TaxTMI 
TaxTMI 
1980 (7) TMI 27
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....73 on October 12, 1972, and for the assessment year 1973-74 on February 7, 1974. On December 6, 1975, the ITO issued three notices under s. 8(b) of the Act for the assessment years 1971-72, 1972-73 and 1973-74, proposing to reassess the income of the petitioner for these assessment years, as he had reason to believe that the petitioner's chargeable profit chargeable to tax had escaped assessment within the meaning of s. 147 of the I.T. Act, 1961. The petitioners have challenged these notices at P-8, P-9 and P-10, in the three writ petitions detailed above, respectively. Section 8 of the Act deals with the profits escaping assessment and it reads: " 8. Profits escaping assessment.-If-. (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 5 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable profits for that year have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or (b) notwithstanding that there....
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.... remaining outstanding as on the first day of the said previous year ; and (ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under rule 1 ........" The relevant part of the audit report for the disputed assessment years, a copy of which was allowed to be placed on the file on the request of Mr. Awasthy, learned counsel for the revenue, reads: Under rule 2 of the Second Schedule to the Surtax Act, the capital computed in accordance with rule I of the Second Schedule to the Surtax Act was diminished by the cost of assets the income from which is excluded under clauses (iii), (vi) and (viii) of rule I of the First Schedule. The cost of assets so diminishable was not to exceed the aggregate of (i) any, money borrowed; and (ii) the amount of any surplus fund and such reserve as is not to be taken in computing capital under rule I of the Second Schedule. It will be found from item (i) and (ii) above that exclusion for diminishable capital was for borrowing funds, surplus and reserves. Any amount which could not classify as borrowing funds, surplus or reserve would not reduce the diminishable capi....
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.... that the audit detected the mistake in the disputed assessments in the context of r. 2 of the Second Schedule to the Act. The ITO had also issued notice on February 1, 1975, to the petitioner under s. 13(1) of the Act which was later on not pursued. This notice (p. 5 in Civil Writ No. 387 of 1976) is based on the audit report reproduced above and it reads: " Subject:-Notice under section 13(1) of the Companies (Profits) Surtax Act, 1964: Assessment years I969-70 to 1973-74 For the purposes of rule 2(ii) of the Second Schedule of the Companies (Profits) Surtax Act, 1964, following items as per chart enclosed were considered for restricting the reduction in capital under rule 2 of the said Second Schedule. However, these items are not covered by the wording of sub-rule (2) of rule 2 of the said Schedule as those cannot be considered any fund, surplus or reserve. It is proposed to exclude these items for the calculation of reduction in capital relating to shares held by the company in other companies. 2. You are requested to please file your objections if any ....
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....IT [1976] 102 ITR 287 (SC while dealing with an analogous provision contained in s. 34(1)(b) of the Indian I.T. Act, 1922, the Supreme Court categorised conditions under which a reassessment could be invoked as under (headnote): " (1) where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer; (3) where the information is derived from an external source of any kind, such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law. Where, however, the Income-tax Officer gets no subsequent in....