Reopening on fresh information upheld where inspector's report showed possible wrong allowance of expenses linked to exempt income.

Reopening was upheld because the Income-tax Officer acted on fresh information from the inspector's report, which was not before him at the original assessment. The report gave concrete details on staff time spent on exempt and non-exempt receipts, and on the collection and incurring of cabin receipts and electricity charges, supporting a belief that expenses linked to exempt income had been wrongly allowed and loss had been overstated. On those facts, the court held that the notice was not based on a mere change of opinion. The reassessment proceedings were therefore valid, and the challenge to the notice failed.

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Issues: Whether the notice issued under section 148 read with section 147(b) of the Income-tax Act, 1961 for reopening the assessment for assessment year 1960-61 was valid on the basis of information obtained after the original assessment, or whether it was a mere change of opinion.

Analysis: The material relied on for reopening consisted principally of the inspector's report dated July 8, 1964, which contained details of the petitioner's working, the time spent by staff on exempt and non-exempt receipts, and the manner in which cabin receipts and electricity charges were being collected and incurred. Those particulars were not before the Income-tax Officer at the time of the original assessment. The report furnished concrete information relevant to the allocation of expenses between exempt and taxable receipts and supported a belief that excessive loss had been computed because expenses relating to exempt income had been wrongly allowed. The court held that this was not a mere change of opinion and that the fact that the reassessment proceedings were initiated after receiving the report negatived the suggestion of mala fides.

Conclusion: The notice under section 148 read with section 147(b) was valid and the petition challenging it failed.

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