1966 (8) TMI 62 - HC - Income Tax

Court allows reassessment by Income-tax Officer under section 34(1)(b) based on new information

The court upheld the Income-tax Officer's right to reassess under section 34(1)(b) of the Indian Income-tax Act, 1922, based on new information regarding ... - Issues:Validity of reassessment under section 34(1)(b) of the Indian Income-tax Act, 1922.Analysis:The case involved a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922, concerning the assessment year 1957-58. The assessee, a public limited company in the printing and paper business, filed a return for the year showing an income of Rs. 2,016. The assessment completed on 19th November 1957, resulted in an income of Rs. 3,789 after disallowing certain expenditure items. The issue arose from the issuance of bonus shares amounting to Rs. 42,500 during the accounting period, affecting the rebate percentage under the Finance (No. 2) Act, 1957.The Income-tax Officer, at the time of the initial assessment, did not realize that the bonus shares were not issued out of premiums received in cash, which would reduce the rebate from 35% to 5% as per the Finance Act. Subsequently, a notice under section 34(1)(b) was issued on 17th March 1962, leading to a fresh assessment on 26th May 1962. The assessee challenged the right of the Income-tax Officer to invoke section 34(1)(b) in the appeal process but was unsuccessful, prompting a reference to the High Court.The key consideration was whether the Income-tax Officer had valid grounds to reassess under section 34(1)(b) based on new information. The court examined the definition of 'information' in the context of the provision, emphasizing that it includes both factual details and legal implications. The court differentiated between a mere change of opinion and a genuine awareness of a previously unknown fact, such as the nature of the bonus shares issuance in this case.Citing precedents, the court clarified that information leading to reassessment need not be wholly extraneous to the original assessment record. It could include mistakes apparent on the face of the assessment order itself, which, upon realization, constitute valid grounds for reassessment. The court highlighted the necessity for the Income-tax Officer to have new information post-assessment that triggers a belief of under-assessment or escaped income.Ultimately, the court concluded that the Income-tax Officer's realization post-assessment regarding the nature of the bonus shares issuance and its implications under the Finance Act constituted valid information for reassessment under section 34(1)(b). Consequently, the court answered the question in the affirmative, supporting the department's right to reassess.