1. These appeals are by the department pertaining to the assessment year 1976-77. The point in issue in all these appeals is similar. So all the appeals were heard together and are being disposed of by a common order.
2. The facts of the case are not in dispute. So it is not necessary to state the facts in detail.
3. For the purpose of deciding the present controversy it would be sufficient to state that all the assessments were completed on 8-7-1976. In the assessments completed under Section 172(4) of the Income-tax Act, 1961 ('the Act'), the freight income was converted into rupees at Rs. 7.29 per US dollar. The ITO has adopted the said freight income in view of Rule 115 of the Income-tax Rules, 1962 and the existing instructions issued by the Board Circular. After the completion of the assessment orders, the ITO had information in his possession that the Board issued revised instructions on 10-3-1978 and on the basis of such instructions the exchange rate on the basis of Rule 115 was to be adopted at Rs. 7.50 per US dollar.
4. Consequently, on the basis of such aforesaid information, the ITO issued notices under Section 147(b) of the Act.
5. Before the ITO in reassessment proceedings, on behalf of the assessee, it was contended that there was no information in the possession of the ITO as required under Section 147(6) and as such the ITO has no jurisdiction to start the proceedings under Section 147(6).
6. The ITO after considering the contentions of the assessee and material on record was of the view that the instructions issued by the Board subsequently was information within the meaning of Section 147(6). The ITO was of the view that on the basis of information in his possession he has reason to believe that income has escaped assessment.
Consequently, he held that initiation of proceedings under Section 147(6) was valid. Accordingly, he completed reassessment proceedings in question.
7. Being aggrieved with the order of the ITO, the assessee took the matter in appeal. Before the learned Commissioner (Appeals), inter alia, it was contended that at the time of original assessments both the CBDT and the Income-tax Department were aware about the provisions of Rule 115. The ITO completed the assessment on the basis of the material available. Subsequently the ITO on the basis of the same material is not competent to increase the freight earnings. According to the appellants it would be only a change of opinion. The learned counsel also contended that really there was no information in the eye of law on the basis of which completed assessments could be reopened under Section 147(6) of the Act.
8. The learned Commissioner (Appeals), after considering the contention of the assessee and the material on record, was of the view that there was no new information received by the ITO after completing the original assessment order and as such the initiation of proceedings under Section 147(6) were bad in law. The learned Commissioner (Appeals) also was of the view that revised instructions of 1978 would not constitute information within the meaning of Section 147(6). The learned Commissioner (Appeals) mainly relied on the ratio of the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 1TR 996. Consequently, the learned Commissioner (Appeals) held that the reassessment orders were bad in law. Consequently, he cancelled all the reassessment orders.
9. Being aggrieved with the order of the learned Commissioner (Appeals) the department is in appeal before the Tribunal. In all the appeals the contention of the revenue was that the learned Commissioner (Appeals) erred in cancelling the reassessments made by the ITO under Section 147(6)/148 of the Act. It was also submitted that the learned Commissioner (Appeals) erred in coming to the conclusion that the Board's revised instructions containing the specific directions to the ITO with reference to the application of Rule 115 did not constitute a valid information to the ITO for starting proceedings under Section 147(6). It was also contended that the learned Commissioner (Appeals) was quite wrong in coming to the conclusion that there was no fresh information in the possession of the ITO at the time of starting proceeding under Section 147(6). The learned departmental representative contended that the learned Commissioner (Appeals) did accept the facts that the Board issued instructions in 1978 interpreting Rule 115. On the basis of the revised instructions issued by the CBDT the exchange rate of per US dollar was Rs. 7.50 as against the exchange rate of Rs. 7.29 interpreted by the Board in its earlier instructions issued in 1972. Thus, it is clear that the ITO at the time of starting proceedings under Section 147(6)/148 had fresh material in his possession. In the present case, the Board only gave its opinion regarding interpretation of Rule 115. The suggested interpretation of the said rule do not enjoy the status of law. Such suggestion was only opinion and the ITO has every right to consider such opinion and after considering such opinion he can always reason to believe that on the basis of fresh information there was escapement of income. Thus, the learned departmental representative further contended that the directions given by the Board from time to time are binding on the income-tax authorities as provided in Section 119 of the Act. in support of this contention the reliance was placed on the ratio of the decision in the case of Navnit Lai C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC) wherein it is held that the circular issued by the Board would be binding on all officers and persons employed in the execution of the Act. In those decisions it was also held that the ITOs are bound to follow the instructions issued by the Board. The learned departmental representative further pointed out that even the decision of Indian & Eastern Newspaper Society's case {supra) relied upon by the learned Commissioner (Appeals) is not against the department. In that decision the Supreme Court made it clear that the Ministry of Law and the Board of Revenue can always give opinion and bring certain facts to the notice of the income-tax authorities. In the present cases, at the most, it can be said that the Board by issuing fresh instructions in 1978 brought certain facts to the notice of the ITO. The ITO after considering such facts has every right to start proceedings under Section 147(6)/ 148. The learned departmental representative further contended that in the present cases revised instructions issued by the Board were only an interpretation of Rule 115. So it was the opinion of the Board. The ITO has every right and authority to consider such opinion and after considering such opinion he can always reason to believe that on the face of the fresh information there was escapement of income. The learned departmental representative also relied on the decision of the case in CIT v. A. Raman & Co. [1968] 67 ITR 11 (SC).
