INCOME TAX OFFICER v. KANHAIYA LAL KAPOOR AND SONS
[Citation -1986-LL-0228-9]

Citation 1986-LL-0228-9
Appellant Name INCOME TAX OFFICER
Respondent Name KANHAIYA LAL KAPOOR AND SONS
Court ITAT
Relevant Act Income-tax
Date of Order 28/02/1986
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags reassessment proceedings • weighted deduction • change of opinion • audit party
Bot Summary: BISHAMBHAR NATH, A.M. There is an appeal of the revenue against the order of CIT cancelling the assessment made under s. 147(B) by the ITO. There is also cross objection of the assessee. The proposition in the decision of the Supreme Court in the case of Kalyanji Mavji and Co. 102 ITR 287 to the effect that a case where income has escaped assessment due to over sight, inadvertence or mistake of the ITO must fall within s. 34(1)(b) of the Indian IT Act, 1922 is stated too widely and travels farther than the statute warrantees in so far as it can be said to lay down that if, on reapprising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence o f which income has escaped assessment, it is open to him to reopen the assessment. The CIT(A) has held that according to the said decision of the Supreme Court, the initiation of proceedings under s. 147(b) was not legal, as there was no valid information with the ITO, which could form the basis for reopening the assessment made earlier. Senior Departmental Representative that the opinion of audit party was not wholly irrelevant and that information on a point of fact could form the basis for reopening the assessment under s. 147(b) according to the decision of Supreme Court in he above- mentioned case. The information on the basis of which the ITO initiated proceedings under s. 147(b) was report of an Audit, which stated as under: Relief under s. 35B does not appear correctly worked out. The ITO on receipt of the report of the audit party issued notice under s. 147 and, withdrew the weighted deduction under s. 35B on most of the items on which the ITO framing the assessment earlier had allowed the weighted deduction. Respectfully following the decision of Supreme Court, we hold that the Audit party was not authorised to give an opinion on an issue of law and such opinion given by the Audit party could not correctly form the basis for reopening the assessment under s. 147(b).


BISHAMBHAR NATH, A.M. There is appeal of revenue against order of CIT (A) cancelling assessment made under s. 147(B) by ITO. There is also cross objection of assessee. Both these are taken up together for consideration. CIT(A) has cancelled assessment relying on decision of Lordships of Supreme Court in case of Indian and Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC). In this case their Lordships of Supreme Court have held as under: "Held, that opinion of audit party on point of law could not be regarded as "information" enabling ITO to initiate reassessment proceedings under s. 147(B). ITO had, when he made original assessment, considered provisions of ss. 9 and 10 of Indian IT Act, 1922. Any different view taken by him afterwards on application of those provisions would amount to change of opinion on material already considered by him." "The proposition in decision of Supreme Court in case of Kalyanji Mavji and Co. (1976) 102 ITR 287 (SC) to effect that case where income has escaped assessment due to "over sight, inadvertence or mistake" of ITO must fall within s. 34(1)(b) of Indian IT Act, 1922 is stated too widely and travels farther than statute warrantees in so far as it can be said to lay down that if, on reapprising material considered by him during original assessment, ITO discovers that he has committed error in consequence o f which income has escaped assessment, it is open to him to reopen assessment. error discovered on reconsideration of same material (and no more) does not give him that power." CIT(A) has held that according to said decision of Supreme Court, initiation of proceedings under s. 147(b) was not legal, as there was no valid information with ITO, which could form basis for reopening assessment made earlier. It was argued by ld. Senior Departmental Representative that opinion of audit party was not wholly irrelevant and that information on point of fact could form basis for reopening assessment under s. 147(b) according to decision of Supreme Court in he above- mentioned case. It was also argued by him that ITO had allowed relief under s. 35B on many items of expenses which were not admissible according to decision of Madras High Court in case of CIT vs. Southern Sea Foods P. Ltd. (1982) 31 CTR (Mad) 23: (1983) 140 ITR 855 (Mad). representative of assessee relied upon that following case laws: (1) Indian and Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC). (2) Maharaj Kumar Kamal Singh vs. CIT (1975) 35 ITR 1 (SC). (3) Sakarlal Balabhai vs. ITO Investigation & Ors. (1975) 100 ITR 97 (Guj). (4) 138 ITR 523. (5) Shri Venkatesa Mills Ltd. vs. CIT 1977 CTR (Mad) 96: (1978) 111 ITR 562 (Mad) (6) Kamal Chand vs. ITO & Anr. (1981) 128 ITR 290 (MP). (7) (1981) 126 ITR 622. It was argued that report of audit party in this case on basis of which assessment was reopened was on issue of law and this report could n o t form basis for reopening assessment and could not act as information. He stated that according decided case laws, there should be information which came to possession of ITO after completion of earlier assessment and that information could form basis for re-opening of original assessment under s. 147(b). He argued with stress that there was no such information with ITO and hence reopening of assessment was invalid. He further argued that ITO could not change his opinion on same material and he could not validly initiate proceedings under s. 147(b) merely as he changed his opinion on issue later. We have looked into facts of case and have considered rival view-points. information on basis of which ITO initiated proceedings under s. 147(b) was report of Audit, which stated as under: "Relief under s. 35B does not appear correctly worked out." It has to be seen now whether this could form valid basis in shape of information so as to enable ITO to re-open assessment under s. 147(b). Audit pointed out that relief under s. 35B was not correctly worked out. Thus, indirectly Audit pointed out that relief under s. 35B was given on items, which were not eligible for such relief. Thus, Audit clearly gave information on issue of law which it was not authorised to do. Lordships of Supreme Court have clearly held in above-mentioned case that Audit Party does not possess power to pronounce on law. Audit party here reported that relief under s. 35B was not worked out correctly. only implication of this report was that in opinion of Audit Party, relief was given on items of expenses, which were not eligible for same. ITO on receipt of report of audit party issued notice under s. 147 (b) and, withdrew weighted deduction under s. 35B on most of items on which ITO framing assessment earlier had allowed weighted deduction. In our opinion, on facts of case, said decision of Supreme Court applies fully. Respectfully following decision of Supreme Court (supra), we hold that Audit party was not authorised to give opinion on issue of law and such opinion given by Audit party could not correctly form basis for reopening assessment under s. 147(b). assessments so reopened under s. 147 (b), therefore, was correctly cancelled by CIT (A). order of CIT (A) is upheld and appeal of Revenue is dismissed. delay of two days only in filing cross objection by assessee is condoned in view of reasons mentioned by assessee in their letter dt. 10th Feb., 1986. However, as re-assessment itself has been cancelled above in this order, cross objection of assessee has become infructuous. It is, therefore, dismissed. *** INCOME TAX OFFICER v. KANHAIYA LAL KAPOOR AND SONS
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