Reopening and profit apportionment principles: known facts cannot justify reassessment, and territorial purchases need a definite business operation for attribution.

Reopening under section 34(1)(b) was held invalid because the facts about the purchases were already before the assessing officer, and a later appreciation of their legal effect did not amount to fresh information justifying reassessment. Profit apportionment under sections 42(1) and 42(3) was also rejected because the purchases in Part A and Part C States were not shown to constitute a definite, commercially identifiable business operation in the taxable territories or to yield an attributable profit margin. On both issues, the reference was answered against the revenue and in favour of the assessee.

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Issues: (i) Whether the reopening of the assessment under section 34(1)(b) of the Indian Income-tax Act, 1922, for the assessment year 1951-52 was valid. (ii) Whether any profits could be apportioned to the purchases effected in Part A and Part C States for the assessment years 1951-52 and 1952-53.

Issue (i): Whether the reopening of the assessment under section 34(1)(b) of the Indian Income-tax Act, 1922, for the assessment year 1951-52 was valid.

Analysis: Reopening under section 34(1)(b) required valid information leading to escapement of income. The relevant facts concerning purchases in India were already before the Income-tax Officer at the time of the original assessment, and the later attempt to treat the same facts as giving rise to a new legal consequence did not furnish the statutory basis for reassessment. A mere later realisation of the legal significance of known facts was not enough to justify recourse to the reopening provision.

Conclusion: The reopening of the assessment for the assessment year 1951-52 was invalid and the issue was decided in favour of the assessee.

Issue (ii): Whether any profits could be apportioned to the purchases effected in Part A and Part C States for the assessment years 1951-52 and 1952-53.

Analysis: Under section 42(1) and section 42(3), only profits reasonably attributable to operations carried out in the taxable territories could be brought to tax. Apportionment was justified only where the activity in India amounted to a well-defined business operation with continuity and commercial significance. On the facts found, the purchases in the taxable territories were not shown to have been made through any agency or established purchasing arrangement, nor was there material to show systematic, habitual, or specially organised purchase operations producing an attributable margin of profit. In the absence of such findings, the purchases were not sufficient to constitute an operation for the purpose of apportionment.

Conclusion: No profits were attributable to the purchases made in Part A and Part C States, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered against the revenue on both the reopening question and the apportionment question, leaving the assessee successful on all material issues decided.

Ratio Decidendi: Reopening under section 34(1)(b) cannot rest on a mere later appreciation of the legal effect of facts already known to the assessing officer, and profits can be apportioned under section 42(3) only where the activities in the taxable territories amount to a definite and commercially identifiable business operation directly or indirectly contributing to the income.

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