressly, after consideration, doubted the view of the larger bench. in order to appreciate the questions we may, however, refer to certain facts.2. it appears that section 35b of the i.t. act, 1961, was amended by section 8 of the finance act of 1970, which received the assent of the president of india on the.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the old question, viz., what is information, is presented for our consideration in the light of the facts of this case. We were tempted to embark upon the controversy whether the decision of a larger Bench of the Supreme Court is binding on the High Court under Article 141 of the Constitution even though the subsequent decision of the Supreme Court, composed of judges of a lesser number, has expressly, after consideration, doubted the view of the larger Bench. In order to appreciate the questions we may, however, refer to certain facts.

2. It appears that Section 35B of the I.T. Act, 1961, was amended by Section 8 of the Finance Act of 1970, which received the assent of the President of India on the 14th of May, 1970 (incidentally there is a mistake of date in the order of the Tribunal where it is stated that the said Act received the assent of the President on the 4th of May, 1970 ; that mistake, however, does not affect the position). The original assessment in this case was made on the 12th of June, 1970, that is to say, subsequent to the above amendment. The assessee had made a claim originally in its return under Section 35B for a higher figure of deduction but by a letter dated May 30, 1970, the assessee had restricted such claim to Rs. 52,498.

3. Section 35B deals with export markets development allowance, and Sub-section (1) of the section deals with the case where the assessee, being a domestic company or a person other than the company, who is a resident in India, has incurred, after a particular date, whether directly or in association with any other person, any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, referred to in Clause (b) of the said section, shall, subject to the provisions of the said section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year.

4. There is a proviso to Sub-section (1) with which we are not concerned and the expenses which must be incurred wholly and exclusively for certain purposes are mentioned in Clause (b) of Section 35B. For our present purposes, it is not again necessary to set out in detail the purposes enumerated in Clause (b) of Section 35B(1) of the said Act.

5. Before the ITO as we have mentioned, though in the original return the assessee had claimed a larger amount, in the original assessment order the amended amount was allowed without much discussion. This order was made as indicated before on 12th of June, 1970. In January, 1971, the said assessment was sought to be reopened by virtue of Section 147(b) of the I.T. Act, 1961.

6. The Tribunal in its order has noted that the ITO who made the original assessment had done 'so after examining the facts and had allowed the claim of the assessee to the extent of Rs. 52,498. It has also noted that the ITO had knowledge of the amended provision of Section 35B of the Act. The Tribunal noted that after the completion of the original assessment there was no fresh information for reopening the assessment under Section 147(b).

7. In order to appreciate this conclusion of the Tribunal it is also necessary to refer to the assessment order made by the ITO after issuing notice under Section 147(b) of the I.T. Act, 1961. The ITO in the reassessment order considered the contention of the assessee about the allowances claimed under Section 35B of the I.T. Act, 1961, in detail and after considering the said contention the ITO observed as follows :

'The assessee has submitted a statement showing its claim under Section 35B. The assessee has claimed all the expenses incurred in maintaining a branch office outside India. It has also claimed all expenses incurred in the export department of its head office in India and a portion of the expenses incurred in other departments on the ratio of its total turnover and export sale.

So far as expenses incurred in maintaining a branch office outside India are concerned, the claim is allowable. So far as expenses incurred in export department, the assessee has claimed expenses like provident fund contribution, commission paid, interest allowable on borrowed money, bank charges, telephone, director's remuneration, etc. These expenses are not incurred solely in connection with preparing and submitting of tender neither for obtaining information regarding market conditions abroad. In fact, commission payment, director's salary and interest payment have no connection with preparation of tender, etc. The export department is also engaged in various other activities in connection with distribution, despatch and supply of goods and any expenditure incurred on these items are not to be considered for determining relief allowable u/s. 35B. I, therefore, take only expenses under the head 'salary, travelling, advertisement' amounting to Rs. 3,06,531 as allowable expenditure under Section 35B.'

8. The ITO held that none of the expenses incurred in head office could be related to the purposes permissible under Section 35B. He reduced the allowance under Section 35B to Rs. 16,642 and disallowed the allowances as claimed under Section 35B.

