Connected assessment findings may constitute information for reopening when they change the legal basis of the original income-tax assessment.

An operative judicial finding in a connected assessment can constitute "information" for reopening under section 34(1)(b) of the Indian Income-tax Act when it alters the legal basis of the assessee's original assessment. Here, the later appellate order in the related firm's case conclusively established that the two firms were separate legal entities and that the relevant payment belonged to the assessee firm, which changed the factual and legal footing on which the earlier assessment had proceeded. That connected determination supplied the Income-tax Officer with the requisite information and reason to believe that income had escaped assessment or been under-assessed, making the reopening valid.

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Issues: Whether an order in the assessment of another firm, involving common partners, could constitute information in the Income-tax Officer's possession so as to justify reopening under section 34(1)(b) of the Indian Income-tax Act.

Analysis: The section, as amended, required the Income-tax Officer to have information in his possession and, on that basis, reason to believe that income had escaped assessment or been under-assessed. The earlier assessment of the assessee had proceeded on a different understanding of the relationship between the two firms and on the footing that the interest payment was not taxable in the assessee's hands. The later appellate order in the connected assessment conclusively determined that the assessee firm and the other firm were separate legal entities and that the payment belonged to the assessee firm. That determination altered the legal and factual basis on which the assessee's assessment had been made. Such an operative finding in a connected proceeding was held to amount to information within the meaning of section 34(1)(b), and it furnished the requisite basis for the belief that the item had escaped assessment or been under-assessed. Cases dealing with mere change of opinion or obiter observations on unrelated items were distinguished.

Conclusion: The answer was in the affirmative; the notice under section 34(1)(b) was valid, and the issue was decided against the assessee and in favour of the Revenue.

Ratio Decidendi: An operative judicial finding in a connected proceeding, which changes the legal position relevant to the assessee's assessment, constitutes information for the purpose of reopening under section 34(1)(b) of the Indian Income-tax Act.

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