TMI Blog1976 (11) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... or bonus. This method was followed from the accounting year 1966 to 1972-73. In accordance with the provisions of the Payment of Bonus Act, 1965, amounts credited to the bonus reserve account were transferred back to the profit and loss account after four years. The Income-tax Officer accepted the method of accounting aforesaid for the assessment years 1966-67 to 1973-74. By circular letter dated 18th August, 1973, the Central Board of Direct Taxes issued instructions to the effect that deduction for the bonus reserve should not be allowed. Subsequent to this circular letter, the Income-tax Officer issued a notice under section 154 of the Act on October 18, 1973, for the assessment years 1969-70 to 1972-73 requiring the petitioner to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent writ petition is as to whether the Income-tax Officer acting under sections 147-148 of the Act could reopen the assessment on the basis of the circular issued by the Central Board of Direct Taxes. Counsel for the petitioner has contended that the circular issued by the Central Board of Direct Taxes was not information of such nature as warranted action under sections 147-148 of the Act. It was urged that all relevant information in respect of the assessment years was already on the record and the present proceedings taken by the Income-tax Officer in effect are mere change of opinion formed by him on the matter, and as such the proceedings are without jurisdiction. It is well-settled that the Income-tax Officer cannot reopen an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay down any rule of universal application. At the same time it cannot be disputed that the object of the Act was to see that the tax collecting machinery is made as perfect and effective as possible so that the taxpayer is not allowed to get away with escaped income-tax. The fact that the adjective 'definite' qualified the word 'information' and the word 'discovers' which were introduced in the Income-tax (Amendment) Act 1939, were deleted by the Amendment Act of 1948, would lead to the irresistible inference that the word 'information' is of the widest amplitude and comprehends a variety 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aped assessment. Now the belief which the Income-tax Officer has to form on the information received by him is the conviction which a reasonable and prudent man would form on the basis of the objective information received by him that the income has escaped assessment. Inasmuch as the statute does not restrict the sources from which the information as to a question of law can be derived by the Income-tax Officer, we find it difficult to understand as to how any restriction as respects the source of information could be read into the statute. The only restriction, as we have already indicated earlier, is that the information must be from such a source as would lead a prudent man to form the belief that the information is, prima facie, correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. If the Income-tax Officer, acting on the circular letter of the Board of Direct Taxes, entertains the belief that there has been a misapplication of the law as a result of which the income has escaped assessment, it cannot be said that he acted arbitrarily in the matter or without any subsequent information. Counsel for the petitioner contended by reference to certain decisions that the Central Board of Direct Taxes cannot issue directions in respect of a quasi-judicial function performed by the Income-tax Officer while making an assessment. One cannot doubt this. The Central Board of Direct Taxes does not have statutory authority to give directions to the Income-tax Officer to decide a particular matter in accordance with the view of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised to declare the correct state of law or to pronounce upon it and as such the assessment could not be reopened on the information of the audit department. A contrary view was taken by the Delhi High Court in the case of Commissioner of Income-tax v. H. H. Smt. Chand Kanwarji [1972] 84 ITR 584 (Delhi) as also by the Kerala High Court in the case of Muthukrishna Reddiar v. Commissioner of Income-tax [1973] 90 ITR 503 (Ker). The Delhi High Court, in the case of Vashist Bhargava v. Income-tax Officer [1975] 99 ITR 148 (Delhi), after referring to the test laid down by the Gujarat High Court, held that the test laid down by that court was, if narrowly construed, not very appropriate. It held that the information coming from the audit depar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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