9. The assessee preferred an appeal and raised the same contention and the said contention was negatived by the AAC.

10. Regarding the merits of the liability of deduction of Rs. 52,498 as claimed by the assessee the AAC held, inter alia, as follows :

'In the original assessment a sum of Rs. 52,498 was allowed as weighted deduction u/s. 35(B) in respect of expenditure incurred for development of export market. But the actual weighted deduction allowable was only Rs. 16,542. Since the claim was wrongly allowed in excess, the ITO reopened the assessment to assess the income which escaped assessment. The appellant contends that the ITO has wrongly computed the expenditure incurred for promoting the export market at Rs. 49,647 as against Rs. 1,57,493 claimed by the appellant. The appellant has claimed the export expenses in the same ratio as the export sales bore to the local sales. This claim is not in order. As per sec. 35B only the expenditure specifically incurred for certain purposes in connection with the export are to be allowed. Such particular items of expenditure are enumerated under Clause (b) of sec. 35B(1). The ITO has taken into account only such an expenditure which fell under the categories of expenses which fell under the aforesaid Clause (b). Hence the claim allowed u/s 35B is in order.'

11. There was a further appeal against the order of the AAC as we have mentioned before, where, after reiterating the facts, as we have indicated, the Tribunal held that the revenue has sought to reopen the proceedings only on a change of opinion and there was no fresh information and as such the reopening was bad and in these circumstances the Tribunal set aside the reopening of the assessment order passed after reopening of the assessment. Thereupon the Tribunal has referred under Section 256(1) of the I.T. Act, 1961, to this court the following question :

'Whether, on the facts and in the circumstances of the case, the proceedings under Section 147(b) had been validly initiated ?'