Thus, it was contended that initiation of proceedings under Section 147(&)/148 by the ITO in the present cases was perfectly legal and the finding of the learned Commissioner (Appeals) to the contrary is not correct.
10. On behalf of the respondent written submissions were received stating that the matter may be decided on merit. We have also received telegram in which request was made that all the appeals may be decided on merit. Under the circumstances we will have to decide all the appeals on merit.
11. We have heard the learned departmental representative and perused the entire material on record. For the sake of clarity we may point out that the ITO on the basis of the instructions issued by the CBDT, in 1972 has adopted the exchange rate per US dollar at Rs. 7.29. Rule 115 reads as under : The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.
The ITO on the basis of standing instructions issued by the Board determined the exchange rate of US dollar in rupee in accordance with Rule 115. According to the instructions issued by the Board the exchange rate at the time of completing the assessments was Rs. 7.29 per US dollar. Subsequently the Board issued instructions in 1978 and on the basis of such instructions it was directed that exchange rate of per US dollar in rupee should be Rs. 7.50. So the revised instructions were fresh material before the ITO at the time of starting proceedings under Section 147(6). The finding of the learned Commissioner (Appeals) to the contrary that the ITO was not having any fresh information in his possession at the time of proceedings under Section 147(6) is factually incorrect.
In the decision of A. Raman & Co.'s case (supra) the Supreme Court has defined the expression 'information', in Section 147(6), 'as instructions or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment'.
12. We may point out that so far as the word 'information' means instructions or knowledge concerning facts or particulars, there is difficulty. By its inherent nature a fact has concrete existence. It influences the determination of an issue by the mere circumstance of its relevance. Its quintessential value lies in its definitive vitality.
13. In the decision of Indian & Eastern Newspaper Society's case (supra) the Supreme Court observed as under : ... A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. . .
14. In the said case the Supreme Court cleared that although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing and its communication is another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying Section 147(6) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. It also further made it clear that an internal audit party of the income-tax department or even the Law Ministry can always bring to the notice of the proper authorities certain facts. If the ITO, after considering such opinion and facts, has reason to believe that on the basis of the information in his possession there was escapement of income, he can always successfully reopen the assessment under Section 147(6).
15. In our opinion, in the present cases, the learned Commissioner (Appeals) was quite wrong in holding that the ratio of the decision in Indian & Eastern Newspaper Society's case (supra) is against the department.
16. The Board has authority to issue instructions to the Income-tax Department regarding exchange rate of US dollar in terms of rupee. Rule 115 does not specify such exchange rate. The Board under its authority has right to issue instructions directing the income-tax authorities to adopt the exchange rate. Initially the ITO on the basis of the standing instructions issued by the Board has taken exchange rate of per US dollar at Rs. 7.29. Subsequently the Board issued directions and on the basis of such instructions the exchange rate was to be taken at Rs. 7.50 per US dollar. Such instructions could definitely be an information within the meaning of Section 147(b). Section 119 clearly provides that the Board from time to time can issue orders and instructions to the income-tax authorities and such instructions or directions shall be binding on the income-tax authorities. The highest executive authority is the CBDT which is constituted under the Central Board of Revenue Act, 1963. It has powers to make rules and to issue orders and instructions to officers and persons employed in the execution of the Act. There are two exceptions to this rule. Firstly, it cannot interfere with the discretion of AAC/Commissioner in the exercise of their appeal (sic) judicial function and, secondly, it cannot direct the ITO or any other income-tax authorities to make particular assessment in particular manner. In the decision of Navnit Lal C. Javeri's case (supra) the Supreme Court clearly held that the circular issued by the Board would be binding on all officers and persons employed in the execution of the Act. The ratio of this decision was followed by the Supreme Court in the decision of Ellerman Lines Ltd.'s case (supra) was again followed by the Supreme Court in the case of K.P. Varghesev. ITO [1981] 131 ITR 597. In view of the said decisions it is firmly established that circular issued by the CBDT under Section 119 is binding on all the officers and persons employed in execution of the Act even if they are contrary to the provisions of the Act. The question which arose in Navnit Lal C. Javeri's case (supra) was in regard to the constitutional validity of Section 2(6A)(e) and 12(1B) which were introduced in the Indian Income-tax Act, 1922 ('the 1922 Act') by the Finance Act, 1955, with effect from 1-4-1955. Thus, two sections provide that any payment made to shareholders as advance or loan to the extent to which the company possess accumulated profit shall be treated as dividend taxable under the Act and this would include any loan or advance made in any previous year relevant to any assessment year prior to the assessment year 1955-56. If the first loan advance remained outstanding on the first day of the previous year relevant to the assessment year 1955-56 (sic).
