TMI Blog1985 (3) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... is as follows: " Whether, on the facts and in the circumstances of the case, it has been rightly held that the reopening of the assessments made under section 8 of the Surtax Act for the assessment years 1965-66 and 1966-67 themselves were not proper and accordingly setting aside the assessment made by the Income-tax Officer ?" The orders in the original assessment proceedings have not been made a part of the statement of the case while reproducing the facts as set out in the statement of the case. The statement of the case relating to the proceedings under the I.T. Act shows that while making the assessment for the assessment years 1965-66 and 1966-67, the ITO had allowed the claim of rebate under s. 84 of the I.T. Act and for calculating the rebate, what the ITO did was that he computed the capital by including half the profits that had accrued during the respective years. There was later an audit inspection and on the basis of the audit inspection note, the ITO took the view that the inclusion of half year's profit was not correct. The ITO reopened the proceedings and reduced the rebate allowable under s. 84 by reducing the capital computation by the extent of half the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential for the disposal of the reference on the question of law propounded by the Tribunal to get to know what the records disclosed as respects " the audit note, its contents and its timing it was necessary to direct the Tribunal to draw up a supplemental statement of the case and annex the audit note to the statement of the case. Accordingly, the Tribunal was directed to draw up a supplemental statement of the case and if the Tribunal considered it fit, to annex to the statement of the case extracts from the ITO's note-sheet in the assessment file. A supplementary statement of the case has now been submitted by the Tribunal. The supplementary statement of the case gives exhaustively the extracts of the day-to-day proceedings which had taken place before the ITO. One of the entries in the records, dated November 26, 1969, reads as follows "In the assessment completed on June 21, 1968, while computing capital for purposes of allowing relief under section 84 in respect of the new transformer unit, it is seen that the proportionate profit attributable to the new unit has been added back. This is not correct as the capital has been computed on average assets and liabilities me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. Consequent upon these errors which according to the audit note, had occurred, re computation with regard to surtax also became necessary. The Tribunal has taken the view that the audit note has pointed out that the provisions of sub-r. (5) of r. 19 have been wrongly applied and, therefore, such an error which was pointed out by the audit note cannot be treated as information for the purpose of s. 147(b) of the I.T. Act. It is vehemently pressed upon by the learned counsel for the Revenue that notwithstanding the decision of the Supreme Court in Indian Eastern News paper Society v. CIT [1979] 119 ITR 996, we should follow the decision of the Supreme Court under the Sales Tax Act in Anandji Haridas Co. (P.) Ltd. v. Kushare, STO [1968] 21 STC 326. According to the learned counsel, in this decision of the Supreme Court which was rendered by a larger Bench of five judges, the Supreme Court has approved the decision of this court in Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547. This court in Salem Provident Fund Society's case had observed that in cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in Indian Eastern Newspaper Society's case [1979] 119 ITR 996 (SC). But we may point out that even in Kalyanji Mavji Company's case [1976] 102 ITR 287, the Supreme Court had pointed out that where the ITO 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, s. 34(1)(b) would have no application. We may point out that in the later decision of the Supreme Court in Indian Eastern Newspaper Society's case [1979] 119 ITR 996, the Supreme Court had clearly observed that the proposition in the decision of the Supreme Court in the case of Kalyanji Mavji and Co. [1976] 102 ITR 287 to the effect that a case where income had escaped assessment due to " oversight, inadvertence or mistake " of the ITO must fall within s. 34(1)(b) of the Indian I.T. Act, 1922, was stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment under s. 147(b) of the Act. We have repeatedly tried to ascertain from the learned counsel for the Revenue as to what was the exact nature of the information on which the Revenue was relying when it sought to justify the reassessment proceedings under s. 147(b) of the I.T. Act. The learned counsel made it clear to us that the information consisted of the fact that the audit note has informed the ITO that he has committed a mistake while computing the income and giving effect to the deductions for the purpose of s. 84 of the I.T. Act. In other words, the contention of the Revenue appears to be that whenever the audit note points out a mistake in the order of the ITO, such mistake will enable the ITO to take recourse to his power under s. 147(b) of the I.T. Act. If the argument of the learned counsel is carried to its logical conclusion, the audit may also point out a mistake of law which has resulted in a mistake in the computation made by the ITO and even on such a mistake being pointed out, the ITO would be entitled to reopen the assessment which, of course, would be wholly contrary to the law laid down by the Supreme Court in Indian and Eastern Newspaper Society's ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, throughout the said period and (b) to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business. " It is argued by the learned counsel and, in our view, with justification, that the audit note has differed from the interpretation placed on this rule by the ITO himself and since the ITO has construed the rule in manner different from what according to the Audit Department was the correct content of rule 19(5), the instant case would be squarely covered by the decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. We are inclined to accept this contention. The question of ascertaining the average amount of capital employed in the business during any computation period for the purpose of relief under s. 84 is dealt with by rule 19(5). There is obviously difference of opinion between the ITO and the Audit Department as to the true meaning and content of rule 19(5). By the audit note, the Audit Department wanted the ITO to construe rule 19(5) according to the construction placed by the Audit Department. It is, therefore, clearly a case where an error of law is sought to be pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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