12. It is not necessary for our present purpose to analyse the provisions of the Section. These provisions have been analysed and commented upon in several decisions of the High Courts as well as of the Supreme Court. For our purpose, it is sufficient to note that an assessment can be reopened under this provision, if, in consequence of information, the ITO is of opinion that the income has escaped assessment. As we have mentioned before this has led to a spate of litigations as to what is the meaning of the expression 'information' which can entitle the ITO to reopen the assessment. The divergent views were recognised by the Supreme Court in the case of CWT v. Imperial Tobacco Co. of India Ltd. : [1966]61ITR461(SC) , where the Supreme Court at page 464 of the report has referred to several decisions where the meaning of the expression 'information' has come up for consideration. The Supreme Court referred to a decision in the case of Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , a decision to which again our attention was drawn by learned advocate for the revenue, which reiterated that 'information' in Section 34(1)(b) of the Indian I.T. Act, 1922, which is in pari materia with the expression used in Section 147(b) of the 1961 Act included information as to the true and correct state of law and should cover information as to the relevant judicial decisions. This question was again considered in the case of CIT v. Sir Mahomed Yusuf Ismail : [1944]12ITR8(Bom) , by the Bombay High Court, as far back as 1943, where it was held that a mere change of opinion on the same facts or on a question of law or the mere discovery of a mistake was not sufficient information within the meaning of Section 34 of the Indian I.T. Act, 1922, and in order to take action under Section 34, there must be some information as to a fact which leads the ITO to discover that income has escaped assessment or has been under-assessed. The same view was taken in a later case by the Nagpur High Court in the case of Income-tax Appellate Tribunal v. B. P. Byramji and Co. and other decisions of different High Courts which the Supreme Court has noted. The Supreme Court has also noted the decision of the Madras High Court in the case of Salem Provident Fund Society Ltd. v. CIT : [1961]42ITR547(Mad) . Learned advocate for the revenue drew our attention to the said decision and urged that the facts in the instant case before us were similar to the facts before the Division Bench of the Madras High Court. The first actuarial report of the assessee-company, which carried on life insurance business, covered the period May 24, 1935, to March 14, 1941, and disclosed a small surplus. On the basis of that report, the ITO arrived at a profit of Rs. 1,238 each year for the accounting years 1942 to 1944 which was computed in accordance with Rule 2(b) of the Schedule to the I.T. Act. The second actuarial report, which related to the inter-valuation period, March 14, 1941, to December 31, 1945, disclosed a deficiency of Rs. 86,708, and on the basis of the second report the sum of Rs. 18,096 was computed under Rule 2(b) as the deficiency for the accounting year 1945. The deficiency disclosed by the third report at the end of 1946 was Rs. 77,165 and for the assessment for the accounting year 1946, instead of deducting Rs. 77,165 from Rs. 90,851 which would have resulted in a surplus of Rs. 13,686, the ITO by mistake added the two amounts and arrived at a deficiency of Rs. 1,68,016. A similar mistake was committed for the year 1947 also. Instead of deducting the deficiency disclosed by the acturial report of Rs. 32,124 at the end of 1947 from the sum of Rs. 77,165 and arriving at a surplus figure of Rs. 44,951 for 1947, the ITO added the figures and computed the deficiency of Rs. 1,08,379. Subsequently, when the ITO discovered the mistake he proposed rectifying the mistake under Section 35 of the Indian I.T. Act, 1922, which permitted rectification or correction of an error apparent on the face of the record similar to Section 154 of the present Act of 1961. It was held by the Division Bench of the Madras High Court, which was incidentally approved in the passage referred to hereinbefore, that the reassessment proceedings were valid and information for the purpose of Section 34 need not be wholly extraneous to the record of the original assessment. A mistake apparent on the basis of the order of assessment would itself constitute information, whether someone else gave that information to the ITO or whether he informed himself was immaterial. The availability of the powers vested in the ITO under Section 35 did not bar recourse to the jurisdiction vested in him by Section 34. The Supreme Court in the case of CWT v. Imperial Tobacco Co. of India P. Ltd. : [1966]61ITR461(SC) , which we have noted before, referred to the aforesaid decision. Reliance was also placed by the Supreme Court in the said decision on the case of CIT v. Rathinasabapathy Mudaliar : [1964]51ITR204(Mad) and on the case of Canara Industrial and Banking Syndicate Ltd. v. CIT : [1964]51ITR479(KAR) . The Supreme Court also referred to the decision in the case of Asghar Ali Mohammad Ali v. CIT : [1964]52ITR962(All) and noted that in the event of divergence of judicial views there would arise the question of law. The question was exhaustively dealt with in a decision of the Supreme Court in Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326. There, the Supreme Court consisted, in considering the said decision, of five learned judges. Of these five learned judges, two of them did not express any opinion on this aspect of the matter but the majority of three expressed the opinion, that the expression 'escaped' used in Section 11A of the C.P. and Berar Sales Tax Act, 1947, permitted assessment of escaped income as a result of information, that the word 'information' in that section meant knowledge and that knowledge need not necessarily, according to the majority of the learned judges of the Supreme Court, be from an outside agency. The knowledge of the fact that the assessee had not submitted their quarterly returns as well as treasury challans constituted information to the assessing authority from which could be specified the turnover which escaped assessment within the meaning of Section 11A of the said Act. There, as we have indicated before, the assessee had not submitted the returns which they were enjoined to submit and that fact was brought to the knowledge of the assessing authority and on that the assessing authority came to the conclusion that the income of the assessee had escaped assessment and, therefore, proposed to reassess the income. Our attention was also drawn to a decision in the case of CIT v. A. Raman and Co. : [1968]67ITR11(SC) , where the Supreme Court held that the expression 'information' in the context in which it occurred in Section 147(b) of the I.T. Act, 1961 must mean instruction and knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment. At page 16 of the report, the Supreme Court observed that the High Court in that case was apparently of the view that the information in consequence of which the proceedings for reassessment were intended to be started could have been gathered by the ITO in charge of the assessment in the previous years from the disclosures made by the two HUFs. But in the judgment, their Lordships of the Supreme Court, held that this was wholly irrelevant. The jurisdiction of the ITO to reassess the income would arise if he had in consequence of any information in his possession reason to believe that income chargeable to tax had escaped assessment. That information must, the Supreme Court reiterated, come into the possession of the ITO after the previous assessment. But even if the information be such that it could have been obtained from the previous assessment by an investigation of the materials on record or the facts disclosed thereby or from other enquiry or research into facts or law but was not in fact obtained, the jurisdiction of the ITO was not affected. The Division Bench of this court considered this principle in detail in the case of Reform Flour Mills (P.) Ltd. v. CIT : [1973]88ITR150(Cal) , a decision upon which the Tribunal relied in disposing of the present appeal out of which this reference has arisen. There, the Division Bench held that whether the change of opinion on the part of the ITO, who made the assessment subsequent to the assessment, constituted information within the meaning of Section 34(1)(b) of the Indian I.T. Act, 1922, was undoubtedly a question of law. There, the assessee-company had carried on a business in the conversion and sale of wheat flour. In the assessments of the assessee for the two assessments years 1945-46 and 1946-47, which were completed on 4th June, 1946, and 2nd December, 1946, the bania's commission for sale of flour and brokerage for purchase of wheat were allowed as deduction. At the time of original assessment, the assessee had filed a balance-sheet which contained the directors' report in which the existence of control over the distribution of wheat and wheat flour was referred to. Further, the assessee had stated in his reply dated 20th April, 1946, to a letter of the ITO that the production and supply of wheat were controlled by the Government and that the mills were allowed guaranteed profits at 10 per cent. of the capital employed. In the assessment for the year 1947-48 which was completed on 7th December, 1948, the ITO stated that while the expenditure of commission and brokerage had been necessary when the mills were buying and selling their products in open market, there was no necessity of incurring these expenditure in the accounting year when the wheat had been supplied to the mills exclusively by the Government and wheat products had been purchased back from the mills either by the Government or by bulk allottees in accordance with the directions issued by the Government and the amounts claimed for commission on sale of flour or for brokerage on purchase of wheat were disallowed. Thereafter, on 30th March, 1950, the ITO issued a notice to the assessee tinder Section 34 of the Act for reopening of the assessments for the years 1945-46 and 1946-47. The reassessments were made on 6th September, 1950, disallowing the commission and brokerage which were allowed in the original assessment. It was held by the Division Bench of this court that the reassessment proceedings under Section 34(l)(b) of the Indian I.T. Act, 1922, were not legally and validly done. On the facts it was clear, according to the Division Bench, that the existence of the control was fully known to the ITO, who had made the original assessments, before and at the time of making such assessments, the directors' report and the correspondence between the ITO and the assessee prior to the original assessment clearly established, according to the Division Bench, that the ITO, who had made the original assessments, had the full knowledge of the existence of the control by the Government and the ITO with full knowledge of the existence of the control by the Government had made the original assessment and had allowed those deductions on his understanding of the relevant materials including the fact of imposition of control by the Government. The officer who had made the assessment for the year 1947-48 on his own interpretation of the materials came to a different conclusion. The orders of the officer, who had reopened the assessments, had clearly established that the findings of the officer at the time of the assessment for the year 1947-48 was stated as information for reopening the earlier assessments already made and it did not appear that the officer, who had reopened the assessment, had any other information in his possession. This change of opinion on the part of the officer, who had made the assessment for the subsequent year 1947-48, it was held by the Division Bench, on the basis of the same materials, would not constitute information within the meaning of Section 34(1)(b) and the officer, therefore, could not exercise any power or jurisdiction under Section 34(1)(b); to reopen the assessments already made. Thereafter, the Division Bench discussed several authorities including the decision in the case of Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO : [1968]1SCR661 referred to hereinbefore.