The constitutional validity of these two sections was assailed on the ground that they imposed unreasonable restrictions on the fundamental right of the assessee under article 19(1)(/) and (g) of the Constitution by taxing outstanding loans or advances of past years as dividend. The revenue relied on a circular issued by Central Board of Revenue under Ssection 5(8) of the 1922 Act, which corresponded to Section 119 of the 1961 Act, and this circular provided that if any such outstanding loans or advances of past years were repaid on or before 30-6-1955, they would not be taken into account in determining the tax liability of the shareholders to whom such loans or advances were given. This circular was clearly contrary to the plaln language of Section 2(6A)(e) and Section 12(1B), but even so the Supreme Court held that it was binding on the revenue and since 'past transactions which would normally have attracted the stringent provisions of Section 12(1B) as it was introduced in 1955, were substantially granted exemption from the operation of the said provisions by making it clear to all the companies and their shareholders that if the past loans were genuinely refunded to the companies, they would not be taken into account under Section 12(1B)'. Section 2(6A)(e) and 12( 1B) did not suffer from the vice of unconstitutionality. This decision was followed in Ellerman Lines Ltd.'s case (supra), where referring to another circular issued by Central Board of Revenue under Section 5(8), on which reliance was placed on behalf of the assessee, the Supreme Court while deciding the said case observed as under : Now, coming to the question as to the effect of instructions issued under Section 5(8) of the Act, this Court observed in Navnit Lal C. Javeri v. K.K. Sen, A AC 'It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under Section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.' 17. The directions given in that circular clearly deviated from the provisions of the Act, yet this Court, i.e., the Supreme Court held that the circular was binding on the ITO.18. The two circulars of the CBDT referred to above must, therefore, be held to be binding on the revenue in the administrative or implementation of Sub-section (2) of this section must be read as applicable only to cases where there is understatement of the consideration in respect of the transfer.
19. If we consider the present facts of the case in the light of the ratio of the decision referred to above, we are of the view that the instructions in the present cases issued by the Board subsequent to the completion of the assessment orders were binding on the ITO and he was under obligation to act upon such instructions. As a matter of fact the Board by interpreting Rule 115 expressed its opinion that exchange rate of US dollar in terms of rupee should be taken at Rs. 7.50. The ITO after considering such instructions has reason to believe that there was sufficient information in his possession which would go to show that there was escapement of income in the present cases.
20. In the present cases the information came from a source which has an element of authority behind it.
21. We may point out that for reopening completed assessment under Section 147(6) two conditions must be satisfied. Firstly, the ITO must have information which comes into his possession subsequent to the making of the original assessment order and, secondly, the information must lead to a belief of the ITO that income chargeable to tax has escaped assessment or that it has been underassessed or assessed at too low a rate or has been made the subject of excessive relief. Thus, information is of basic foundation for reopening the assessment under Section 147(6).
22. For the reasons discussed above in the present cases after completion of the assessment orders, the ITO had information in his possession. After considering such information he has reason to believe that there was escapement of income as a result of the original assessment orders. The ITO after considering such material applied his mind and he has reason to believe that on the basis of the information in his possession there was escapement of income. Thus, we are of the view that initiation of proceedings under Section 147(6) made by the ITO was quite correct. The learned Commissioner (Appeals) was wrong in holding that proceedings under section 147(6)/148 were bad in law.
Consequently, the order passed by the learned Commissioner (Appeals) deserved to be cancelled. Accordingly, it is cancelled. As a result of this order the matter shall go back to the Commissioner (Appeals) for deciding the appeals on merit.