1993 (4) TMI 20 - HC - Income Tax

High Court rules reassessment lacking legal basis under Income-tax Act, 1961

The High Court ruled in favor of the assessee, holding that the initiation of reassessment proceedings under section 147(b) of the Income-tax Act, 1961 ... 'information' for initiating reassessment under section 147(b) of the Income-tax Act, 1961 - change of opinion / second thoughts not constituting 'information' - discovery of material from the record after original assessment - reassessment initiated on basis of subsequently noticed judicial pronouncement'information' for initiating reassessment under section 147(b) of the Income-tax Act, 1961 - change of opinion / second thoughts not constituting 'information' - discovery of material from the record after original assessment - Validity of initiation of reassessment proceedings under section 147(b) where the same facts were before the Income-tax Officer at the time of the original assessments - HELD THAT: - The Tribunal found that the borrowings and payment of interest were disclosed and considered in the original assessments and the interest was allowed. The Court examined authority on whether a revisiting of the same material or an error in the original assessment amounts to 'information' under section 147(b). It noted that earlier decisions which suggested that mere oversight or mistake would suffice were reviewed and qualified by a later line of authority. Following the principle that a mere change of opinion or second thoughts by the officer on the same set of facts do not constitute 'information' enabling reassessment, the Court held that where the material was considered in the original assessment, a successor officer cannot initiate reassessment under section 147(b) simply by disagreeing with the earlier view. The Court accepted that discovery of material which was not considered in the original assessment may constitute 'information' if it came to the officer's notice subsequently, but on the facts here the reassessment was based on the same material already on record and hence was impermissible. The Court therefore answered the referred question in favour of the assessee and annulled the initiation of reassessment.Reassessment proceedings were not validly initiated because the 'information' relied upon consisted of the same facts already considered in the original assessments, and a mere change of opinion does not confer jurisdiction under section 147(b).Final Conclusion: The reference is answered in favour of the assessee: initiation of reassessment under section 147(b) was invalid as it rested on the same material already considered in the original assessments; no order as to costs. Issues:1. Validity of initiation of reassessment proceedings under section 147(b) of the Income-tax Act, 1961.2. Interpretation of 'information' under section 147(b) for conferring jurisdiction on the Income-tax Officer.Analysis:1. The judgment pertains to three taxation cases for the assessment years 1973-74, 1974-75, and 1975-76, questioning the validity of reassessment proceedings under section 147(b) of the Income-tax Act, 1961. The Income-tax Officer initiated reassessment due to the disallowance of interest deductions claimed by the assessee, asserting that the deductions were wrongly allowed in the original assessments. The Tribunal annulled the assessment orders, stating that the Income-tax Officer cannot initiate reassessment solely by changing his mind on previously disclosed facts.2. The Department argued that the Income-tax Officer acted within jurisdiction based on a court decision that interest paid on loans for tax liabilities cannot be allowed as business expenditure. They contended that subsequent discovery of legal provisions or facts can confer jurisdiction for reassessment under section 147(b). Conversely, the assessee's counsel emphasized that the initiation of reassessment was based on the Income-tax Officer's view, not on new information, and any mistake in the original assessment should not warrant reassessment.3. The High Court analyzed relevant Supreme Court judgments on reassessment proceedings, emphasizing that the Income-tax Officer's power to reassess is limited to cases where new information, not considered in the original assessment, comes to light. The Court held that reassessment based on the same facts considered in the original assessment is impermissible. Relying on binding precedents, the Court ruled in favor of the assessee, stating that the reassessment initiation lacked legal basis.4. The judgment underscores the importance of distinguishing between new information and a mere change of opinion for initiating reassessment proceedings under section 147(b) of the Income-tax Act, 1961. It clarifies that the Income-tax Officer's jurisdiction to reassess is contingent upon the discovery of material not previously considered, safeguarding against arbitrary reassessment based on existing facts or legal provisions known during the original assessment.