13. Our attention was drawn to the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where the Supreme Court observed that the opinion of an internal audit party of the I.T. Dept. on a point of law could not be regarded as 'information' within the meaning of Section 147(b) of the I.T. Act, 1961, for the purpose of reopening an assessment. But although an audit party did not possess the power to pronounce on the law, it nevertheless might draw the attention of the ITO to it. The Supreme Court reiterated that law was one thing and its communication another. If the distinction between the source of the law and the communication of the law was carefully maintained the confusion which often resulted in applying Section 147(b) might be avoided. While the law can be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law might be communicated by anyone. No authority was required for the purpose. That part alone of the note of an audit party which mentioned the law which escaped the notice of the ITO constituted 'information'within the meaning of Section 147(b); the part which embodied the opinion of the audit party in regard to the application or interpretation of the law could not be taken into account by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which had subsequently come to his notice he could reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he became subsequently aware. The opinion rendered by the audit party with regard to the law would not, for the purpose of such belief, take the colour or the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO. The Supreme Court reiterated that in every case, a declaration or exposition to be law, must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law could not be rendered as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals did not enjoy the status of law. These were merely opinions and at best evidence in regard to the state of the law and in themselves possessed no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. In that case, the assessee was a society registered under the Companies Act, a professional association of newspapers established with the principal object of promoting the welfare and interest of all newspapers, owned a building in which a conference hall and rooms were let out on rent to its members as well as to outsiders and also provided certain services to its members. All along the assessee's income from that source was assessed to tax as income from business and it was so assessed for the assessment years 1960-61 to 1963-64 also. In the course of audit, an internal audit party expressed the view that the money realised by the assessee on account of the occupation of its conference hall and rooms should have been assessed under the head 'Income from property' and not as business income. Treating, the contents of the audit report as 'information', the ITO initiated reassessment proceedings for those four years under Section 147(b). On appeal, the AAC held that it could not in law be said that the ITO had any 'information' in his possession enabling him to take action under Section 147(b), but on further appeal, the Tribunal, after noticing the difference of opinion between the High Courts, followed the decision of the Delhi High Court in the case of Smt. Chand Kanwarji : [1972]84ITR584(Delhi) , and held that an internal audit report could be regarded as 'information'. On a reference, it was held by the Supreme Court that the opinion of the audit party on a point of law. could not be regarded as 'information' enabling the ITO to initiate reassessment proceedings under Section 147(b). The ITO had, when he made the original assessment, considered the provisions of Sections 9 and 10 of the Indian I.T. Act, 1922. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Supreme Court emphasized that the proposition in the decision in the case of Kalyanji Mavji & Co. : [1976]102ITR287(SC) , to the effect that a case where income had escaped assessment due to 'oversight, inadvertence or mistake' of the ITO must fall within Section 34(1)(b) of the Indian I.T. Act, 1922, was stated too widely and travelled farther than the statute warranted in so far as it could be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovered that he had committed an error in consequence of which income has escaped assessment, it was open to him to reopen the assessment. An error discovered on a reconsideration of the same material (and no more) did not give him that power. This decision was given by a Bench of three learned judges and the Supreme Court, at page 1004 (of 119 ITR) of the report discussed this aspect and referred to the view that was taken in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) and CIT v. A. Raman and Co. : [1968]67ITR11(SC) and also Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) and on the basis of this the Supreme Court expressed the view that the observation in the case of Kalyanji Mavji v. CIT : [1976]102ITR287(SC) suggesting the contrary did not lay down the correct law.

