1984 (6) TMI 22 - HC - Income Tax

Summary

Issues: Jurisdiction of the ITO to reopen assessment based on audit note as information under section 147(b) of the Income Tax Act, 1961.

Analysis:

The petitioner-firm sought to quash a reassessment order dated March 31, 1980, passed by the ITO, Surat, for the assessment year 1975-76. The firm had initially filed a return for Rs. 61,460 for the said assessment year, claiming various allowances and interest paid to the Life Insurance Corporation. Subsequently, the ITO issued a notice under section 148 of the Income Tax Act, 1961, proposing to reassess the income for the year in question, citing that income had escaped assessment. The firm objected to the reassessment, arguing that the ITO lacked jurisdiction to reopen the assessment. Despite the objection, the ITO proceeded with the reassessment, withdrawing depreciation and interest allowances claimed by the firm, leading to the petition challenging the reassessment order.

The central issue in this case revolved around whether an audit note could be considered as "information" under section 147(b) of the Income Tax Act, 1961, thereby granting the ITO the authority to initiate reassessment proceedings. The court referred to the decision in Indian and Eastern Newspaper Society's case, where the Supreme Court ruled that the opinion of an internal audit party cannot be regarded as information for reopening an assessment. The court emphasized the distinction between the source of law and the communication of law, stating that opinions do not hold the status of law. Despite the ITO's reliance on a previous court decision, the court held that subsequent legal developments, such as Supreme Court decisions, could impact the validity of reassessment proceedings based on inadequate information like an audit note.

Ultimately, the court found that the ITO had erred in initiating reassessment proceedings based on the audit note, as per the Supreme Court's ruling. The court concluded that the ITO lacked jurisdiction and authority to reassess the proceedings, as it would amount to a change of opinion rather than addressing escaped assessment. Consequently, the court allowed the petition, issuing a writ of certiorari to quash the reassessment made by the ITO, declaring it void of jurisdiction or legal authority.