1982 (5) TMI 47 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Income Tax Officer (ITO) was justified in reopening the assessments under section 147(b) of the Income-tax Act, 1961.
2. Whether the reopening of assessments under section 147(b) was based on new information or merely a change of opinion.
3. Whether the audit note could serve as a basis for reopening the assessments.
4. Whether the Tribunal has jurisdiction to decide the merits of the case if the Appellate Assistant Commissioner (AAC) did not decide on merits.

Detailed Analysis:

1. Justification for Reopening Assessments under Section 147(b):
The primary issue in all appeals was whether the ITO was justified in reopening the assessments under section 147(b) of the Income-tax Act, 1961. The assessee-trusts had initially received exemptions under section 11, but the ITO later believed that these exemptions were wrongly granted due to the applicability of sections 13(2)(h) and 13(3). The ITO issued show-cause notices and reopened the assessments based on new information that was not available at the time of the original assessments.

2. New Information vs. Change of Opinion:
The assessee-trusts argued that the reopening was merely a change of opinion since the information regarding investments in Karamchand Premchand (P.) Ltd. was already available during the original assessments. However, the Tribunal found that the ITO had obtained new information after the original assessments were completed. This new information included an admission by the assessee-trusts that persons referred to in section 13(3) held more than 20% of the voting power in Karamchand Premchand (P.) Ltd. Therefore, the reopening was not based on a change of opinion but on new information that led the ITO to believe that income had escaped assessment.

3. Audit Note as Basis for Reopening:
The AAC had ruled that the audit note could not be a proper basis for reopening the assessments. However, the Tribunal clarified that while an audit party does not possess the power to pronounce on the law, it can draw the attention of the ITO to it. In this case, the ITO had independently applied his mind and had reason to believe that there was escapement of income, which was not solely based on the audit note. The Tribunal concluded that the reopening of the assessments was valid and not merely a reconsideration of the same material.

4. Jurisdiction of the Tribunal:
The Tribunal addressed whether it had the jurisdiction to decide on the merits of the case when the AAC had not done so. The Tribunal clarified that its jurisdiction is restricted to the subject matter of the appeal, which in this case was the validity of the initiation of proceedings under section 147(b). Since the AAC had not decided the appeals on merits, the Tribunal could not address the merits of the case. The Tribunal directed that the matter be remanded back to the AAC for a decision on the merits.

Conclusion:
The Tribunal concluded that the ITO was justified in reopening the assessments under section 147(b) based on new information that came into his possession after the original assessments. The reopening was not merely a change of opinion, and the audit note was not the sole basis for the reopening. The Tribunal also clarified that it did not have the jurisdiction to decide on the merits of the case since the AAC had not addressed them. The matter was remanded back to the AAC for a decision on the merits. All appeals were allowed for statistical purposes.