14. This naturally brings us to the consideration of the decision of the Supreme Court where the Supreme Court in Kalyanji Mavji & Co. v. CIT : [1976]102ITR287(SC) , was dealing with the case of an assessee in whose original assesssment for the assessment year 1956-57, a sum of Rs. 43,116, being interest paid by the assessee-firm on amounts borrowed by it was allowed as deduction. During the course of the assessment proceedings for the assessment year 1958-59, the ITO discovered that the appellant had not utilised the entire borrowed money for the purpose of its business but had given interest-free loans to its partners for clearing up their income-tax dues. The ITO reopened the assessment for 1956-57 under Section 34(1)(b) of the Indian I.T. Act, 1922, and disallowed the interest paid. The Appellate Tribunal held that the ITO had merely changed his opinion on the basis of the very materials that were before him when the original assessment was made and that was not sufficient to attract Section 34(1)(b). On a reference, the High Court held that the reassessment was valid in law as the information on the basis of which the officer sought to reopen the assessment was based on subsequent facts as also on the materials of the original assessment revealed by a more careful and closer investigation. On appeal, the Supreme Court, affirming the decision of the High Court, held that the reassessment under Section 34(1)(b) was valid in law inasmuch as the ITO proceeded on the basis of information which came to him after the original assessment by fresh facts revealed in the assessment proceedings for 1958-59. The word 'information' in Section 34(1)(b) is of the widest amplitude and comprehended a variety of factors. Nevertheless, the power under Section 34(1)(b), however wide it might be, was not plenary because the discretion of the ITO was controlled by the words 'reason to believe'. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matters or fresh facts. The Supreme Court tabulated the following categories of cases under Section 34(1)(b) (pp. 296, 297):

'(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions ;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO;

(3) where the information is derived from an external source of any kind : such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; and

(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law.'

15. But the Supreme Court also emphasised that where the ITO got no subsequent information, but 'merely' proceeded to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which formed part of the original assessment, Section 34(1)(b) would have no application.

