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TMI Blog1975 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ts involved in the instant case have baffled many a legal brain so much so that the High Court also appears to have been in two minds whether to place the information in the instant case as based on the materials already on the record of the original assessment of 1956-57 revealed by closer circumspection or to the information derived from subsequent or fresh facts. Before, however, examining the legal incidents of section 34 of the Indian Income-tax Act, 1922, it may be necessary for us to travel into the domain of the facts of the present case which are short and simple. The assessee-appellant, M/s. Kalyanji Mavji & Company, is a registered partnership firm dealing in various commercial activities. The said firm filed its return for the year 1956-57 corresponding to the accounting Gujarati Diwali year 2001 showing a total income of Rs. 7,44,551 after claiming a deduction of a sum of Rs. 43,116 being the amount of interest paid by the assessee on the debts incurred for the partnership business. The Income-tax Officer accepted the return but on appeal to the Appellate Assistant Commissioner the assessment was reduced by a sum of Rs. 9,200 by his order dated July 3, 1958. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the balance-sheet he would have at once detected the infirmity on the basis of which the subsequent Income-tax Officer issued the notice under section 34(1)(b) of the Act to the appellant. The Tribunal further was of the opinion that the subsequent Income-tax Officer merely changed his opinion on the basis of the very materials that were before him when the original assessment was made and that was not sufficient to attract the provisions of section 34(1)(b) of the Act. The Tribunal, accordingly, allowed the appeal and set aside the order of the Income-tax Officer issuing notice to the assessee under section 34(1)(b) for reopening the original assessment. Thereafter, the respondent, namely, the Commissioner of Income-tax, approached the Tribunal for making a reference to the High Court under section 66(1) of the Act as a result of which the Tribunal referred the case to the High Court at Calcutta after framing the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment made by the Income-tax Officer under section 34(1)(b) of the Indian Income-tax Act, 1922, was incompetent ?" The High Court, af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, 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 that excessive loss or depreciation allowance has been computed, he may in cases failing under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable to tax had escaped assessment. No conditions or limitations on the power of the Income-tax Officer were at all laid down under the section. It appears that the appropriate legislature in its wisdom thought that this would be too wide a power to be given to the Income-tax Officer and may not be workable. In these circumstances, by the Indian Income-tax (Amendment) Act, 1939, this section was recast as under: "34. (1) If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act, the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariety of factors. Nevertheless, the power under section 34(1)(b), however wide it may be, is not plenary, because the discretion of the Income-tax Officer is controlled by the words "reason to believe". It was so held by this court in Bhimraj Pannalal v. Commissioner of Income-tax, while affirming the decision of the Patna High Court in Bhimraj Pannalal v. Commissioner of Income-tax. This legal proposition, however, is not disputed. It, therefore, follows that information may come from external sources or even from materials already on the record or may be derived from the discovery of new and important matter or fresh facts. The word "information" will also include true and correct state of the law derived from relevant judicial decisions either of the income-tax authorities or other courts of law which decide income-tax matters. Where the ground on which the original assessment is based is held to be erroneous by a superior court in some other case, that will also amount to a fresh information which comes into existence subsequent to the original assessment. A subsequent Privy Council decision is also included in the word "information". Thus it is very difficult to lay down any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities. But even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. The decision of the Privy Council, therefore, was held to be information within the meaning of section 34(1)(b) and the proceedings for reassessment were validly initiated." The matter was again fully considered by this court in A Raman and Co.'s case, where Shah J., speaking for the court, extended the connotation of the word "information" to two different categories of cases and observed as follows: "The expression 'information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment....... Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment; (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. If these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment. It is obvious that where the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application. Learned counsel for the appellant heavily relied on the decision of this court in Bankipur Club Ltd. v. Commissioner of Income-tax in support of the proposition that in the instant case the Income-tax Officer has proceeded to reopen the assessment on the basis of the very materials which formed the subject of the original assessment. It was submitted that in the original assessment the assessee had claimed a deduction and had produced the balance-sheet and these very factors were also present when the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order, which is annexure "A" to the statement of case filed by the Tribunal, observed as follows: "In the course of the assessment proceedings for 1958-59, however, it was discovered that the assessee's claim of payment of interest on money borrowed was not proper. Inasmuch as the entire money borrowed had been utilised not for the purpose of business but in giving interest-free advance to the partners of the firm.......In fact no argument as regards the allowance or disallowance of the interest amount in question was placed but the entire argument of the representative proceeded on the basis that the action u/s 34 itself was illegal....... There is no doubt that there has been under-assessment in this case and there is also no doubt that the fact of under-assessment has been brought to the notice of the Income-tax Officer only in the course of the income-tax proceedings for 1958-59." Similarly, the Appellate Assistant Commissioner in his order, which is annexure "B" to the statement of the case, observed as follows: "At the time of the original assessment the appellant claimed an interest of Rs. 43,116 which was allowed by the Income-tax Officer in full. However, later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We might mention that it was submitted by Mr. Banerjee that in fact the amount sought to be deducted was paid towards the income-tax liability of the partners and this was done to protect the business itself and to improve the credit of the partners. Even this specific plea does not appear to have been taken before the Income-tax Officer. We are, however, not concerned with this particular plea because we are given to understand by the counsel for the appellant that the appeals against the assessment orders for the years 1958-59 and 1959-60 are pending before the income-tax authorities. In these circumstances we are clearly of the opinion that the facts of the present case clearly fall within the tests and principles laid down by this court in A. Raman and Co.'s case, inasmuch as the Income-tax Officer proceeded on the basis of the information which came to him after the original assessment by fresh facts revealed in the assessment for the year 1958-59 and consisted of the conduct of the appellant itself in not adducing any evidence to support its plea. We are, therefore, unable to agree with the view of the Tribunal that this was a case of a mere change of opinion by the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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