ZORASTER AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference application under Section 250(2) of the Income-tax Act, 1961, has been filed by M/s. Zoraster and Company (hereinafter referred to as "the assessee"). In the present case, the original assessment for the assessment year 1972-73 was made on January 31, 1975. Thereafter, on a report of the internal audit party, proceedings for reopening the assessment under Section 147(b) read with 148 was taken, and the reassessment order was passed on March 7, 1978. The assessee, aggrieved against the order of the Income-tax Officer under Section 143(3) read with Section 148, filed an appeal before the Commissioner of Income-tax (Appeals), Rajasthan. Learned Commissioner of Income-tax (Appeals) by his order dated March 27, 1980, allowed the appeal taking the view that in the facts and the circumstances of this case, it was only a question of change of opinion on the basis of the facts existing at the time of original assessment and the provisions of Section 147(b) could not be attracted. The Revenue, aggrieved against the order of the Commissioner, went in appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal, by order dated December 7, 1981, allowed the appeal filed by the Revenue. The Tribunal in its order has extracted in detail the reasons recorded by the ITO before initiating the proceedings under Sections 147(b) and 148. Thereafter, the Tribunal observed that the Revenue audit party had pointed out that the assessee had given interest-free advances to as many as 8 parties from whom no interest was charged. On the contrary, interest was paid to creditors and banks on borrowings for the purpose of business and these borrowings were not utilised for the purpose of business. THIS note of the revenue audit party pointed out certain factual information about non-charging of interest from certain parties listed in the audit note and it was reproduced in the reasons recorded by the Income-tax Officer. The Tribunal thus was clearly of the view that the Income-tax Officer at the time of original assessment had considered the debit balances in the accounts of only 3 persons, that is, Shri H.C. Golcha, Shri R.K. Golcha and Shri R.K. Golcha and Sons, while the audit party had pointed out the names of 8 parties to whom interest free advances were given. None of these accounts was considered by the Income-tax Officer at the time of original assessment. It was further observed by the Tribunal that in the reassessment order passed by the Income-tax Officer, he had referred to as many as 15 accounts on which no interest was charged by the assessee, though huge amount was borrowed for business purposes, but not utilised. Total debit balance in the 8 accounts mentioned in the audit note was Rs. 16.8 lakhs over and above the debit balance of Rs. 8,47,274 considered by the Income-tax Officer at the time of original assessment. The Tribunal thus was clearly of the opinion that it was a case of receiving subsequent information by the Income-tax Officer which was not considered by him at all at the time of the original assessment. The audit note which only pointed out certain facts was subsequent information within the meaning of Section 147(b) of the Income-tax Act The assessee then filed an application under Section 256(1) for making the reference to this, court which was dismissed by the Tribunal by order dated December 20, 1982.

(2.) MR. Keshote, learned counsel for the assessee submitted that the Hon'ble Supreme Court in Indian and Eastern Newspaper Society v. CIT, 1979 119 ITR 996 has held that any legal opinion given by the audit party cannot form a basis for reopening the assessment proceedings under Section 147(b) of the Act. MR. Keshote contended that in the present case a legal opinion had been given by the audit party that though the assessee had given interest-free advances to various parties, it had paid huge amounts by way of interest to creditors and banks.