16. At page 300 of the report [1976] 102 ITR the Supreme Court referred to the decision of the Bombay High Court in the case of CIT v. H. Hoick Larsen : [1972]85ITR467(Bom) . Now, this decision of the Bombay High Court was relied on by this court in the case of S. P. (House & Land) P. Ltd. v. CIT : [1979]119ITR785(Cal) , where discussing the provisions of Clause (b) of Section 147 of the I.T. Act, 1961, this c6urt observed as follows (p. 797) :

'Large number of decisions both of the High Courts and of the Supreme Court have considered this question. But it may be profitable to concentrate our attention on the requirements of the section itself. First essential point is that there should be belief that income chargeable to tax has escaped assessment. The next requirement of this section is that such 'belief' must be formed in consequence of information. It has been said and said very often that mere change of opinion does not justify the reopening of assessment under Clause (b) of Section 147 of the Act. It is, however, important to remember that wherever a completed assessment is to be reopened there has to be a change of opinion. The assessment that was made originally must have been because it was thought to be all right by the ITO on the basis that all income had been included in the assessment. Subsequently, the ITO forms the belief that some income has escaped assessment or has been under-assessed. Therefore, change of opinion must be there in the belief that this is tentatively formed under Clause (b) of Section 147 of the Act in reopening the assessment. But what has been emphasised is that such change of opinion must not be mere 'change of opinion'. The change of opinion must be brought about 'in consequence of information'. This has been introduced in the section and so was interpreted by the different courts from time to time in order to prevent arbitrary and unilateral reopening of assessments depriving any finality to the assessment orders passed. But the section itself visualises the possibility of reopening on the change of opinion but such change, as we have mentioned before, must only be in consequence of information in the possession of the ITO and such information, again, must have a reasonable nexus to that opinion that income has escaped assessment or has been under-assessed for any assessment year. In this light the contentions urged in this case will have to be examined. It is now well settled that the information may be regarding the facts as well as the law. It is also well settled that the information may be from the internal source or external source. The information may come from the records of the revenue department. Counsel for the assessee urged before us that the information must be confined to the premises, either major or minor, whereby he described the legal proposition as major premises and the factual aspect as minor premises and the information may be pertaining to either of these premises, but he submitted that there could not be any new information which could lead to the formation of the belief contemplated under Clause (b) of Section 147 on the conclusion or the deduction made from those premises. But, if on certain information, the ITO comes to the belief that the opinion formed by him previously was wrong or incorrect then though that would be a change of opinion, yet such change of opinion, in our opinion, would still be supported by the information received. The process of reasoning or inductive lead, as counsel for the assessee suggested, is a process inevitable in the formation of the belief and if the information, internal or external, throws any light on the process of reasoning then that information justifies the change of opinion and such change of opinion would not fall within the mischief of 'mere change of opinion' condemned by the courts.'

17. This court then referred to the judgment of the Bombay High Court in the case of CIT v. H. Hoick Larsen : [1972]85ITR467(Bom) , where Chandra-chud J. made the following observations at page 479 of the report (see p. 798 of 119 ITR) :

''What is obligatory in order to apply Section 34(1)(b) is that he must have 'information' in his possession in consequence of which he has reason to believe that the income has escaped assessment or is underassessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and a change of opinion based on information subsequently obtained on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law...Such a reopening is based on a 'mere' change of opinion and is without jurisdiction...in the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer.

The aforesaid observations were noted by the Supreme Court in the case of Kalyanji Mavji & Co. v. CIT : [1976]102ITR287(SC) '.'

18. The Supreme Court quoted the aforesaid observations of Chandrachud J. of the Bombay High Court and expressed the opinion that they were inclined to agree with the observations of Chandrachud J.

19. A reference was also made to the observations of Lord Denning in the case of Parkin v. Cattell [1971] 48 TC 462 (CA). The expression used was 'discovered'. In any case, it is not material for our present purpose to embark upon a discussion on this aspect of the matter.

