1971 (8) TMI 11 - SC - Income Tax

Supreme Court rejects reassessment under Income-tax Act, citing lack of new information. Appeal dismissed.

The Supreme Court upheld the decision of the High Court, ruling that the reassessment under section 34(1)(b) of the Income-tax Act, 1922 was not valid. ... Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the action under section 34(1)(b) of the Income-tax Act, 1922, was legal and valid ? Held that:- It is well settled by now, and Mr. Desai quite rightly does not dispute the proposition, that mere change of opinion could not be a valid ground for reopening the assessment under section 34(1)(b) of the Act. We would accordingly uphold the answer returned by the High Court on the short ground that the reassessment for the year in question was sought to be reopened for the reason that the successor of the Income-tax Officer who had made the original assessment had changed his opinion which lid not furnish a justifiable reason for taking action under section 34(1)(b). Appeal dismissed Issues:Appeal from a judgment of the Calcutta High Court in an income-tax reference; Validity of action under section 34(1)(b) of the Income-tax Act, 1922.Detailed Analysis:The case involved an appeal from a judgment of the Calcutta High Court in an income-tax reference. The assessee, represented by the present respondents, was H. K. Shah, who had a share of profit from a partnership in Madras. The Income-tax Officer failed to include this share of profit in the total income during assessment. Subsequently, a notice was issued under section 34(1)(b) of the Income-tax Act, 1922, to include the profits from the Madras firm that had escaped assessment. The Appellate Assistant Commissioner allowed the appeal, stating that there was no additional information to justify the action under section 34(1)(b). However, the Appellate Tribunal reversed this decision, leading to the matter being referred to the High Court. The primary question was whether the action under section 34(1)(b) was legal and valid.The High Court opined that the Income-tax Officer could initiate proceedings under section 34(1)(b) if there was information that, upon further investigation, revealed income escaping assessment. However, a mere change of opinion or failure to notice crucial information earlier did not constitute valid grounds for reassessment. The court highlighted the importance of satisfying the requirements of section 34(1)(b) and emphasized that lack of vigilance, inadvertence, or negligence on the part of the Income-tax Officer could justify reopening assessments if the necessary conditions were met.The Supreme Court referred to previous decisions to establish the principles applicable in such cases. It was noted that for the Income-tax Officer to reassess income under section 34(1)(b), two conditions must be satisfied: possessing information that leads to a belief of escaped income and such information coming into possession after the original assessment. The court reiterated that a mere change of opinion without valid reasons did not justify reopening assessments under section 34(1)(b).Ultimately, the Supreme Court upheld the High Court's decision, emphasizing that the reassessment was sought based on a change of opinion by the successor of the Income-tax Officer, which was not a justifiable reason under section 34(1)(b). The appeal was dismissed, with each party bearing their own costs.