1980 (2) TMI 18 - HC - Income Tax

Invalid Notice to Reopen Assessment Based on Change of Opinion - Court Deems Notice Null and Void

The court held that the notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment was invalid as it was based on a ... Information, Reassessment Issues Involved1. Jurisdiction to Reopen Assessment under Section 147 of the Income Tax Act, 1961.2. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961.3. Interpretation of 'Information' under Section 147(b) of the Income Tax Act, 1961.4. Legitimacy of Audit Objections as a Basis for Reopening Assessment.Detailed Analysis1. Jurisdiction to Reopen Assessment under Section 147 of the Income Tax Act, 1961The petitioner, a co-operative purchase and sale union, challenged the notice issued by the Income Tax Officer (ITO) under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 1975-76. The petitioner contended that the ITO lacked jurisdiction to reopen the proceedings as the conditions precedent under Section 147 of the Act were not met. The court noted that the original assessment was completed after considering all relevant facts and that the ITO's attempt to reopen the case was based on a change of opinion rather than new information.2. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961The petitioner received a notice dated January 20, 1979, under Section 148, stating that the ITO had reason to believe that income chargeable to tax had escaped assessment. The petitioner argued that the notice was invalid as the ITO did not have new information justifying the reopening. The court examined the reasons provided by the ITO, which included improper declaration or assessment of profit under Section 41(2) and wrongful claims under Section 80P(2)(iii) and (iv). The court found that these reasons were based on a change of opinion and not on new information.3. Interpretation of 'Information' under Section 147(b) of the Income Tax Act, 1961The court referred to the Supreme Court's decision in Indian and Eastern Newspaper Society Ltd. v. CIT [1979] 119 ITR 996, which held that the opinion of an internal audit party on a point of law cannot be regarded as 'information' under Section 147(b) for reopening assessments. The court emphasized that the ITO must determine for himself the effect and consequence of the law mentioned in the audit note. The audit objections in this case did not provide new facts but merely suggested that the ITO had not made detailed inquiries during the original assessment.4. Legitimacy of Audit Objections as a Basis for Reopening AssessmentThe court scrutinized the audit objections, which pointed out that the ITO had not obtained the sale deed of machineries and godown sold for verification and had incorrectly allowed deductions under Section 80P(2)(a)(iii). The court held that these objections did not constitute new information but were merely opinions on the adequacy of the ITO's original inquiries. The court reiterated that an error discovered on reconsideration of the same material does not justify reopening the assessment.ConclusionThe court concluded that the impugned notice under Section 148 was ultra vires and de hors the provisions of Section 147(b), rendering it null and void. The petitioner was entitled to a writ of mandamus quashing and setting aside the notice. The respondent was permanently restrained from proceeding further with the notice, and the rule was made absolute with costs. The interim relief was vacated.