20. Learned advocate for the revenue drew our attention to the decision of the Supreme Court in the case of Union of India v. K. S. Subramanian, : (1977)ILLJ5SC of the judgment, and the decision of the Supreme Court in the case of State of U.P. v. Ram Chandra Trivedi, : (1977)ILLJ200SC of the judgment, in aid of the proposition that where a larger Bench of the Supreme Court had pronounced on a finding, even though there are contrary observations in a subsequent Supreme Court judgment, the decision of the larger Bench should prevail. On this basis, it was contended before us that in the case of Anandji Haridas and Co. (P.) Ltd. v. 5. P. Kushare, STO : [1968]1SCR661 , a Bench of five learned judges had held that on examination of the old material the ITO could inform himself and take a different conclusion. This Bench had occasion to consider the meaning of the expression 'information' in the case of ITO v. Panama Private Ltd. : [1974]97ITR210(Cal) . Reopening under Clause (b) of Section 147 of the I.T. Act, must be on a change of opinion. The only requirement is that such a change of opinion must be in consequence of information. The controversy, therefore, centres round as to what constitutes 'information'. There was a difference of approach as to whether the audit report would be considered to be information as to law in terms of Section 147, Clause (b), or in terms of Clause (b) under Section 34(1) of the Indian I.T. Act, 1922. As to the question whether the decision of a larger Bench should be followed by the High Court even though a contrary view was expressed in some later decision, here the question is, that the point was specifically canvassed before the Supreme Court and on a consideration of this aspect of the matter and of the previous decision the Supreme Court came to the conclusion that the view of the previous decision was riot in consonance with principles of law. In that view of the matter and in view of Article 141 of the Constitution we are of the opinion that the subsequent and latest view of the Supreme Court must prevail, but even then for our purposes it is more or less an academic question. The decision in the case of Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326 was entirely on a different basis. Firstly, even though it was a sales tax case, the principle might be the same. There, originally there was no return filed. That knowledge that there was no return filed originally was brought to the knowledge of the STO subsequently. Therefore, this was a subsequent knowledge of a fact, and it was certainly to be considered an information in terms of the requirement of the section. Here, in this case, even if it be considered to be a subsequent information, the materials were on record but that had not been considered. Then, if that was subsequently considered, the question might arise whether the subsequent consideration of the old materials on record would constitute information in terms of that section. Here, admittedly, in view of the matter that the assessee had originally made a larger claim for deduction under Section 35B of the I.T. Act, 1961, and had, after filing the return, subsequently moved and reduced its claim and that it was brought to the knowledge of the ITO clearly established that this question, viz., whether this reduced claim, as claimed by the assessee under Section 35B of the Indian I.T. Act, 1961, was brought to the notice of the ITO and he had considered this aspect of the matter. If, on a consideration of this aspect of the matter, he had taken a view, then there being no subsequent view or subsequent opinion on any law of any authority competent to pronounce on law or subsequent information on any fact, a mere examination of old records afresh would not be a change of opinion on the basis of or in consequence of the information but really be a change of opinion--change of opinion simpliciter--on an appraisal of the old materials which would not be in consequence of any information as such. If that is the position, then, in our opinion, the reopening under Clause (b) of Section 147 of the I.T. Act was without basis.

21. There is another aspect of the matter. Whether under Section 35B such deductions were permissible or not, is a question on which two interpre-tions of law are possible. Therefore, it would really be rectifying a mistake. Whether there was a mistake apparent on record as such amenable under Section 154 or not, does not fall for our consideration. Even if a mistake can be rectified which is rectifiable under Section 154 of the I.T. Act, to take action under Clause (b) of Section 147, the discovery or knowledge of such a mistake must be in 'consequence of information' and not simpliciter on a reappraisal of the old materials which were considered by the ITO at the time of the original assessment, as appears to be the facts of the case as found by the Tribunal in its finding which I have set out in the beginning of this judgment. If that is the position, that is to say, that these materials were brought to the notice of the ITO and the ITO considered this aspect and having considered it took the view that the assessee was entitled to deduction, the assessment, in the absence of anything else, could not be reopened under the powers under Clause (b) of Section 147 of the I.T. Act, 1961.

22. Before we proceed to finally answer the question we must indicate the nature of an argument of the revenue, that is to say, the counsel for the revenue contended as if it was an admitted position that the deductions or allowances granted to the petitioner under Section 35B of the I.T. Act, 1961, were not proper because, according to him, that point was not canvassed before the Tribunal. That is not a correct view of the matter. This point was raised specially before the AAC and this point was also in the ground of appeal though the Tribunal did not go into the question because the Tribunal thought that there being no information there was no jurisdiction for the ITO to reopen the assessment.

23. In that view of the matter, the question posed must be answered in the negative and in favour of the assessee. In the facts and circumstances of the case, there will be no order as to costs.

Sudhindra Mohan Guha, J.

24. I agree.


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