Court quashes tax reassessment for being a mere change of opinion. Rule 148 proceedings set aside.

The court concluded that the reassessment proceedings were initiated based on a mere change of opinion and not on any new information or material. The court set aside the impugned notice and the proceedings initiated under Section 148 of the Income Tax Act, 1961, and made the rule absolute. The court also applied the same reasoning and findings to other related assessment years. The prayer for stay of operation of the order was refused.

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Issues Involved:
1. Legality and validity of Rule 19A of the Income Tax Rules, 1962.
2. Legality of the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961.
3. Whether the Income Tax Officer (ITO) had the requisite jurisdiction and belief to issue the notice under Section 148.
4. Whether the reassessment was initiated based on a mere change of opinion.

Issue-wise Detailed Analysis:

1. Legality and Validity of Rule 19A of the Income Tax Rules, 1962:
The petitioner, Century Enka Ltd., challenged the legality and validity of Rule 19A of the Income Tax Rules, 1962, which was applied by the assessing officer to compute the capital employed in the undertaking. The officer computed the capital employed as on 1st October 1971 and determined the admissible deduction under Section 80J of the Income Tax Act, 1961, at Rs. 34,33,166. The company alleged that the officer wrongfully took into consideration the value of assets only on the first day of the relevant previous year and deducted the amount of borrowed capital.

2. Legality of the Reassessment Proceedings Initiated Under Section 148 of the Income Tax Act, 1961:
The company received a notice under Section 148 of the Income Tax Act, 1961, for the assessment year 1973-74, alleging that the company's income chargeable to tax had escaped assessment. The company contended that the conditions precedent to confer jurisdiction upon the ITO to issue the notice under Section 148 did not exist and were not fulfilled. The company argued that the notice was issued with an ulterior motive to conduct a fishing and roving enquiry.

3. Whether the Income Tax Officer (ITO) Had the Requisite Jurisdiction and Belief to Issue the Notice Under Section 148:
The ITO, K. C. Mukherjee, stated that subsequent to the completion of the original assessment, he received information from the Director of Investigation (DI), New Delhi, through the Commissioner of Income-tax, Central-I, that manufacturers of synthetic yarn collect security deposits for cops and spools from purchasers of yarn, which should be treated as trading receipts liable to tax. The ITO examined the assessment records and found that Century Enka Ltd. had security deposits amounting to Rs. 4,30,620, which were not included in the sale proceeds. Based on this information, the ITO believed that the income chargeable to tax had escaped assessment.

4. Whether the Reassessment Was Initiated Based on a Mere Change of Opinion:
The company argued that the reassessment was initiated based on a mere change of opinion and that the ITO was acting on the dictates of his superiors. The court examined the telex message and the letter from the DI (Investigation) and found that they did not constitute new information but were merely a reiteration of existing legal principles established by the Supreme Court in earlier cases. The court held that the initiation of reassessment proceedings based on a mere change of opinion was not permissible under Section 147 of the Income Tax Act, 1961. The court cited the case of L. Madanlal (Aluminium) P. Ltd. v. ITO [1978] 115 ITR 293 (Cal), where it was observed that mere affirmation or reiteration of the same principle of law by the Supreme Court cannot furnish any subsequent knowledge or information within the meaning of Section 147(b) of the Act.

Conclusion:
The court concluded that the reassessment proceedings were initiated based on a mere change of opinion and not on any new information or material. The court set aside the impugned notice and the proceedings initiated under Section 148 of the Income Tax Act, 1961, and made the rule absolute. The court also applied the same reasoning and findings to Civil Rule Nos. 11266-67(W) of 1976, involving the assessment years 1972-73 and 1971-72, respectively. The prayer for stay of operation of the order was refused.

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