1983 (7) TMI 143 - AT - Income Tax

Issues Involved:
1. Validity of reassessment proceedings initiated under section 147(b) of the Income-tax Act, 1961.
2. Interpretation and application of Rule 115 of the Income-tax Rules, 1962.
3. Binding nature of CBDT circulars and instructions on Income-tax authorities.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 147(b):

The primary issue in these appeals revolves around the validity of the reassessment proceedings initiated by the Income-tax Officer (ITO) under section 147(b) of the Income-tax Act, 1961. The original assessments were completed on 8-7-1976, where the freight income was converted into rupees at Rs. 7.29 per US dollar based on the instructions issued by the CBDT in 1972. However, the CBDT issued revised instructions in 1978, directing the exchange rate to be Rs. 7.50 per US dollar. The ITO, based on this new information, initiated reassessment proceedings under section 147(b).

The assessee contended that there was no new information as required under section 147(b), and the ITO merely changed his opinion based on the same material. The Commissioner (Appeals) agreed with the assessee, holding that the revised instructions did not constitute new information and thus, the reassessment proceedings were invalid.

Upon appeal, the Tribunal held that the revised instructions issued by the CBDT in 1978 constituted fresh material and information within the meaning of section 147(b). The Tribunal emphasized that the ITO had new information in his possession, which led him to believe that income had escaped assessment. Consequently, the initiation of reassessment proceedings under section 147(b) was deemed valid.

2. Interpretation and Application of Rule 115:

Rule 115 of the Income-tax Rules, 1962, pertains to the exchange rate for converting foreign currency income into rupees. The ITO initially adopted an exchange rate of Rs. 7.29 per US dollar based on the 1972 instructions. The revised instructions in 1978 directed the exchange rate to be Rs. 7.50 per US dollar.

The Tribunal highlighted that the Board's instructions interpreting Rule 115 were binding on the income-tax authorities. The revised instructions provided fresh material for the ITO to reassess the income, as they constituted new information regarding the exchange rate.

3. Binding Nature of CBDT Circulars and Instructions:

The Tribunal discussed the binding nature of CBDT circulars and instructions under section 119 of the Income-tax Act, 1961. It was emphasized that the CBDT, as the highest executive authority, has the power to issue instructions and directions to income-tax authorities, which are binding. The Tribunal referred to several Supreme Court decisions, including Navnit Lal C. Javeri v. K.K. Sen, AAC, and Ellerman Lines Ltd. v. CIT, which affirmed the binding nature of CBDT circulars on income-tax authorities.

The Tribunal concluded that the revised instructions issued by the CBDT in 1978 were binding on the ITO. The instructions provided new information that justified the reopening of assessments under section 147(b). The Tribunal disagreed with the Commissioner (Appeals) and held that the reassessment proceedings were valid.

Conclusion:

The Tribunal allowed the appeals, holding that the reassessment proceedings initiated by the ITO under section 147(b) were valid based on the fresh information provided by the revised CBDT instructions. The matter was remanded back to the Commissioner (Appeals) for deciding the appeals on merit.

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