COMMISSIONER OF INCOME TAX Vs. RATANLAL LALLUBHAI

JUDGEMENT

(1.) THE assessee in this case is a registered partnership firm and we are concerned with proceedings relating to its assessment to income -tax for four assessment years, namely, assessment years 1966 -67, 1967 -68, 1968 -69 and 1969 -70. The corresponding previous years for these assessment years are Samvat years 2021, 2022, 2023 and 2034, respectively. The proceedings for assessment to income -tax in the aforesaid assessment years were reopened by the Income -tax Officer under section 147(b) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), and the question which arises for consideration is whether the reassessment was valid.

(2.) IT appears that in the course of assessment to income -tax for the aforesaid assessment years, the Income -tax Officer allowed as a permissible deduction certain amounts which were paid to the partners of the assessee -firm as and by way of interest. The relevant particulars with regard to the amounts of interest paid to each partner and allowed as permissible deductions in the course of assessment proceedings are set out in paragraph 2 of the order of the Tribunal as well as in paragraph 3 of the statement of the case. Since nothing turn on the amounts so allowed we do not set out those facts in this judgment.

(3.) THE assessee, aggrieved by the order of Income -tax Officer, carried the matter in appeal to the Appellate Assistant Commissioner held that in view of the decision of the court in Kasutbhai Lalbhai v. R. K. Malhotra, Income -tax Officer : [1971]80ITR188(Guj) , which decision was binding on him, the audit department, which audits the work of the income -tax department, was not an authority competent and authorised to declare the correct state of the law or to pronounce upon it. The audit report could not, therefore, constitute 'information' within the meaning of section 147(b) entitling the Income -tax Officer to initiate proceedings for reassessment. The Appellate Assistant Commissioner, therefore, held that the action for reassessment taken by the Income -tax Officer under section 147(b) was 'not in order' and that it was required to be cancelled.